AARP Long Term Care Insurance Cost: Key Factors and Payment Options

Long-term care insurance helps cover the costs of services like nursing homes, assisted living, and in-home care, which can be expensive. AARP offers options through partnerships with insurers, providing plans tailored to older adults. Understanding policy costs is essential for making an informed financial decision.

Several factors influence pricing, including age, health status, and coverage levels. Exploring these details can help determine whether this type of insurance fits your budget and long-term planning goals.

Key Cost Factors

The price of long-term care insurance through AARP’s partnered providers depends on multiple variables. Insurers evaluate personal characteristics, policy choices, and risk factors when determining premiums.

Age

The age at which you apply significantly affects premiums. Younger applicants typically receive lower rates since they are less likely to file claims soon. For example, a 55-year-old may pay significantly less per year than someone applying at 70. Policies require medical underwriting, and waiting to enroll can increase costs if health issues develop. Some insurers require medical screenings, which become more difficult with age. Locking in coverage earlier can help secure a lower rate and reduce the risk of being denied.

Coverage Levels

The amount and type of benefits selected influence costs. Policies with higher daily or monthly benefit amounts, longer benefit periods, or broader coverage for different care settings come with higher premiums. For instance, a policy covering $200 per day for five years will cost more than one offering $150 per day for three years.

Policyholders can choose between reimbursement-based benefits, which cover actual expenses up to the policy’s limits, or indemnity-based benefits, which provide a fixed cash amount regardless of costs. A shorter elimination period—the time before benefits begin—also raises premiums. Evaluating expected care needs and balancing coverage with affordability is essential.

Health Condition

Medical history and current health status play a major role in pricing. Insurers assess pre-existing conditions, chronic illnesses, and lifestyle factors such as smoking or obesity. Those in good health qualify for lower premiums, while individuals with conditions like diabetes or heart disease may face higher costs or denial of coverage. Some insurers offer discounts for applicants in excellent health.

Once a policy is in place, changes in health do not affect existing premium rates, making early enrollment beneficial for those anticipating future medical issues.

Inflation Protection Options

Long-term care costs rise over time, making it important to ensure that insurance benefits keep pace. Inflation protection options adjust benefit amounts periodically to help maintain coverage value.

One approach is automatic benefit increases, where daily or monthly coverage grows by a fixed percentage each year. A 3% or 5% compound inflation rider raises the benefit annually based on the previous year’s amount, significantly enhancing the policy’s value over decades. Simple interest increases, which add a fixed percentage of the original amount each year, provide less long-term growth.

Another option is future purchase offers, allowing policyholders to buy additional coverage without new medical underwriting. However, the cost of added coverage is based on the policyholder’s age at the time of purchase, making premiums more expensive later. Some insurers also offer consumer price index (CPI) adjustments, linking benefit increases to inflation rates reported by government indices.

Payment and Funding Approaches

Paying for long-term care insurance requires planning, as premiums can be a significant financial commitment. Many policyholders pay monthly, quarterly, or annually, with some insurers offering discounts for annual payments. Missing payments can lead to policy lapse and loss of coverage, so setting up automatic bank withdrawals can help ensure consistency.

Some individuals use health savings accounts (HSAs) or tax-advantaged funds to manage costs. The IRS allows HSA withdrawals for qualified long-term care insurance premiums, with annual deduction limits based on age. In 2024, individuals aged 60 to 69 can deduct up to $4,770, while those 70 and older can deduct up to $5,960. These limits change annually, so checking updated IRS guidelines is necessary. Flexible spending accounts (FSAs) typically do not cover these premiums.

Another strategy is using life insurance policies with long-term care riders. Hybrid policies combine life insurance and long-term care coverage, allowing policyholders to access death benefits early if care is needed. Some retirees also consider annuities with long-term care benefits, which provide tax-deferred growth and can be structured to help cover care expenses.

Potential Rate Adjustments

Premiums for long-term care insurance are not fixed indefinitely and can increase over time. Insurers periodically review pricing based on claims experience, projected costs, and regulatory approvals. If an insurer determines that existing premiums are insufficient to cover future claims, they may request rate adjustments from state insurance departments.

One major factor driving adjustments is the insurer’s claims experience. If policyholders file more claims than expected, especially for longer durations or higher benefit amounts, insurers may raise rates to ensure they can meet future obligations. Advances in medical care and longer life expectancy have contributed to higher-than-expected utilization, prompting some insurers to adjust pricing. Additionally, low-interest-rate environments in previous years reduced insurers’ investment returns, affecting their ability to offset costs through portfolio earnings.