Nursing home insurance, more commonly referred to as long-term care insurance, is an insurance policy that is designed to cover some of the less pleasant moments in life, but these moments can sting a long less if you’re prepared for them. At a certain point, your loved ones won’t be able to take care of themselves, and they’ll need some extra assistance in the form of long-term care. This level of care can become costly, so getting coverage early can help a great deal. It becomes harder and harder to find a great long-term care policy as one ages.

Whether you’re here looking for information about long-term care for yourself, or for somebody else in your life, here are all of the basics that you need to know and understand.

What is Long-term Care Insurance? 

“About half of 65-year-olds today will eventually develop a disability and require some long-term care services, according to a study revised in 2016 by the Urban Institute and the U.S. Department of Health & Human Services.” (nerdwallet.com)

LTC insurance offers coverage to people who need long-term medical care, like you would find in a nursing home.

Long-Term Care, Nursing Homes, and Medicaid

According to Laura M. Krohn, an elder law attorney, “Most people pay out of their own pockets for long-term care until they become eligible for Medicaid. While Medicare is an entitlement program, Medicaid is a form of welfare—or at least that’s how it began. So to be eligible, you must become ‘impoverished’ under the program’s guidelines.”

If you can’t afford to pay out of pocket, or you’re just more comfortable having insurance than potentially paying for this yourself, then LTC insurance is a must-have. Medicaid is a government program for people who can’t afford the high cost of healthcare, but if you can afford a higher premium, then you may benefit from enhanced features and services. See also: What can you do if you can’t afford health insurance?

What is Nursing Home Insurance? 

Nursing home insurance is another name that people use to refer to long-term care, representing a more specific category of care (staying in a nursing home.) Some senior living facilities are meant for people who can survive with a more hands-off approach to care, offering support and help with small day-to-day tasks, but without as much of an emphasis on nursing services for aging adults. 

What Does Long-term Care Insurance Cover?

Plans can vary and some will have additional options for coverage. Your policy should be custom-tailored to your needs so that you aren’t stuck with bills you can’t afford to pay. It’s about finding a policy that will ensure you’re able to afford to pay for long-term care starting whenever you need it, but that you can also afford to pay for in the meantime without sacrificing any quality of life right now, to pay for it. To accomplish this, make sure you aren’t paying for extra tiers of coverage that aren’t relevant to your needs, shop around to find the best insurance rates, and be realistic when you’re creating your budget.

There are different types of nursing homes and care facilities, so this is where it’s important to really understand your plan and policy. Comprehensive coverage will take care of you or your loved one in a variety of settings, whereas some policies will be much more specific about exactly where you (or your loved one) will have to be staying. That is to say that not all long-term care policies are applicable to all types of facilities, and cheaper insurance may limit your options even more, so make sure that these limited options are still suitable for your needs and your wants.

People suffering from dementia or Alzheimer’s disease, along with other types of cognitive impairment, will require a different type of care facilities that is specifically equipped, and has staff who are trained, to handle these conditions. They become more and more common as people age, especially if they are common in your family’s history.

Health insurance, with a higher insurance premium, can include things like a private room, better health care, a home health aide, adult day care, skilled nursing, and more.

Long-Term Care Exclusions: Beware!

These are, historically, some exclusions that could enable insurance companies to not pay you. As a customer, it feels more like a loophole than an exclusion, and it causes a lot of animosity towards insurance companies when someone has been paying into a plan for years or even decades, and when they finally need it, the insurance company finds an exclusion to use to deny their claim. This is why you need to read the fine print and always understand what you’re signing up for. If an agent tells you anything, get it in writing and keep it for your records. Thankfully, these types of exclusions are becoming less common. In the past, for example, your policy may state that you require a certain amount of days of hospitalization to occur right before your entrance into a long-term care facility, but many long-term care visits don’t necessarily start with a visit to a hospital.

Some states continue to allow tricky exclusions like this, which can be downright heartbreaking when you’re trying to arrange care for a loved one, who thought they were doing all the right things by having insurance. Long-term care is costly, and we want our loved ones to get the best possible care that they can, so hearing that the insurance company is working to exclude a loved one is never good. These practices have been banned in certain states, but not in other ones. Ask about any exclusions that may exist within an insurance policy before signing, make sure you’re okay with them, and always shop around to see what other providers are offering to compare.

Is Nursing Home Care and Long-Term Care Insurance Worth It?

As with any types of insurance coverage and policies, it’s essentially a gamble. Will you end up spending more in premiums than you end up getting back? On average, that’s the case, otherwise insurance companies would go out of business. When it comes to insurance for expensive costs like long-term care, don’t think of it like getting your money back or not, just think of it as the monthly price that you pay to ensure that you’re able to afford this when the time comes. While it’s entirely possible that you would be better off, on average, by just putting money in the bank each month, that in and of itself is a pretty big gamble to place. It’s not necessarily about coming out “on top” from your insurance, it’s about the peace of mind and having a fixed cost, and not risking more than you can afford to lose by being uninsured.

Independent caregivers can be a more economical option for people who are still staying in their homes in particular.

If you are able to afford the costs of long-term care, and your retirement income is stable enough to weather the storm even if the markets take an unfortunate dip at the wrong time, then you may not need to purchase this type of coverage. It’s not for everyone. It’s ideal for people who can afford the monthly/yearly cost of premiums, but don’t want to let unexpected costs eat into their financial legacy or to put too much of a burden on their budget.

Have a Plan If You Don’t Have Coverage

If you run the numbers and decide that you won’t need nursing home insurance, you will need a plan, either way. Just having a bunch of money in the bank and hoping for the best isn’t a plan. You need to know what it’s going to cost, each month, for various levels of care to ensure you’re comfortable in your golden years. Paying for this type of insurance isn’t always going to be the correct financial decision for everyone’s unique situation, but everybody needs to have a plan in place for aging and the costs that come with it. Factor in the fact that prices are always increasing, and that there is inflation, etc. It has been recommend that a rough rule of thumb is that if you are able to live on 4% or less of your savings, each year, then you could get by without insurance. If you use more than 4-5% of your total savings, each year, on living expenses – then perhaps it’s time to think about LTC insurance policies? Also, if your budget could use a boost, check out these places that offer senior discounts.

How much does long term care insurance cost?

The only way to know what long term care insurance costs for you is to request information about a particular policy. They will factor in things like your health, your age, where you live, and more – and the insurance companies will be able to give yo quotes. You can shop around and find the best deal, but you need to factor in the fact that you aren’t always comparing apples to apples and oranges to oranges, because plans can vary, and one little line of fine print can be the difference between getting your coverage when the time comes, or having your insurance claim denied.

Premiums for LTC policies average $2,700 a year, according to the industry research firm LifePlans. (aarp.org)

That may seem like a lot to spend each year, but if you look up the costs of nursing homes and other types of long-term care on their own, without insurance, you’ll see why. Ultimately, many adults end up needing this type of care, it’s not a very rare thing, so that means many people will be claiming these insurance benefits, which means the premiums have to cost more to make up for that. In the long run, you’ll have to decide whether you can afford to keep that money in our savings, or if it’s wiser to invest in insurance and to know that you won’t become financially ruined simply for trying to exist in the type of facility that you require.