The Best Long-Term Care Insurance
When it comes to the best long-term care insurance, premium prices are always going to matter. But because those vary so much from person to person, we turned our sights to flexibility and financial strength to find which providers deliver the most robust coverage, and which you can be sure will be able to pay out their claims.
Excellent financial strength and all the waivers and riders we wanted to see. Plus, Mutual of Omaha has a few standout features (like counting the Elimination Period in calendar days) that just come standard.
Long-term care insurance has been in the news. Premiums are (often way) up, and a few big-name providers are abandoning their coverage altogether. But LTC insurance doesn’t have to be an all-or-nothing proposition. Using insurance for even a portion of long-term care costs can make a big difference in retirement.
That’s a big reason why we prioritized flexibility in choosing the best long-term care insurance companies. Our three top picks, Mutual of Omaha, Transamerica, and MassMutual, give customers the most choice when it comes to designing a policy, from the total amount of benefits to when and how they’re paid out. Mutual of Omaha stands out even more by counting its Elimination Period in calendar days instead of service days, which means policyholders can get access to their benefits faster.
That said, there’s no guarantee any of our top three will have the best-priced plans for you. The American Association for Long-Term Care Insurance found that 2016 rates for identical coverage varied by as much as 94 percent from one insurer to the next. Our advice: Shop around to find the coverage you want at a price you like. Our top picks are a great place to start.
How We Found the Best Long-Term Care Insurance
We all need help as we get older. There’s no way to predict exactly how much, but the US Department of Health and Human Services estimates that 70 percent of all Americans 65 and older will need some kind of long-term care during their lifetimes, and 20 percent will need it for longer than five years. The most expensive scenario is a nursing home (with average annual costs currently around $90,000/year), but having weekly or daily assistance in your home can still require $12,000 to $59,000 annually, according to the consultancy Long-Term Care Group.
“Traditional long-term care policies are more expensive today than ever before, but they still make sense for those who can afford them.”
Long-term care insurance is actually available in a few different forms. There’s traditional, stand-alone LTC coverage, and more recently, hybrid policies that are combined with something else (usually life insurance). We’ll touch on hybrids, but stand-alone plans are still the most widely used, and we did our deep dive on those.
Our list of LTC insurers to investigate started at 31. But we wanted to make sure our top picks were relevant to as many shoppers as possible, so we cross-checked to see which ones sold plans in at least 35 states, and also nixed any that had special eligibility requirements, or were the middle-men for policies backed by other insurers. That left us with eight insurers:
- Genworth Financial
- Mutual of Omaha
- New York Life
- Northwestern Mutual Life
- State Farm
We dug into each of their long-term care insurance policies, looking for:
Financial strength. An insurance company’s financial strength ratings are the most important indicators of its ability to pay its claims. Of the three largest independent ratings agencies, only A.M. Best rates strictly insurance, and we required a minimum grade of A- (“Excellent”). Then, because the Insurance Information Institute recommends getting ratings from at least two agencies, we also required one of the following: AA- (“Very Strong”) or higher from Standard and Poor’s, or Aa (“High Quality”) or higher from Moody’s.
Benefit periods as short as two years. A long-term care policy’s benefit period is the length of time it will pay for care after you make a claim. Ideally it’s as long as you need, but so-called “lifetime policies” are practically extinct today. Instead, most LTC policies offer a benefit period measured in years (though some use a “pool of money” model in which benefits are gradually subtracted from a lifetime amount with no set time period attached).
The average need for care in the US is currently about three years per person, so it makes sense to insure yourself for at least that length if you can afford it. But even if you can’t, a smaller policy can still be quite useful, potentially saving you from having to sell assets to pay for care. That’s why we required companies to offer benefit periods as short as two years: to make their policies affordable to more people.
“Some is better than none when it comes to long-term care insurance. Having benefits to pay for even some of the cost of care can reduce stress both financially and within the family.”
‘Waiver of Premium’ as a standard provision. With most insurance (like auto or homeowners), you continue to pay premiums even when you’re collecting benefits. But long-term care insurance typically kicks in at a time when most people are on a fixed, limited income, so the “waiver of premium” feature removes the burden of paying premiums once your claim is approved. It’s not standard on every policy, but it’s a no-brainer we wanted to see in all our top picks.
‘Shared Care’ rider available. This option is a way for couples to pool their coverage so that one person’s unused benefits are available to the other. “Shared care saves couples money by letting them each buy shorter policies than they would otherwise buy separately,” explains Mickey Batsell, board member at National Insurance Marketing Executives. Partners can each purchase a shorter, more affordable benefit period (say three years of care), but keep their partner’s identical benefits on reserve should they end up needing them (allowing each the potential for six years of care). There’s risk, of course, since the first person to need care could exhaust the entire benefit, but the flexibility granted by this rider is extremely valuable.
Our Picks for the Best Long-Term Care Insurance
Mutual of Omaha earned our top recommendation for two reasons. It has unmatched flexibility in its policy design options, and a bonus feature that all our experts agreed is important: counting the Elimination Period in calendar days instead of service days. Among our finalists, only Mutual of Omaha offered this provision — and what’s more, it’s standard with the company.
A long-term care policy’s Elimination Period is the length of time you have to wait to receive benefits after your claim is opened. The longer the elimination period, the cheaper the policy, since it means you’ll be paying out-of-pocket longer before benefits kick in. The most common length is 90 days.
Most LTC policies count off the elimination period in terms of “service days,” requiring you to prove you received a service on a given day for it to count toward the total. “Calendar days,” on the other hand, mean if you have a 90-day elimination period, your benefits will begin exactly 90 calendar days after your claim is approved, whether or not you needed (and paid for) care each day. This not only takes away the hassle of submitting receipts, but also can save you money and effectively shorten the waiting period.
Beyond that, Mutual of Omaha offers benefit periods of two to five years — as well as the alternative “pool of money” model (up to $500,000), giving policyholders more choice in their policy design than any of our other finalists did.
A few other standard features also impressed us. The first is that independent home caregivers are covered, meaning they don’t need to be from an agency whose rates are likely more expensive. Home care services (such as health aide visits) are also not subject to the elimination period at all — they’re covered as soon as you need them. And Mutual of Omaha’s “cash alternative” payout can also be up to 40 percent of your policy’s maximum monthly benefit, which is 10 percent higher than our other finalists’. That means if your care costs are low in a given month, you can opt for a check equal to 40 percent of your policy’s monthly maximum in lieu of other benefits. You can spend that cash on anything, not just covered services — another nice measure of flexibility.
Transamerica is another solid option for long-term care insurance, even if its standard features are slightly less generous than Mutual of Omaha’s. Its monthly cash alternative caps at 30 percent of the policy’s maximum monthly value (as opposed to 40 percent with Mutual of Omaha). And for in-home care, it requires that services come from an agency, which will likely charge more than an independent caregiver.
But we appreciate that Transamerica uses the more flexible “pool of money” model to define its policies’ benefits, and offers total benefit amounts as small as $18,250 — which means it’s more affordable for more people. Like Mutual of Omaha, Transamerica also includes a zero-day waiting period for home care, reimbursing those costs as soon as you first have a need for them.
The limitations go on: Benefit periods must be in years (no pool option) and the Shared Care rider is only available with the shorter plans (two- and three-year benefit periods). On the plus side, MassMutual offers the only six-year benefit period of our top three insurers, and covers in-home services from independent caregivers.
Sounds great, but how much is long-term care insurance going to cost?
The short answer: It depends. The factors that impact premiums vary way too much from person to person for us to recommend a provider based on price. Still, knowing which elements carry weight can help inform your policy search. For LTC insurance, premiums depend most on five things:
- Your health and age when you buy the policy
- The policy’s benefit period, either in years or total dollars
- The maximum daily or monthly benefit
- The elimination period
- Optional riders, such as inflation protection
Inflation protection in particular can mean a huge difference in premiums — sometimes more than doubling them — but it’s wise to at least consider it.
"If they can afford it, I always recommend an inflation protection rider of 3 percent to my long-term care insurance clients."
After all, buying insurance is about removing financial risk from your life, and inflation is a legitimate risk to your policy’s future value. Think of it this way: At 3 percent annual inflation, the care you can get today for $200,000 will cost $268,783 in 10 years, and $361,222 in 20 years. That’s why the American Association for Long-Term Care Insurance recommends adding a 3 percent inflation rider — even though its 2016 price index found that it raised average policy premiums by the following amounts:
Without 3% Inflation Rider
With 3% Inflation Rider
Single Male, Age 55
Single Female, Age 55
Married Couple, Both Age 60
Long-term care costs also vary significantly from state to state, based on things like the availability of caregivers and nursing home beds), so it helps to plan for the region where you expect to retire.
You can view costs of care in your state by visiting LongTermCare.gov and choosing different types of costs from the dropdown menu. Image credit: LongTermCare.gov.
Did You Know?
It pays to start planning early.
While nobody likes to consider the prospect of needing long-term care, addressing it sooner rather than later can make a huge difference to both your peace of mind and your bank account. The older you get, the more you’ll pay in premiums (and the more likely it is that you’ll develop a condition that makes getting covered more difficult).
“Your early 50s are an ideal time to investigate your options for long-term care.”
Premiums can still increase from year to year, but it’s much less likely now than before.
Premiums for traditional LTC policies surged in recent years as companies began to learn the true cost of claims, which they grossly underestimated when first selling policies in the 1980s and ’90s. Several companies – including big names like John Hancock and MetLife – ditched LTC insurance entirely as a result. In addition, some policyholders were also hit with unexpected premium hikes, a maddening twist particularly for older folks who had to pay more, reduce their benefits, or drop their long-held policies.
However, new research by the Society of Actuaries says the threat has largely passed: With more data to guide pricing, policies sold in 2014 have just a 10 percent chance of needing future rate increases, compared with 40 percent for those sold in 2000. It’s also helpful to know that premiums can never go up due to a decline in your personal health — only for an entire group of insured people because of higher-than-expected claims, and only after a state insurance department approves the increase.
LTC insurance covers more than just nursing home care.
When you consider the phrase “long-term care,” your first thought might be of a nursing home or an assisted living facility. But there are plenty of scenarios in which you’d need long-term care in your home, such as following a temporary injury or a stroke. These periods can still be expensive, which is why standard LTC insurance also covers visiting nurses, home health aides (who assist in bathing, dressing, and preparing meals), visitor programs, chore services, adult day care, and home-delivered meals.
Medicare will barely make a dent in your long-term care coverage.
Many seniors mistakenly think that Medicare will pay for their long-term care, when in reality it only covers a fraction of the services they’re likely to need. The biggest thing to know is that very few “unskilled” services (things like adult day care or home aide visits) are covered by Medicare, and even things like skilled nursing and hospital stays max out at 100 days.
Hybrid LTC policies have pros and cons.
If you’re turned off by the thought that you might never use the benefits in a traditional long-term care policy, a hybrid that combines LTC with life insurance might be more appealing. Such policies secure a benefit no matter what — either in the form of care for you, or cash for your loved ones. There’s also no danger of premiums going up unexpectedly.
However, there are trade-offs. For one, most hybrid products have a higher upfront cost: They require either a large one-time payment, or a shorter set payment term (10 years is typical). And even if you have the cash available (a meaningful LTC benefit will require between $50,000–$75,000 in total premium), paying it sooner means it’s not available to earn interest elsewhere. And if you do end up needing care, the death benefit will decrease as a result, leaving your heirs with less.
As a general rule, though, you should address your respective needs for life insurance and long-term care insurance in their order of urgency. If you’re 55 or older and shopping primarily for life insurance, you may want to read our review on the best life insurance for seniors, but keep in mind that the accelerated death benefits we discuss may not cover all your long-term care needs.