I Was Quoted $2,000 Per Year for Long-Term Care Insurance. Is That Too Much?

Eric Reed

Long-term care insurance is an important way to mitigate risk in retirement. Unexpected health issues and the related costs can take over a retiree’s financial life if they don’t have a plan to pay for costs of care. The cost of such a policy will depend on a handful of factors – including your age and coverage level – so whether you should accept a $2,000 annual premium depends entirely on your personal profile.

If you are buying early, this price might be a little high. In your 50's, a policy can cost between $1,000 and $2,000 per year depending on what you need according to data from the American Association for Long Term Care Insurance.

If you waited until retirement, this price is quite low. In your 60's and 70's a long-term care insurance policy can cost between $2,000 and $4,500 per year depending on your various coverage options.

Planning for all of your retirement needs early can have a big impact on your finances. Talk to a financial advisor today to build a personal plan.

What Is Long-Term Care Insurance?

Long-term care insurance is a policy that pays for ongoing support services.

Most often long-term care will pay for either in-home assistance, such as a visiting nurse, or stays in a medical facility, such as assisted living or a nursing home. Most people need insurance, Medicaid or some other source of funds to pay for this. Depending on the nature of your services, long-term care can cost between $5,000 and $8,000 per month plus additional expenses.

For Many Policies, $2,000 Is Very Reasonable

All of this returns to our headline question, is $2,000 per year a reasonable price for long-term care insurance?

The answer is, it depends. Returning to the data from the American Association for Long-Term Care Insurance, a few average policy prices for representative profiles include:

  • Age 55, Single Male, $165,000 Coverage, No Inflation – $900/year

  • Age 55, Single Female, $165,000 Coverage, No Inflation – $1,500/year

  • Age 55, Single Male, $165,000 Coverage, 2% Inflation – $1,650/year

  • Age 55, Single Female, $165,000 Coverage, 2% Inflation – $2,725

So, say you are a woman in her 50's who would like a policy that adjusts for benchmark inflation. With that profile, $2,000 per month is a good deal. On the other hand, $2,000 per year is somewhat overpriced for a similarly-situated man.

Then there are the prices if you wait until retirement age:

  • Age 65, Single Male, $165,000 Coverage, No Inflation – $1,700/year

  • Age 65, Single Female, $165,000 Coverage, No Inflation – $2,700/year

  • Age 65, Single Male, $165,000 Coverage, 2% Inflation – $2,600/year

  • Age 65, Single Female, $165,000 Coverage, 2% Inflation – $4,230/year

Here, your $2,000 offer is almost certainly a good deal unless you are a man who does not want to index their benefits to inflation, which is likely a bad decision.

Long-term care insurance is a key part of retirement planning. It's expensive, but the care it covers can be essential. While it might be hard to budget for this insurance in retirement, it will be even harder to budget for the nursing home itself.

Talk to a financial advisor today about your long-term care insurance needs.

What Sets the Price of Long-Term Care Insurance?

Long-term care is priced based on the same underlying logic as all health insurance. The more services you need, and the sooner you will need them, the higher your premiums will be. Some of the most important factors include:

  • Your age when you buy the policy

  • Your life expectancy

  • Amount of coverage

  • Inflation adjustment of coverage

  • Your state and its health care costs

The earlier you purchase care the cheaper your premiums will be, because you will hold the insurance longer before using it. The longer your life expectancy, the higher your premiums because you will likely use more care overall. For this reason, long-term care is generally more expensive for women than for men because women have longer life expectancies.

Long-term care covers your costs up to a limit, and the higher this coverage limit the more expensive your policy will be. An average policy offers $165,000 in coverage. For an additional premium you can have that coverage indexed to inflation. This will increase the coverage at a set rate each year so the policy retains its spending power.

Inflation adjustment is, generally, essential.

Finally, your state and region will determine the costs of your overall care. For example, according to New York Life Insurance, it costs an average $8,071 to stay in an assisted living facility in New York City. That same stay in a rural area of North Dakota would cost $3,179. This will determine the amount of coverage you need, as well as policy requirements and prices.

A financial advisor can help you determine an appropriate premium.

Bottom Line

Long-term care insurance is expensive, and for many people $2,000 is a very good price. Let's break down how these policies work, and what you should pay.

Health Insurance Tips

Photo credit: ©iStock.com/Inside Creative House

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