FAQ and Advice on Long Term Care Insurance

FAQ and Advice on Long Term Care Insurance


Why should I buy Long Term Care Insurance?

The majority of people will reach a point in their lives where they are no longer able to take care of themselves.  It may be from an illness such as Alzheimer’s or cancer or maybe from an accident such as a car wreck.  Advancements in modern medicine are keeping people alive longer which raises the risk of needing Long Term Care.   Americans over the age of 65 face a 45% risk of spending time in a nursing home.  A year in a nursing home now averages more than $80,000 in 2012 and can exceed $200,000 annually in some areas of the country, such as the Northeast and Coastal California.

What is the average daily benefit that most choose?

The average rate that most choose is based on the area of the country they live in.  That can range from $100 per day up to $250 a day.  It is important you consider the cost in your area before deciding on your long term care insurance benefits.

Beware: many insurance agents meeting you (at your kitchen table) may try to scare you with inflated cost of care figures when in reality a more modest level of coverage may be appropriate.

When choosing a long term care insurance company, there are a few important factors that you should consider.

  1. The first is the financial stability of the company. You might not use your policy for 20-30 years and you want to make sure your long term care insurance company will be around to pay your claims in the future.
  2. Competitive Pricing – a company that is priced competitively for your situation is important.
  3. Claims paying history of the company.  The major national “blue chip” companies like Genworth Financial, John Hancock, MetLife, Mass Mutual, Mutual of Omaha, and Transamerica are all companies that should be on your short list.

Is Long Term Care Insurance Considered Deductible by the IRS?

Long Term Care Insurance is a tax deductible expense in many situations.  Check with you tax professionals or Turbo-Tax.

Long Term Care Insurance advice

According to the current 2012 tax code, people who itemize tax deductions will qualify for their medical expenses to be deductible if the expenses exceed 7.5% of adjusted gross income (AGI). For an individual, the portion of the Long Term Care Insurance premium that is deductible is determined by your age.  In some cases, if you itemize your taxes you may be able to deduct the premium.

Advice on Long Term Care Insurance, a good or bad investment?

Long Term Care Insurance is not an investment, but should be part of a financial plan.  However, financial planners are notorious for misunderstanding Long Term Care Insurance and may provide bad advice on long term care insurance benefits this important planning tool simply because their speciality is investments, not Long Term Care planning.

Mom purchased her policy at 47 with premiums that were less than $2,000/yr. Six years later she went on claim because of a failed knee replacement surgery.  Assuming she lives until her life expectancy of 80, and her policy pays its maximum benefit schedule, here’s the final tabulation:

  • She will have paid less than $12,000 in premium and received more than $2,190,000 in covered expenses.

What is the average annual assisted living facility cost?

Assisted living facilities are a usually less than nursing homes but since the baby boomers have begun to retire the cost has begun to rise because assisted living facilities are preferred over nursing homes typically.

Because baby boomers are the largest group to reach retirement in history, demand for Long Term Care services, including assisted living, is expected to be at record levels for many years.  Simple supply and demand forces mean that costs will rise faster than broader inflation rates.  Another reason to avoid CPI inflation protection.

What are Activities of Daily Living (ADLs)?

These activities are the things we all take for granted every day until we can’t do them.  Tax Qualified Long Term Care Insurance companies require you to need help with 2 out of 6 to trigger a claim.  They are:

  • Eating
  • Bathing
  • Dressing
  • Toileting
  • Transferring
  • Maintaining your Continence

Please read our full Activities of Daily Living page >>

How are benefits from the policy treated by the IRS?

For individuals, long term care insurance benefits are generally not taxable.

Why choose Long Term Care Insurance over depending on Medicaid or other government assistance?


In short, Long Term Care Insurance will prevent you from having to spend down your assets to qualify for Medicaid.  Most states have Partnership programs.   If you have a qualified Partnership Long Term Care Policy and you use all your policy, you can get government assistance without having to spend down all of your assets.