What is Long-Term Care Insurance?

Long-term care insurance is a form of medical insurance where the purchaser pays premiums in exchange for certain benefits related to long-term care. The benefits vary from policy to policy. Benefits can include a daily amount for nursing home or assisted living care, home care, or day programs for the elderly. Insurance policies also differ on the waiting period before payments begin, the amount paid per day, and the length of time the policy covers. The average long-term care policy covers 2 - 5 years, and the purchaser can use that time all at once or for short-term care as needed.

Most long-term care policies sold so far have been private insurance purchased by individuals. Now more employers have begun to sponsor long-term care plans, though the employers usually don't contribute to the plans. The federal government created the Federal Long Term Care Insurance Program in 2002, which allows federal employees, retirees, and some family members to purchase long-term care coverage through the federal government. These plans may require lower premiums and will cover people with health problems that would cause them to be denied individual coverage.

Cost of long-term care insurance differs widely depending on several factors. The most important factor is the age of the purchaser. It's most economical to buy this insurance when the purchaser is in his or her 40s or 50s. After that the premiums will increase approximately 8 - 9% a year, so that a person who waits till the late 70s to purchase the insurance may have to pay an annual premium of over $6,000.

The health of the purchaser is also an important factor. The insurance companies are less concerned with conditions that can kill the purchaser, but they are very concerned about mental deterioration that may require care for many years. Some purchasers with health problems are denied coverage and others are charged high premiums. Younger purchasers are less likely to be disqualified for health reasons.

The benefits of the policy will also affect the costs. The most significant policy provision affecting costs is an automatic inflation increase in the amount paid per day of care. Though this provision increases premiums, purchasers without it will often find that the policy amount isn't enough to cover the cost of long-term care when they finally need it. Annual premiums can range from around $250 for younger purchasers to over $6,000 for those already elderly.