As we get older, the likelihood of requiring help with things of everyday life grows greater. This help, in the form of what is called long-term care, can be very expensive and as a rule is not covered under regular health insurance or Medicare. That’s where long-term care insurance comes in. But do you need it? Long-term care insurance-the how, the why, and everything in between-are discussed in this article to help you understand exactly what this insurance is for, who needs it, and if you really need it.
Long-term care insurance is a cover meant for extended nursing services at either the nursing home, assisted living, or even home care. As such, the purpose of this cover is to protect your savings and assets from reduction brought about by the high costs related to long-term care. Still, it has its pros and cons, like any other insurance product out there, and may not be for everyone.
In the succeeding sections, we will go into the details of long-term care insurance to look at its cost and benefits and hence prepare you with the information to make an informed decision about whether this kind of insurance is necessary for your financial and healthcare planning.
Understanding Long-Term Care
Before going into detailed aspects of long-term care insurance, we need to understand what exactly is meant by long-term care.
What is Long-Term Care?
Long-term care involves a variety of services and support that a person needs for an extended period of time due to a chronic illness, disability, or disease when he cannot care for himself. It is not medical care but assistance in performing those basic personal activities of daily living commonly called ADLs.
Activities of Daily Living (ADLs)
The six basic ADLs are the following:
- Bathing
- Dressing
- Transferring (e.g., moving from bed to chair)
- Toileting
- Eating
- Continence
When someone is unable to do two or more of these activities without help, they need long-term care.
Types of Long-Term Care
Long-term care is usually available in the following settings:
- Home: Services from family, friends, or paid professionals
- Community: Adult day service or transportation
- Assisted living: Housing and meals with some assistance with ADLs
- Nursing homes: More active medical treatment and therapy
Cost of Long-Term Care
Long-term care can be costly. In fact, according to the Genworth 2020 Cost of Care Survey, these are the median annual costs:
Private room in a nursing home: $105,850
Assisted living facility: $51,600
Home health aide, 44 hours per week: $54,912
These costs can quickly drain savings and assets if not planned for accordingly.
What is Long-Term Care Insurance?
Understanding what long-term care is, let us look into the insurance that will cover this need.
Definition and Coverage
Long-term care insurance is a policy that pays for many types of long-term care. The coverage generally pays for care that is not covered by your health insurance, Medicare, or Medicaid.
What Does It Cover?
Most long-term care insurance policies cover:
- Nursing home care
- Assisted living facilities
- Adult day care
- In-home care
- Home modification-e.g., wheelchair ramps
- Care coordination services
Policy Features
There are many variations in the features of long-term care policies, but some common ones include:
- Benefit trigger: The condition that must be met before the policy starts to pay
- Elimination period: A waiting period that must expire before benefits begin to PAY
- Benefit period: How long the policy will pay benefits (2 years, 5 years, lifetime, etc.)
- Daily benefit amount: The maximum amount the policy will pay per day
- Inflation protection: An option to increase benefits over time to keep pace with rising costs
Who Needs Long-Term Care Insurance?
Long-term care insurance isn’t for everyone. Here are some factors to consider:
Age
- Most people purchasing long-term care insurance are between the ages of 55 and 64
- Premiums are usually lower the younger you purchase it but you pay longer
Health
- You may not be able to purchase a policy if you already have a debilitating illness or injury or are already receiving long-term care services
- You may not be able to get coverage due to some medical conditions
Gender
-As women tend to live longer and more often require long-term care, this type of insurance might be more financially rewarding for them.
Family Situation
- If you have family members who can take care of you, you will likely need less coverage.
- If you want to protect the assets for your heirs, long-term care insurance is the way it will help.
Financial Situation
- If you have a great deal of assets to protect, you may be the kind of individual who benefits from long-term care insurance
- If you have very limited assets, you may be eligible for Medicaid, which does cover long-term care
Pros and Cons of Long-Term Care Insurance
Like any financial product, long-term care insurance has its pros and cons.
Pros
- Asset Protection: Can help protect your savings and assets from being depleted by long-term care costs
- Choice and Independence: It can give you more choices about where and how you receive care
- Peace of Mind: It can help you feel confident that you’ll have the ability to pay for care should you need it.
- Tax Benefits: You may be able to deduct premiums, and the benefits are generally tax-free
Cons
- Expense: Premiums are costly to pay and may rise over time
- Use It or Lose It: You will never benefit from the policy if you never need long-term care
- Waiting Period: Most policies have a waiting or elimination period before benefits start
- Coverage Limits: Policies may not cover all types of care or may come with daily or lifetime limits
Alternatives to Long-Term Care Insurance
If you determine long-term care insurance isn’t a good fit for you, here are some other options:
Self-Insure
If you have a lot of assets, you might want to plan on earmarking money to pay for long-term care if you need it.
Pros:
- You keep your money and if you don’t need care it remains in your estate
- You may not save sufficient
- Your savings can be exhausted with a long period of care
Medicaid
Medicaid is a federal-state program that pays for long-term care for people with low income and limited resources.
Pros:
- Covers many services for people who are eligible
- No premiums or elimination periods
Cons:
- Requires spending down assets in order to qualify
- Limited choice of care providers
Hybrid Policies
These are life insurance policies or annuities with a long-term care benefit rider.
Pros:
- Provides a death benefit if long-term care isn’t needed
- May be easier to qualify for than traditional long-term care insurance
Cons:
- Often more expensive than traditional long-term care insurance
- May provide less comprehensive coverage
How to Decide if You Need Long-Term Care Insurance
Now, the strategy with long-term care insurance must reflect your individual circumstances. To make a decision, consider the following:
1. Assess Your Risk
Consider factors that may increase your likelihood of needing long-term care:
- Family medical history of longevity or chronic conditions
- Your present health and lifestyle
- Family caregivers-are they available?
2. Consider Your Financial Circumstances
- Add up your assets and income
- Estimate how much you can comfortably spend for premiums
- Consider how paying out-of-pocket for long-term care might impact your overall finances and legacy plans
3. Research Costs in Your Area
Long-term care costs vary widely depending on the location. If you know where you will be retiring, research the costs for that area.
4. Explore Policy Options
If you decide to move forward with long-term care insurance:
- Get quotes from a number of different insurers
- Compare features and costs for each policy
Consider consulting a financial adviser or insurance expert
5. Don’t Wait Too Long
If you determine that long-term care insurance is appropriate for you, don’t wait too long to purchase. Premiums rise with age, and health conditions that appear later in life could render you uninsurable.
Tips for Purchasing Long-Term Care Insurance
If you decide to buy long-term care insurance, here’s what to keep in mind:
Understand the policy. Make sure you know: What is covered and what is not; when benefits start; how long benefits last; how much the policy pays per day. ### 2. Choose the Right Elimination Period A longer elimination period offers lower premiums, but you have to consider your ability to cover the costs during this time. ### 3. Consider Inflation Protection Although it will make premiums higher, inflation protection helps to ensure that your coverage will keep pace with increased care costs.
- Check the Financial Strength of the Insurance Company
Look for companies with high financial strength ratings from independent rating agencies.
- Understand How the Premiums Work
Ask if the premiums can increase and under what circumstances.
- Consider Shared Care
If married, some insurers offer shared care riders that let couples share benefits.
- Review the Policy Regularly
After a few years, review your policy again, ensuring it continues to meet your needs.
LTC Insurance: Some Common Misconceptions
There is a list of misconceptions regarding long-term care insurance that should be addressed:
1. “Medicare will cover my long-term care needs”
Reality: Medicare covers only short-term skilled nursing care and does not cover long-term custodial care.
2. “I’m too young to worry about long-term care
Reality: While most long-term care goes to people aged over 65, younger people get it too-including those suffering from accidents or long-term conditions.
3. “Long-term care insurance is only for nursing homes”
Reality: Most policies cover a range of options for accessing your care, including in-home care and assisted living.
4. “If I’m healthy, I don’t need long-term care insurance
Reality: Accidents can happen to anyone, even healthy people, and diseases crop up later in life that may require long-term care.
5. “Long-term care insurance is too expensive”
Reality: While it can be expensive, it has to be weighed against the possible cost of having the long-term care itself.
The Future of Long-Term Care Insurance
In the last few years, the world of long-term care insurance has changed dramatically, and further changes are likely.
Industry Trends
The main factor prompting a significant withdrawal from the market by many insurers is the combination of low interest rates and claims experience that has proven higher than originally anticipated. Premium rates have increased substantially for both new and in-force business. There is a trend toward hybrid policies that link life insurance or annuities with long-term care benefits in their design.
-Some states are looking at public long-term care insurance programs
-At the federal level, there’s ongoing discussion regarding how the nation should address its long-term care needs
Conclusion
Long-term care insurance is a sophisticated product; it isn’t right for everybody. It can provide valuable protection against the potentially catastrophic costs of long-term care but is in and of itself expensive.
Whether you need long-term-care insurance depends on several factors, including your health, family situation, and financial resources. For some people, it’s an integral part of financial protection and peace of mind. For others, alternative strategies in paying for possible long-term care may be more suitable.
As you consider whether long-term care insurance is right for you, remember the following:
- The earlier you plan, the healthier and younger you are-the more options you will have.
- Do your homework: Know the costs of care in your area and the specifics of any policy you are considering.
- Think of the big picture: Planning for long-term care is closely intertwined with overall financial and retirement planning.
- Seek professional advice: A financial adviser or insurance professional can identify your choices.
Long-term care insurance, finally, is a highly personal decision, coming down to your situation and priorities. Understand your options, weight your needs thoughtfully, and inform yourself of a decision that best supports your long-term financial and healthcare goals.
What’s important to remember is that the goal here is not just making provisions for your potential need for care, but rather ensuring you’re going to be able to get the type of care that you want, where you want it, without putting your financial security or that of your loved ones at risk. Whether this involves buying long-term care insurance or any other strategy, what’s most important is simply that you have a plan.
