What you need to know about long-term care insurance

Long-term care (LTC) insurance is a type of coverage that helps pay for personal care services in the event you or your spouse are diagnosed with a disability or chronic illness, which many of us will be during our lifetime. In fact, almost 7 in 10 seniors will require long-term care at some point. While policies differ, this insurance can offset the exorbitant costs of your individual daily needs, whether you reside in your home or in a facility. Here's what you need to know about the benefits.

If there comes a time you're incapable of taking care of simple, everyday tasks or “activities of daily living” (ADL)—for example, if you are unable to shower, use the bathroom, dress yourself or feed yourself—this coverage will pay for a professional to support you. It may pay for a nurse or a therapist to help you in your home, for adult day care—or, when the need arises, for nursing home care.

Depending on the plan, coverage can also include home modifications to increase your safety and mobility, such as installing wheelchair ramps and widening doorways.

In most cases, insurers require you need assistance with multiple ADLs—often two or three—for these benefits to take effect. It’s important to note these policies do not cover any medical expenses.

While you might think that LTC insurance is for older people, just about anyone—at any time—might find they need it. In fact, approximately 8 percent of adults in their 40s have a physical disability or mental disorder for which they could use these services. What's more, about 4 in 10 adults who use long-term care coverage are under the age of 65; their reasons range from strokes, brain tumors and spinal cord injuries to severe mental illnesses and more. And women may want to consider purchasing a policy since they are expected to outlive men by an estimated five years.

To know: Medicare will only pay for a short-term personal caretaker (up to 100 days) if strict criteria are met, making LTC insurance an important consideration for seniors.

Since premiums are based on current age and health status, LTC insurance is more affordable when you’re younger and in good physical shape (usually in your 40s and 50s). If you wait until you’re 65, the rates may be significantly higher. Also, keep in mind that if you have a preexisting health condition at the time you apply for a policy, you can be denied coverage.

Like all types of insurance, the cost depends on the policy you choose. Variables that factor into your rate include your age, health, state, marital status (couples tend to receive discounts) and the maximum amount to be reimbursed. The average premium for all policies is about $2,700 a year.

If you’re interested in enrolling in a plan, consult with a financial agent or your employer; federal employees, as well as active servicemembers and veterans of the US military, can explore their options with the Federal Long-Term Care Insurance Program. If you’re a member of an organization (such as an alumni group), contact an affiliate and ask about their discounted group rates.

In terms of your physical health, this type of coverage could ensure that you maintain your independence.

Financially speaking, paying for personal care services on a continuous basis can quickly drain your retirement fund. According to recent estimates, a home health care employee can earn as much as $15 to $26 per hour—or an annual salary of $34,000 to $59,000. While some adults may plan on relying on a family member as their future caregiver, this solution may not be feasible when the time arrives.

If you have assets that total at least $70,000 (not counting your home) and/or have income you would like to protect, you may want to consider adding long-term care insurance to your other policies.