Last year, 350,000 Americans bought a long-term care insurance (LTCi) policy, and over 7 million people currently maintain a policy. This is a fairly low adoption rate given that there are over 80 million Americans who are age 55+. Recent data from the American Association for Long-Term Care Insurance (AALTCI) reveals some interesting facts about long-term care insurance policies and policyholders. The information is based on responses to the 2019 AALTCI annual price index survey of leading LTC insurers and shows why LTCi can be quite valuable when needed, even with the increasing premiums we’ve seen over the past few years.
The annual cost of LTCi
Unlike most other types of insurance policies, the average annual premiums for LTCi are usually higher for women since women typically live longer than men and are thus more likely to require long-term care services (and potentially for a longer period of time). In 2019, for people age 55 and in good health, the average annual LTCi premium for a single male is $2,050, and for a single female, it is $2,700. For single 60-year-olds in good health, the average yearly cost for a male is $1,925, and for a single female, it is $3,050.
For couples, there are some economies of scale when it comes to the cost of LTCi. In 2019, the average annual premium for LTCi for a couple where both people are 55 years old and in good health totaled $3,050 (combined for the couple). For a couple age 60, the average annual premium was $3,400 combined.
LTCi claims payments
The most common age for LTCi claims to begin is between 86 and 90 (27.2 percent), followed by age 81 to 85 (25 percent). Only 17.5 percent of claims are paid to insured who are 91 or older.
Over half (51.5 percent) of LTCi claims begin as payment for home care services with the other half almost evenly split between assisted living (24.5 percent) and nursing care (23 percent). Interestingly, claims end with a fairly similar breakout, with 43 percent covering home care costs, 29.5 percent covering nursing care, and 26.5 going to assisted living costs.
In 2018, LTCi claims paid $10.3 billion to over 303,000 claimants, for an average claim of around $33,000. (It’s important to recognize that this represents the average claim per year, and not per person. Many of those claimants may have had another claim in 2019 and potentially additional future claims.) That’s up from 2017 when 295,000 claimants received $9.23 billion in LTCi benefits, and 2016 when $8.56 billion was paid to 280,000 claimants. Sixty-four percent of claims in 2018 were paid to female insureds, again, explaining in part the higher annual premiums paid by women for LTCi.
What was especially striking to me, however, was the largest LTCi claims paid. One LTC insurer has paid a female claimant a total of over $2,329,333 during a 16-year, 6-month time period. Another LTCi company has paid over $2.6 million total to a female claimant over the course of 15 years and 4 months. Although these represent the highest claims paid among thousands of claims, it still shows how the costs of care could easily deplete one’s estate when extended long-term care services are needed.
>> Related: 4 Ways to Pay for Long-Term Care Services
LTCi policy considerations
If you are considering a LTCi policy, here are a few things to keep in mind. First, while many LTCi policies have a fixed rate for their annual premium (meaning payments will be the same amount year after year), the average annual cost of purchasing a new LTCi policy does increase as you get older, as noted in the pricing examples above, or if you have health issues.
However, keep in mind also that some LTCi premiums are considered a medical expense. With the most recent tax law changes, more people are claiming a standard deduction. But for those who itemize their taxes, tax-qualified LTCi premiums are deductible to the extent that they exceed the Adjusted Gross Income (AGI) deduction threshold, which is currently 7.5 percent for those age 65 and older, and 10 percent for those under age 65. (See related IRS information)
Also, you can still use long-term care insurance in a continuing care retirement community (CCRC, or life plan community) when receiving qualifying services. It works great with fee-for-service (Type C) contracts, but it can even be used to offset the monthly rate in a community with Type A or B contracts.
You’ll want to find out how, or if, your LTCi policy specifically classifies continuing care retirement communities (CCRCs). And in the case of a lifecare (Type A) contract, ask the retirement community how much of each month’s payment can be submitted for reimbursement from your long-term care insurance policy. This last part piece is only relevant if you have a reimbursement policy. If you have a cash-benefit policy, then it isn’t relevant.
Obviously, when it comes to LTCi policies and CCRC costs, the devil is in the details, and it depends a great deal on the type of policy and potential community-level stipulations. Thus, be sure you understand the terms of both your LTCi policy and your CCRC contract so you can make an informed decision about which policy and/or contract-type is best for you.