Since we all grow older, we eventually face the possibility of requiring substantial assistance over a prolonged period of time. Sometimes it’s the result of a chronic illness, at others of a physical or mental disability, and other times it will affect our cognitive acuity. We pay for extended care services through long-term care insurance. In this blog entry, I will explain what long-term care insurance is, why it’s important, what type of coverage is available, and which parameters to take into account when selecting a policy.
What is Long-Term Care Insurance?
Long-term care (LTC) insurance is a special kind of insurance designed specifically to pay for care when it becomes too difficult or dangerous to continue providing it on your own. Services such as meals-on-wheels, home care, and adult day care are not typically included in standard health insurance coverage or Medicare, so that is why LTC insurance for seniors (and others) is set up differently. The primary purpose of this type of insurance is to help pay for assistance with care at home or in a nursing home or assisted living facility. Examples of such LTC services include help with bathing, dressing, eating, toileting, continence care, and getting in and out of bed.
Key Features of Long-Term Care Insurance:
Daily Benefit Amount: The maximum amount the policy will pay per day for covered long-term care services.
Benefit Period: The duration of time over which you can access benefits, usually a few years, but can also be a lifetime.
Elimination Period: The time between when you become disabled and your benefits begin (usually between 30 and 180 days).
What’s Covered: Care in nursing homes and assisted living facilities, home care, and adult day care.
Why is Long-Term Care Insurance Important?
The long-term care insurance premium is straightforward: $1,809 a year, with an inflation-adjusted 5 percent cap. It’s tough to predict the expense of care in 40 or 50 years, but the risk of an uninsured long-term-care event isn’t trivial – and most people underestimate how quickly long-term-care costs can balloon, especially if you need help with daily living. If you lack insurance (or decide against it later), you could end up paying your long-term care bills out of pocket after draining your savings and your financial future.
The Financial Impact of Long-Term Care:
High Costs: Services for long-term care can be quite expensive. A privately-assigned nursing room can typically cost more than $100,000 per year. Other services such as assisted living and in-home care services are also expensive.
Medicare Limitations: Medicare covers skilled nursing care on a very short-term basis but subjects the costs to limitations, and it doesn’t cover most long-term care needs. If you don’t have private insurance and cannot afford the costs associated with long-term care out of pocket, Medicaid may help with the costs but typically requires you to spend down your assets first.
Family financial strain: Without insurance, part of the cost of long-term care might become the financial responsibility of the family and interfere with their savings plans for retirement, for example.
Types of Long-Term Care Insurance Policies
It is important for all of us to understand what these policies are and how they should inform what we purchase. Long-term-care insurance is a confusing topic as there are several forms of long-term care, correspondingly several kinds of policies, and varying details within each.
Traditional Long-Term Care Insurance:
Provides coverage for long-term care services for a specified period of time and up to a daily benefit amount.
Benefits: Offers flexibility in choosing coverage amounts and benefit periods.
Premiums likely will go up over time, and your policy will pay off only if you need care.
Hybrid Policies:
Overview: Combines long-term care insurance with a life insurance policy or an annuity.
Benefits: A death benefit if long-term care isn’t needed; thus, more predictable premiums.
Considerations: Typically has higher initial premiums compared to traditional long-term care insurance.
Short-Term Care Insurance:
Overview: Covers a shorter duration of care, usually less than one year.
Benefits: less expensive than long-term care insurance and useful for short-term care needs.
Considerations: Limited coverage duration may not be sufficient for long-term care needs.
Choosing the Right Long-Term Care Insurance Policy
Once secured, it’s very important to look under the hood and make the right choice when it comes to picking a long-term care insurance policy because you want good value and coverage for the cost. So here are some things to think about when you choose your policy.
Assess Your Needs:
Your health right now: If you’re in good health and are otherwise younger and active, you have time to accrue funds to cover long-term care expenses. If you have a family history of conditions that require long-term care or are already experiencing some medical condition, then you’ll want more robust coverage.
Future Care and Housing Preferences: Select your preference – living at home if possible or care in a nursing home – and select a policy that matches your preferences.
Determine Coverage Amounts:
Daily Benefit Amount: To determine your benefit amount, you should begin by establishing a daily benefit that reflects what you might need to pay for long-term care. First, you must determine the average cost in your area. Longtermcare.gov, maintained by the US Department of Health and Human Services, is an excellent resource for this purpose. Once you have that information, you should then determine whether the amount you’ve calculated will suffice to meet the daily cost of long-term care.
Benefit Period: Choose how long you want coverage to last. Longer benefit periods provide more comprehensive protection but command higher premiums.
Review the Elimination Period:
Shorter Elimination Periods: Begin benefits sooner but result in higher premiums.
Longer Elimination Periods: Lower premiums but you might have to pay for care out-of-pocket for a longer duration before benefits kick in.
Understand Policy Exclusions and Limitations:
Pre-Existing Conditions: Does the policy exclude pre-existing conditions and, if so, how might that change your coverage?
Coverage Limits: Make sure you know what kind of coverage is provided – are there limits on home care or assisted living, and does the policy meet your needs?
Consider Inflation Protection:
Inflation Riders: A rider that increases the benefits you get over time to compensate for the fact that homes might require more care in the future. This can be an especially useful feature for those who want to make sure their benefits keep up with the increasing needs of care homes.
Conclusion
Long-term care insurance is a crucial resource for helping to preserve your financial well-being and your ability to obtain the care you need to live well over time. Knowing the different types of policies available to you and finding the right coverage based on your own preferences and needs is an important step towards protecting your assets and securing access to care later in life.
What’s more, if you are planning ahead for yourself or considering purchasing a policy for a loved one, buying long-term care insurance will help ease concerns about what the future may hold and ensure that you are well-prepared if long-term care is needed.
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