Most Americans Don't Know What Long-Term Care Insurance Covers

Most Americans will need long-term care as they age, but a recent survey shows very few people are clear on what they’ll need to cover the expenses related to this kind of support.

A study from insurance company Nationwide and trade group LIMRA shows that among the roughly 1,400 respondents surveyed, many didn’t seem clear on the meaning of long-term care insurance. While 18% of respondents said they believed they had a policy, 15% of self-reported policy owners subsequently said they were unsure whether they had coverage after being shown a definition of long-term care.

In fact, more than half of respondents who were unsure about their coverage acknowledged that they may have mistaken long-term care insurance for long-term disability insurance, and almost 30% said they confused it with health insurance.

Overall, those who reported owning a policy scored an average of 59% on a knowledge test about long-term care insurance. As life expectancies increase and the population of older Americans expands, this lack of information and preparation concerning long-term care may lead to more than just financial consequences for aging people in need of support.

What is long-term care?

Long-term care insurance is increasingly becoming an essential component of retirement planning. The Administration for Community Living, an office of the U.S. The Department of Health and Human Services, estimates that someone turning 65 today has a nearly 70% chance of needing long-term care in the future.

Long-term care is any service intended to help people with a continuous need for health and/or personal care. These services can range from medical support like administering insulin injections or assistance with daily tasks such as bathing and dressing. Someone with permanent mobility issues, for example, may need this kind of assistance for the rest of their lives, while others may only benefit for a few years following an accident or medical incident.

The setting in which long-term care is delivered is also situational — some people may receive assistance from a family member or home health aide, but many will require higher-level custodial care in a licensed health care institution like a nursing home or rehab center.

Do I really need long-term care insurance, and what does it cost?

Regardless of need, long-term care services can be expensive. The U.S. median annual cost of a private room in a nursing home without insurance is roughly $9,034 a month, according to a 2020 report from life insurance company Genworth. The median cost for an assisted living facility is over $54,000 annually, and a home health aide is almost $62,000 a year.

For many older people on a fixed income, and even their relatives who may provide financial support, these costs are too exorbitant to pay out-of-pocket. Long-term care insurance is specifically designed to help cover these costs, and you won’t find the same coverage with other types of insurance.

Long-term disability insurance is meant to supplement a working person’s income while a disability temporarily prevents them from working, so this kind of policy doesn’t provide benefits to people over 65. Medicare doesn’t pay for long-term care either, which can leave older people without coverage for expensive services when they’re at their most vulnerable. Medicaid can pay for long-term care expenses, but only for lower-income people who can show financial need.

Although some public and private employers offer group long-term care insurance, including the federal government and some state governments, most people purchase their own policies, according to the Association for Community Living. But even when employers do offer this benefit, they don’t usually pay the premium cost, so employees must pay the premium in full.

That said, if you’re still working, it’s best to see if your employer offers more affordable long-term care coverage compared to what it would cost to purchase a single policy. Whether you choose group insurance or purchase a policy independently, your premium costs will depend on your age, gender, health, policy type and the coverage you select.

According to the trade organization American Association for Long-Term Care Insurance, the average annual premium for a single man in 2021 with a policy valued at $165,000 would be $950 on average. At 65, a single man would pay an average of $1,700 annually for the same level policy. The association says that the ideal time to purchase long-term care insurance is in your mid-50s, when you are hopefully in good health and can secure discounts and lower premiums.

Even if you’re below retirement age, healthy and plan to continue working for the foreseeable future, chances are you will eventually need long-term care in retirement. It’s ultimately up to you to decide whether you want to purchase coverage for potential long-term care costs — but be aware that certain circumstances, like developing Alzheimer’s, can mean that you’ll pay a lot more for a policy (or won’t qualify at all) down the line.

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