A long-term care insurance policy doles out money to help cover the costs of nursing-home care, an assisted-living facility or at-home assistance if you are no longer able to take care of yourself. It typically gives you payouts if you wind up having cognitive impairment – such as dementia or Alzheimer’s – or if you physically can no longer perform some specific “activities of daily living” on your own. We’re talking about feeding yourself, bathing yourself and so on.
Payouts from the policy will help cover the cost of assistance to help you get through the basics of daily life. For example, the policy can pay for someone who stops by the house for a few hours a day or a few days a week. Or it can help with the cost of a senior day-care facility, an assisted-care setup or full-fledged nursing-home care.
The allure of long-term care is obvious: It’s the rare bird (or baby boomer) who doesn’t worry about how he or she will afford care later on. And if you’re counting on Medicare, you’re out of luck. Medicare doesn’t offer extended long-term care coverage. (Medicaid does, but only very low-income retirees are eligible.)
Long-term care insurance is very expensive – the annual premium can easily be $2,500 or more a year – and many insurers have jacked up initial premiums by 20% or more over the past decade. (See: How much will a policy cost me?)