Long-Term care insurance is on the minds of older Americans, and for good reason. Chances are good you’ll get sick or injured during retirement and you’ll need the cash to cover your medical bills – a service that long-term care insurance provides to policyholders.

About 350,000 U.S. adults purchased long-term care insurance in 2018, according to the American Association for Long-Term Care Insurance.

The way that Americans are purchasing long-term care insurance is changing too, and in ways that are easier for consumers to handle.

“In the past, most of these policies were sold as single premium requiring a single payment of $50,000 to $100,000 per individual,” says Jesse Slome, director at the AALTCI. “Today, insurers are offering flexible premiums which allow annual payments for this important protection. That’s far more consumer friendly and something buyers clearly prefer,” Slome said.

According to research from Morningstar, (MORN) - Get Report chances are about “50/50” that a 65-year-old American will require long-term care insurance in the future. If you don’t have long-term care coverage, Morningstar estimates you’ll pay about $140,000, on average, for decent long-term care. But right now, only 7.2 million Americans actually have long-term care insurance, meaning the vast majority of U.S. seniors are kicking the can down the road on long-term care – and are taking a big risk in doing so.

“Long-term care is the unsolved problem for so many people,” says Christine Benz, director of personal finance at the Chicago-based investment research firm.

What Is Long-Term Care Insurance?

Long-term care insurance provides financial coverage for older Americans who are sick or injured, and need to pay for medical care.

That care not only includes basic physician, specialist, surgical, and nursing home care, it also covers help with specific lifestyle needs like bathing, help getting dressed, transportation to and from medical appointments, and other daily needs while recovering from an illness, injury or other physical setback. It also includes coverage for things like assisted-living care, in-home care, rehabilitation care, and adult day care services.

Long-term care saves consumers the significant financial trouble of coming up with out-of-pocket cash to pay for long-term care services – and they tend to land on the expensive side.

Consider the cost of these long-term care services, from LongTermCare.gov:

  • $225 a day or $6,844 a month for a semi-private room in a nursing home.
  • $253 a day or $7,698 a month for a private room in a nursing home.
  • $119 a day or $3,628 a month for care in an assisted living facility (for a one-bedroom unit).
  • $20.50 an hour for a health aide.
  • $20 an hour for homemaker services.
  • $68 a day for services in an adult day health care center.

Make no mistake, government services like Medicare that cater to seniors and their health issues, or Medicaid, which covers low-income Americans in need of health care, aren’t the answer for a consumer’s long-term health care needs.

Both programs are limited in terms of scope and adequate funding and won’t come close to covering the actual costs of long-term health care, especially in a medical care environment where more and more U.S. doctors and clinicians have stopped taking on new Medicare and Medicaid payments because of the onerous paperwork and thin payment models.

That’s where long-term insurance can fill the gap.

How Does Long-Term Care Insurance Work?

Like most consumer insurance policies, long-term care insurance starts with that consumer researching the issue and kicking the tires on potential long-term care insurance policy providers.

A good place to start on the long-term care research front is the U.S. government’s LTC website – LongTermCare.gov.

There you can study up on the basics of long-term care services, and on the insurance that covers the payment for those services. You can also get help on what Medicare and Medicaid do cover when it comes to long-term care (again, it’s not much) and you can also get help in learning how to pay for coverage in the “Costs and How to Pay” section of the web site.

Once you’ve read up on long-term care insurance and understand your service and payment options, it’s time to choose a long-term care insurance provider.

Usually, that means buying LTC insurance through an insurance agent, a financial adviser, or an insurance broker.

You can also go directly to the 15 or 20 major long-term care insurance providers, like AARP, Bankers Life & Casualty and Prudential Insurance, (PRU) - Get Report among other providers. The AALTCI offers a one-stop shopping guide to choosing the best long-term care insurance provider on its web site and it’s worth a look.

You can also check with your state’s department of insurance (use the state-by-state directory at USA.Gov) for any feedback or complaints about an insurer you’re considering, which is a good idea given the amount of money you’ll be spending on long-term care insurance.

Expect to pay about $3,050 annually for decent long-term health insurance, but prices do go lower the earlier you start on your policy. For example, the AALTCI pegs the average yearly cost for LTC insurance for a single male, age 55, at $2,050 and notes that a single females at about the same age will pay $2,700 for good coverage.

Having a spouse helps on cost, too. “Married couples often benefit from a significant spousal discount,” Slome says. “Married couples or older adults living together purchase the majority of long-term care insurance policies.’

Once you’ve got the payment and service provider down, all you need to do is fill out the application and get cleared for coverage. You’ll need to answer some medical queries and you’ll need to work with the insurance company on the amount of coverage (say, $500,000 or $750,000, for example.) you need.

Once the insurer gives you the green light on coverage, you start paying the insurance premiums and are issued a policy.

Alternatives to Long-Term Care Insurance Coverage

While they’re not as straightforward as long-term care insurance plans, there are alternatives for consumers who want to take a different approach to their long-term care needs or who were rejected for LTC insurance.

If that’s the case, these alternate plans should be at the top of your list:

Short-Term Care Health Insurance

These plans aren’t as comprehensive as long-term care insurance, but they can help out in a pinch. Basically, short-term health care insurance covers you for a short window of time, usually six months to a year’s worth of coverage. Prices are reasonable and they’re generally easier to obtain, so if you’re in a tough spot, start with short-term health insurance and buy yourself some much-needed time.

With short-term health insurance, policyholders can likely count on coverage that pays up to $300 a day for the period listed on the policy. Waiting periods are short, as well, enabling consumers to start being covered right away. Note that you’ll likely have trouble obtaining a short-term care policy if you’re 85 years or older.

Critical Care Insurance

Critical care insurance, also known as critical illness health insurance, provides much-needed coverage for individuals who are suffering from a severe illness, such as cancer, heart disease or diabetes.

Some large providers offer critical care coverage with daily or monthly payouts, especially for policyholders recovering or rehabbing from an illness or injury. Coverage can last for up to two years and policies are usually less costly than regular long-term health care insurance. Expect to pay about $100 a month for quality coverage.

It’s important to note, however, that coverage won’t be granted if you’ve previously been diagnosed with a major illness or injury. You need to buy the insurance first, and have it on hand if you suffer a significant health issue.

Annuities

Health Care consumers can also turn to annuities with a long-term care rider attached. Money in such an annuity can be used on a tax-free basis to deal with major illnesses or injuries. Money from an annuity with a long-term care rider is usually paid out monthly, giving recipients a dependable income stream to deal with physical ailments.

Plus, if you wind up healthy and don’t need the annuity money for medical care, you can use the annuity proceeds for other financial issues. Beware of costly upfront mandates with annuities with a long-term care rider. Having to pay $50,000 upfront is fairly common with these types of annuities.