Does long term care insurance pay for assisted living? This could be a million-dollar question… or a several-thousand-dollar question, depending on your insurance coverage, and how comprehensive your retirement planning is (more on those details later).
If you’ve made it onto our blog today, you’re in luck, as we have prepared a special Q&A with Greg Liszka (CFP®, RICP®), President & Advisor at Iron Point Financial, to walk you through this question and a bunch of related queries too— all in the name of helping you create a cost-effective retirement plan that matches your life goals.
So without further ado, let’s dive in…
Q1: Does Long Term Care Insurance Pay for Assisted Living?
Greg’s Answer:
“Some policies do, yeah. And a lot of them pay for in-home care specifically. That’s because they would rather keep you in your home than have to pay for a full-blown assisted living facility or a nursing facility.”
In essence, it depends on your policy, and how your life circumstances line up with what those policies call “benefit triggers.”
“Oftentimes, the trigger is that you can’t do two of the five activities of daily living (‘ADL’), like feeding yourself, dressing yourself, being able to walk around (mobility), bathing yourself — those types of activities. So if you need help with those, that’s when your long-term care policy will kick in.”
There are plenty of different ways insurance providers can structure those forms, but those ADL triggers are pretty consistently featured. Like Greg mentioned, the other common denominator is that those insurance companies strongly prefer to pay for at-home care because that’s cheaper for them.
What’s the difference between in-home care and assisted living?
- In-home care is exactly what it sounds like: you, the care recipient, stay at home, and receive care from medical professionals who come to visit you at certain times of the day to help you with any of the “five activities of daily living” you need assistance with.
- Assisted living is different in that it usually involves moving to an exclusive assisted living facility: a dedicated care building where you would still have your own room or apartment and live semi-independently but where you would also have access to on-site medical staff as and when you need them (again, for help with the five ADLs).
What does long term care insurance cover?
As Greg indicated, each policy is different, but generally speaking, long term care insurance can cover assistance with any of the following:
- The Five Activities of Daily Living (ADL):
- Bathing (washing yourself);
- Dressing (getting changed into different sets of clothes);
- Feeding (eating and drinking food and liquids for daily nutrition);
- Excreting (going to the bathroom to release urine and fecal matter); and
- Mobility (being able to get in and out of bed, into and out of chairs, etc.).
How much money could long term care cost?
Hypothetically speaking, let’s assume that you are currently in your mid-fifties, and that you won’t need long term care for another 15 or 20 years. At the time of writing, it’s 2025, so that time frame would bring us up to 2040 at the earliest.
According to Genworth’s Cost of Care Survey Tool, long term care in 2040 could cost you anything from ~$110,000 per year for a space in an assisted living facility all the way up to ~$230,000 per year for a private room in a nursing home facility.
So, to take the more expensive option further, if you were paying full price for a private home in a nursing facility for four years, you would end up paying almost $1 million in that time; that is, if you paid out of pocket.
Like we said at the very beginning, “Does long term care insurance pay for assisted living?” could be a million-dollar question, or it could be much cheaper for you, if you qualify and sign up for long term care insurance in time, and pay your premiums up until those ADL triggers kick in.
How much money could you save with long term care insurance?
The American Association for Long Term Care Insurance estimates that, in 2022, for the average, single 55-year-old male American on a $165,000 policy, the annual premium would start as low as $950 per year. For single 55-year-old women on the same policy, the annual cost could be as low as $1,500 per year.
So, taking our 15-year example further, the average American man who signed up for a long term care insurance policy in 2022, at the age of 55, could expect to pay a total of around $14,250 in premiums until they hit 70 years old — but if any benefit triggers kicked in at that age or before, their insurance would cover the total yearly cost of long term care (e.g. the $110,000 we mentioned for a room in an assisted living facility).
In other words, $14,250 over 15 years is much cheaper than paying $110,000 or even $230,000 in a single year, and this is exactly why long term care insurance can be so enticing and helpful as part of an effective retirement plan.
Q2: When is it too late to get long term care insurance?
Greg’s Answer:
“There are different products, and the industry has changed a lot over the years, so there are certainly different solutions, but you really don’t want to be looking at long-term care insurance when you’re 70. The chances of you actually getting it at that age are slim to none, and if you do, it’s going to be so expensive that it’s probably not worth it.”
What else could disqualify you from long term care insurance coverage?
The simple answer is that you will often be denied coverage or quotes if you have a pre-existing medical or mental health condition of some kind. More specifically, insurance companies could deny coverage if you struggle or have been diagnosed with any of the following:
- Alcoholism (specifically, present-day, ongoing alcoholism);
- Drug Addiction (aside from being illegal in most cases, this can also come with a host of unwelcome health outcomes that insurers steer clear of — e.g. infected needles, weakened immunity, etc.);
- Self-Harm Disorder (If a psychologist has diagnosed you as a risk to yourself, you may be denied coverage given the potential for self-inflicted medical issues rather than normal ADL-related help);
- AIDS Diagnosis (Sadly, an AIDS diagnosis means a much higher risk of imminent mortality, as well as expensive medical treatment);
- Recent Stroke (Depending on the severity of the stroke, symptoms can be much more severe than long term care insurance typically provides for);
- Certain Cancer Diagnoses (especially for late-stage, untreatable or hard-to-treat cancers, given the timeline involved); and
- Other Pre-Existing Medical or Mental Health Issues.
From the insurers’ perspective, it’s important that you spend several months or years paying your insurance premiums without triggering benefits. If they granted coverage to people with the above conditions, it is much more likely that they would have to pay out for large medical costs in the very near future, making that an unattractive financial equation for them.
If any of these issues did apply to you, it’s still possible you could find different insurance and treatment options elsewhere but, unfortunately, long term care insurance probably isn’t going to be much help.
Q3: So When Should You Sign Up For Long Term Care Insurance?
Greg’s Answer:
“We’re talking late 50s or mid-60s at the latest. It’s one of those things you want to prepare for ahead of time. If you look at it from an insurance company’s perspective… Let’s say, you’re 75. There’s a great chance that at 76 you will need it, and they’ve only been able to collect a few months of premium before they have to start paying out hundreds of thousands of dollars; they’re not interested in that.”
Much like we discussed in relation to the previous question — what can disqualify you from coverage — age is a major factor in the decision-making process for insurance companies. What that tells us is that significant forward planning could be helpful in getting ahead of this challenge… and that leads us to our next question.
Q4: Can Retirement Planning Help with Long Term Care Insurance?
Greg’s Answer:
“Depending on your unique situation, there could be a lot of different retirement planning strategies to consider. What assets are we talking about? What are we trying to protect? Maybe we’re talking about asset protection trusts. Maybe we’re just retitling assets out of your name. Maybe cover it with life insurance and just eat it.”
What that means is that long term care insurance could be a good solution for you, but there might also be other, more helpful, or complementary options out there, depending on your goals and the assets at your disposal.
And that’s where fiduciary financial planners like those at Iron Point Financial could help you both create a solid retirement plan and help you avoid huge, unnecessary medical costs. It’s a slightly different example (as it relates to nursing home care, not at-home care or assisted living), but Greg often encounters this scenario with his clients:
“If you go to a nursing home, and you don’t have any of these tools in place, you’re going to self-pay by default. And you will self-pay without help until everything’s gone.
Only then will the nursing home put you on Medicaid, which is not what the rules say has to happen. The truth is that you don’t have to spend everything and go broke. Instead, it’s about understanding the rules and then using the tools available.”
When you think about it in this light, the long term care insurance question really comes down to: what retirement planning tools are available, and what tools will serve me best in my current circumstances, with the goals I have?
When you consider these questions, it’s easy to say that retirement planning absolutely can help with long term care insurance — and plenty of other situations besides.
Q5: Why Is It Important to Make a Retirement Plan Today?
Greg’s Answer:
“Not too long ago, some older clients signed on with us. He got really sick during Covid, to the extent that he was in a hospice, on oxygen. Nobody would have bet on him pulling through, but he did. Mentally, he’s lost a number of years, and he recognizes that he cannot be the one making all the decisions, so his wife has stepped in.”
“She came in when he was sick: “I have no clue. I’m just finding random things: a box of gold coins in the closet — I didn’t know we had any gold coins! What do I do with that, Greg? I’m digging through our mail, trying to make sure we don’t have bills… How do you even write a cheque? That’s never been my thing. Where’s this money from? And how about that? I thought we had a hell of a lot more than we have. And I’m worried!”
“We helped her through that, and now that he’s recovered a bit, he came in so we could help them go through that transition together. Right now, what they want most in life is to sit on the porch and enjoy the sunset — to just love each other and be around one another.”
The moral of the story is: you never know how much time you have left, or what’s coming next. That’s just not something you can control. What you can do, however, is come up with a clear retirement plan — one that includes long term care insurance, and anything else you might need — so that you avoid the chaos and confusion this poor couple experienced during their time of medical emergency.
When you have a clear retirement plan in place that fits with your unique life goals — whether that’s enjoying the views from your porch or jetting off to warmer climates — you can rest easy knowing you have prepared for a number of different scenarios. We may not be able to cover everything, but we can come up with options that can help you deal with the most common issues we see clients face.
Partner with Iron Point Financial Today
At Iron Point Financial, we know what it’s like to wonder about the future and worry about what could happen. But we have also helped countless clients think through different scenarios so they can start moving towards their retirement goals with a clear plan.
If that’s something you would like to explore, why not reach out to schedule an appointment with us today, whether you want to talk about your long term care insurance options, or anything else you are curious about? Our team is ready and available to listen to you and help with all of your retirement planning needs.
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
