Long-term care (LTC) is custodial care — help with ordinary, everyday activities — not medical care. So traditional health insurance and Medicare don’t cover it. And it can be expensive. The average cost for a year of nursing home care is about $82,000, though it’s significantly higher in some areas. For home care, the average annual cost is about $46,332.
If you’re in the prime of life, planning for long-term care might seem less urgent than investing for your child’s college tuition, a down payment on a home, or retirement. You might assume you’ll never need it. You may be right. If so, you’re luckier than most women. Studies show that over 50% of women will need nursing home care at some point after they retire, and many others will need some kind of care at home. By contrast, only one out of three men will need long-term care.
- There are four ways to address long-term care in your financial plan:
- You can plan to pay for care yourself, which may be a viable option if you have over $2 million in assets.
- You can rely on Medicaid after you’ve exhausted your own assets.
- You can count on family members or friends to provide care for you.
- You can buy long-term care insurance to help pay for care.
Long-term care insurance can help you protect your assets, maintain independence, and expand your choices for care. There are some issues, though. The premiums are relatively expensive. Some policies make it difficult to qualify for benefits. And there’s no guarantee you’ll ever need to use the policy, in which case you get nothing in return for your premiums. You’ll want to review your options with a financial planner or attorney who can help you make an informed decision.
LTC insurance benefits
There are two ways that long-term care insurance policies can pay benefits: by reimbursing you after you submit claims, or by indemnity, which pays you a fixed daily benefit for every day you receive care.
Look for policies that adjust for inflation, either by increasing the benefit by a fixed percentage every year or by a rate determined by an actual measure of inflation, such as the Consumer Price Index (CPI). Otherwise, a benefit that seems sufficient today could fall far short of what you need years later.
Qualifying for benefits
Some policies pay benefits if your doctor deems it necessary. Other policies pay benefits only if the insurance company’s medical examiner agrees.
Many policies pay benefits based on a list of activities of daily living (ADLs). These include getting out of bed, moving around the house, eating, bathing, dressing, and using the toilet. The policy will pay benefits if you need assistance performing a specific number of ADLs. As a general rule, look for a policy that requires help with no more than two ADLs.
Think twice about buying a policy that requires prior hospitalization to qualify for benefits, since many people who need long-term care have chronic, deteriorating conditions that don’t result in hospitalization. You may also want to check if the policy covers care that results from a loss of mental faculties, such as occurs with Alzheimer’s.
Furthermore, consider the policy’s restrictions on care providers. Some policies pay only for care from certified healthcare professionals or nursing homes certified by Medicare. Yet, some high-quality nursing homes and care providers aren’t certified. Certain nursing homes even refuse Medicare patients entirely. If you want more choices, you might want to pay more for a flexible policy.
When to buy
The average age for a long-term care insurance claim is 78. However, if you wait until you’re retired to buy a long-term care policy, your premiums may be too high for you to manage on your retirement income. But if you buy a policy too early, you may end up paying more in premiums.
A possible approach is that you consider buying long-term care insurance in your 50s or early 60s. By then you may need less life insurance, which could free up money for long-term care insurance premiums. You may also be able to find a policy that offers 10- or 20-year payment options, which allow you to finish paying for coverage by the time you’re 65 or when you retire.
Linked benefit policies
As an alternative to traditional long-term care insurance, you can buy a life insurance policy that accelerates or prepays the death benefit if you need long-term care. This type of plan may be especially attractive if you’re financially secure, prefer to pay a single premium, and like the idea that if you use only a portion of the death benefit paying for long-term care, your heirs will receive the balance.
You’ll want to check the ratings of the companies whose policies you’re considering. If a policy issuer has a long tradition and sufficient assets, you can be more confident your coverage will be in place when you need it.
Long-Term Care Insurance, Its Benefits and Cost by Inna Rosputnia
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