A long-term care insurance policy helps cover the costs of that care when you have a chronic medical condition, a disability, or a disorder such as Alzheimer’s disease. Most policies will reimburse you for the care given in certain places, such as Your home. A nursing home. An assisted living facility. An adult daycare center. Considering long-term care costs is an important part of any long-range financial plan, especially in your 50s and beyond. Waiting until you need care to buy coverage isn’t an option. You won’t qualify for long-term care insurance if you already have a debilitating condition, and long-term care insurance carriers won’t approve most applicants over the age of 75. The majority of people with long-term care insurance buy it in their mid-50s to mid-60s. Whether long-term care insurance is the right choice depends on your situation and personal preferences.
Why buy long-term care insurance?
Approximately 70% of 65-year-old people will need long-term care services or support, according to 2020 data from the Administration for Community Living, part of the U.S. Department of Health and Human Services. Women typically need care for an average of 3.7 years, while men need it for an average of 2.2 years. Unfortunately, regular health insurance doesn’t cover long-term care. And Medicare won’t come to your rescue, either; it covers short nursing home stays or limited amounts of home health care when you need skilled nursing or rehab only. It doesn’t pay for custodial care, which includes supervision and help with day-to-day tasks. If you don’t have insurance to cover long-term care, you’ll have to pay for it yourself. You can get help through Medicaid, the federal and state health insurance program for those with low incomes, but only after you’ve exhausted almost all of your assets and savings.
People buy long-term care insurance for two reasons:
Mainly to protect their assets and their savings. Long-term care costs can deplete a retirement nest egg quickly. The median cost of care in a semiprivate nursing home room is $93,072 a year, according to Genworth’s 2020 Cost of Care Survey.
Long Term Care insurance also gives you more choices for care. The more money you can spend, the better the quality of care you can get. If you have to rely on Medicaid, your choices will be limited to the nursing homes that accept payments from the government program. Medicaid doesn’t pay for assisted living in many states. Buying long-term care insurance might not be affordable if you have a low income and little savings. The National Association of Insurance Commissioners says some experts recommend spending no more than 5% of your income on a long-term care policy.
How long-term care insurance works:
To buy a long-term care insurance policy, you fill out an application and will have to answer some health questions. The insurer may ask to see medical records and interview you by phone or face to face. You choose the amount of coverage you want. The policies usually cap the amount paid out per day and the total amount paid over your lifetime. Once you’re approved for coverage and the policy is issued, you will need to start paying premiums. Under most long-term care policies, you’re eligible for benefits when you can’t do at least two out of six ADLs “activities of daily living,” on your own or you suffer from dementia or other cognitive impairment. The activities of daily living are: Bathing. Caring for incontinence. Dressing. Eating. Toileting (getting on or off the toilet). Transferring (getting in or out of a bed or a chair). When you need care and want to make a claim, the insurance company will review medical documents from your doctor and may send a nurse to do an evaluation. Before approving a claim, the insurer must approve your plan of care. Under most policies, you’ll have to pay for long-term care services out of pocket for a certain amount of time, such as 30, 60 or 90 days, before the insurer starts reimbursing you for any care. This is called the “elimination period.” The policy starts paying out after you’re eligible for benefits and usually after you receive paid care for that period. Most policies pay up to a daily limit for care until you reach the lifetime maximum. Some companies offer a shared care option for couples when both spouses buy policies. This lets you share the total amount of coverage, so you can draw from your spouse’s pool of benefits if you reach the limit on your policy.
Cost of long-term care insurance:
The rates you pay depend on a number of things, including your age and health: The older you are and the more health problems you have, the more you’ll pay when you buy a policy. Gender: Women generally pay more than men because they live longer and have a greater chance of making long-term care insurance claims. Marital status: Premiums are lower for married people than for single people. Insurance company: Prices for the same amount of coverage will vary among insurance companies. That’s why it’s important to compare quotes from different carriers. Amount of coverage: You’ll pay more for richer coverage, such as higher limits on the daily and lifetime benefits, cost-of-living adjustments to protect against inflation, shorter elimination periods, and fewer restrictions on the types of care covered. A single 55-year-old man in good health buying new coverage can expect to pay an average of $1,700 a year for a long-term care policy with an initial pool of benefits of $164,000, according to the 2020 price index from the American Association for Long-Term Care Insurance. Those benefits compound annually at 3% to total $386,500 at age 85. For the same policy, a single 55-year-old woman can expect to pay an average of $2,675 a year. The average combined premiums for a 55-year-old couple, each buying that amount of coverage, are $3,050 a year. A caveat: The price could go up after you buy a policy; prices aren’t guaranteed to stay the same over your lifetime. Many policyholders saw spikes in their rates in the past several years after insurance companies asked state regulators for permission to hike premiums. They were able to justify rate increases because the cost of claims overall were higher than they had projected. Regulators approved the rate increases because they wanted to make sure the insurance companies would have enough money to continue paying claims.
I hope this information was helpful. Click the Long Term Care tab above and we will provide you with a quote from a number of carriers.
