Long-Term Care Insurance
Whether you are thinking way ahead to the future, or you are an older adult looking at coverage in the next few years, you may be considering purchasing long-term care insurance. You may assume your regular health insurance will cover many of the expenses of aging and illness, but this is a common misconception that may cost you a lot later on.
You know you’ll soon need help taking care of yourself, but how will you pay for it all? Long-term care insurance is an ideal way to prepare for these eventualities, and refers to services that aren’t covered by regular health insurance. This includes assistance with activities of daily living, such as bathing, dressing or getting into and out of bed.
Whether you have a chronic medical condition, a disability or a disorder such as Parkinson’s or Alzheimer’s diseases, a long-term care insurance policy can cover the costs of that care, with most policies reimbursing you for care provided in:
- Your home (skilled nursing care, occupational and physical therapy, and help with personal care)
- Nursing home
- Assisted living facility
- Adult day care center
- Alzheimer’s care facilities
- Hospice and respite care services
- Home modification (i.e., wheelchair ramps and grab bars)
Considering the cost of long-term is a criticalpart of your financial plan over the long haul, especially as you head into your 50s and beyond. If you waitto purchase coverage, you may miss the boat, as you can’t qualify for long-term care insurance if you already have a debilitating condition. Most people purchase long-term care insurance in their mid-50s to mid-60s.
Many people think that by waiting until age 60 to buy LTC, they will develop a medical condition that could prevent them from qualifying for coverage or grossly raise their premiums. This is a valid concern. Do you have a family history of illness at a young age? Are you worried about getting sick and being unable to afford care? Then you should buy LTC when you can afford it, for the peace of mind.
According to the AARP, by the time you reach 65, chances are about 50/50 that you will need paid long-term care insurance (LTC) at some point. If you do not have LTC and you have to pay out of pocket, you will spend $140,000 on average. Only 7.2 million Americans have LTC insurance, compared with the total of 47.8 million Americans currently over the age of 65.
What Does Long-Term Care Insurance Look Like?
If you want to purchase a long-term care insurance policy, you will need to fill out an application and answer questions about your health. The insurer may want to see your medical records and/or interview you over the phone or in person. Just like life or standard health insurance, you can choose the coverage amount you want.
Once you have been approved for coverage and the policy has been issued, you can start paying the monthly premiums.
So who qualifies? Under most long-term care policies, you are eligible for benefits if you are unable to perform at least two out of six activities of daily living (ADLs)orif you have been diagnosed with dementia or another cognitive impairment.
ADLs include:
- Bathing
- Caring for incontinence
- Dressing
- Toileting (getting on or off the toilet)
- Transferring (getting into or out of a bed or chair)
- Eating
When it comes time for you to make a claim, the insurance company will review all medical documents provided by your doctor. It’s common for them to send a nurse to your home to perform an evaluation. The insurer has to approve your plan of care before approving your claim.
It’s also common for people to pay long-term care services out of pocket for a short amount of time before being reimbursed, such as 30, 60 or 90 days – known as the “elimination period.”The policy will begin paying out after you have become eligible for benefits and after you have received paid care for that time period. There is usually a daily cap or limit for care until you have reached the lifetime maximum.
If both you and your spouse need policies, some companies offer a “shared care” option, which allows you to share the total amount of coverage. This way, you can draw from your spouse’s pool of benefits if and when you have reached the limit on your own policy.
Why Should You Buy Long-Term Care Insurance?
Long-term health insurance is a wise purchase when you consider that 70 percent of those turning age 65 today will need some type of long-term care due to a disability, according to the U.S. Department of Health and Human Services.Most will need services for two years or less, but 14 percent will need care for upwards of five years.
Remember: regular health insurance does not cover long-term care, and Medicare doesn’t either. It only covers quick nursing home stays or limited home healthcare services when a person requires skilled nursing or rehab. Medicare also does not pay for custodial care, which includes help with daily tasks and supervision.
The bottom lines is, if you don’t have insurance to cover long-term care, you will have to pay for it by yourself. You can get assistance through Medicaid, which is the federal and state health insurance program for people with low incomes, but this will kick in only after you have gone through most of your savings.
Here are the most common reasons why people buy long-term care insurance:
- Protect savings: Long-term care costs will drain a retirement nest egg quicker than you ever thought possible. Consider that the median cost of care in a semi-private nursing home room is about $90,000 a year!
- Provide more choices for care: The more money you have and are able to spend, the better quality of care you will receive. If you must rely on Medicaid, your choices are limited to nursing homes that accept payments from this government program. Remember: Medicaid does not pay for assisted living in most states.
Buying long-term care insurance may not seem very affordable right now when faced with the monthly costs, especially if you are on a fixed income with little savings. Experts recommend spending no more than five percent of your income on a long-term care policy.
What are the Costs of Long-Term Care Insurance?
The rate you will pay will depend on many things, including:
- Amount of coverage: You will have to pay more for better coverage, such as adjustments to your cost of living to protect against inflation, higher limits on benefits, and fewer restrictions on types of covered care.
- Your age and health: The more health problems you have and the older you are, the more you will pay.
- Marital status: Premiums are generally lower for married people than they are for singles.
- Insurance company: Prices vary by insurance company, so be sure to compare quotes by at least three different carriers.
- Your Gender: Women pay more than men due to the fact that they live longer and are more likely to make a long-term care insurance claim.
Warning: The price you pay initially may go up after you buy a policy because they are not guaranteed to stay the same over your lifetime. Many policyholders have seen increases in their rates in the last few years after insurance companies petitioned state regulators to hike premiums. They justified the rate hikes because the cost of claims was higher overall than they had estimated. Regulators gave the go-ahead on the rate boosts because they desired to ensure insurance companies could have sufficient funds to continue paying out claims.
What are the Tax Advantages of Buying Long-Term Care Insurance?
Long-term care insurance may bring you some tax reliefif you itemize deductions, especially as you age. The federal and state tax codes generally allow you to count part or all of long-term care insurance premiums as medical expenses. As you know, medical expenses are tax deductible if they meet certain criteria. The limits for the premium amounts you are able to deduct will increase as you age.
Only premiums for “tax-qualified” long-term care insurance policies will be counted as medical expenses, and they must meet certain federal standards. They must also be labeled as tax-qualified. It’s a good idea to ask your insurance company whether the policy you’re considering is tax-qualified or not. This way, you can get peace of mind knowing you checked.
How Do You Buy Long-Term Care Insurance?
There are a couple of ways you can purchase long-term care insurance.
First, you have the option of buying directly from an insurance company or through an insurance agent.
Second, you could buy a long-term care policy through your place of employment. Your company may offer the opportunity to buy coverage from its brokers at bulk rates. Buying coverage this way may be easier than if you were to go it alone. You may still have to answer some questions about your health, but generally it’s a quicker and less invasive process.
No matter which way you decide to buy insurance, it’s wise to obtain quotes from several companies for the same coverage in an effort to compare prices. Same goes for buying coverage through work; there could still be some better deals out there and you don’t want to miss out.
It’s recommended that you work with a skilled long-term care insurance agent who is able to sell products from at least 3 carriers.
What Are State “Partnership” Plans?
Many states feature “partnership” programs with long-term care insurance companies to encourage people to think ahead and plan for long-term care.
The insurers all agree to offer policies that meet strict quality standards, such as offering cost-of-living adjustments for benefits for inflation protection. As a result of buying a “partnership policy,” you will be able to protect more of your assets if you consume all the long-term care benefits and then seek help through Medicaid. In most states, a single person normally has to spend down their assets to $2,000 in order to be eligible for Medicaid.
But when you have a partnership long-term care plan, you are able toqualify for Medicaid sooner. This means you are able to keep a dollar that you would have had to spend to qualify for Medicaid for every dollar paid out by your long-term care insurance.
You will have to check with your state’s insurance department to determine whether it offers a long-term care partnership program.
In conclusion, as you make your long-range financial plans, don’t ignore long-term care insurance. This is one of the most critical aspects of your long-range financial plan, in order to protect yourself and ensure you are able to pay for the care you need. No one can predict the future. You may look and feel healthy now but there will come a day when your health could take a turn for the worse or you are sidelined by a disability or chronic illness.
For many, long-term care insurance makes sense in safeguarding against the high potential costs of assisted living, nursing homes, and in-home health services. A few thousand dollars per year is a fair price to pay for peace of mind of knowing you can easily afford the proper care when you need it.
It’s wise to speak to a financial advisor about long-term care insurance and how it can help you. Your advisor can also advise you on the best plan and amount of coverage that would benefit you most.
