How Much Long-Term Care Insurance Should You Purchase?

A number of considerations go into how much long-term care insurance any consumer should buy. The average cost of a private room in a nursing home is nearly $250 a day, and the average monthly base rate in an assisted living facility is $3,550, according to MetLife’s 2012 survey. Home care can be less or more expensive, depending on the amount and level of care required.

Posted on September 18, 2017

One easy way to calculate a daily benefit is to take the average cost of care where you live or are likely to live when needing care and subtract from that your daily income. If, for instance, nursing homes cost $300 a day and your income is $3,000 a month, or $100 a day, then your daily benefit should be $200 a day.

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The next factor is what period of time the policy covers. The shortest period of coverage available is two years, but policies can be purchased for longer periods or for the insured's lifetime. Of course, the longer the policy's coverage period, the higher the premium.

Most people don't need lifetime coverage, so a good length of time is usually five years. It is unusual for someone to need care for more than five years. In addition, Medicaid looks back five years for any asset transfers. If you purchase five years of long-term care insurance coverage, you could transfer most or all of your assets to your children or into trust, pay for your care with your insurance over five years and then, if your assets are spent down, qualify for Medicaid coverage.

A policy paying $200 a day for five years will be expensive, especially if it includes an inflation rider. For those who cannot afford such coverage, you could think of long-term care insurance as "avoid nursing home" insurance. Under this approach, you may purchase enough insurance to pay for home care or assisted living care, which are usually not fully covered by Medicaid.

So, in the example above, if you purchased insurance with a daily benefit of $100 a day, you would have $3,000 a month to cover your living expenses plus home care or assisted living costs. Since the premium for this policy would be half that for one with a daily benefit of $200, it would be much more affordable.