Long-term care (LTC) is custodial care – help with ordinary, everyday activities like bathing, dressing, or getting in and out of bed. Long-term care insurance helps cover the costs of that care when you have a chronic medical condition, a disability, or a disorder. But it’s not medical treatment, so traditional health insurance and Medicare don’t cover it. And it can be expensive.
For example, 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 price is approximately $46,332.
There are four ways to address long-term care in your financial plan:
- First, 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.
- Or 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.
There are some issues, though. First, the premiums are relatively expensive. Second, some policies make it difficult to qualify for benefits. Third, there’s no guarantee you’ll ever need to use the policy, in which case you get nothing in return for your premiums.
Some states offer income tax deductions or credits if you pay long-term care insurance premiums. Your tax advisor can tell you whether you qualify.
Why buy LTC insurance?
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. As a result, 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.
It’s impossible to know for sure if your family would be able to care for you if long-term care becomes necessary. Many people can’t afford to cover the entire costs out-of-pocket because long-term care is a considerable expense.
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Usually, people think that long-term care is like nursing homes. However, most people who receive long-term care are in-home or community-based settings, not in nursing homes. In addition, LTC insurance usually covers almost all help with activities of daily living and non-medical assistance like basic daily medical needs.
Buying LTC insurance also has some tax advantages
According to Federal and some state tax codes, you can count on some part or all of long-term care insurance premiums as medical expenses if they meet a certain threshold. These expenses can be tax-deductible, providing that they are tax-qualified and the policyholder itemizes tax deductions, among other factors. Such policies must meet certain federal standards and be labeled as tax-qualified.
Thinking about long-term care insurance can help you save for the cost of care more accurately. In addition, it can help you protect your assets, maintain independence, and expand your choices for care.
Cost of LTC insurance
The cost of care varies widely. In general, the longer your coverage lasts, the larger your potential benefit, and the less time you have to wait to receive benefits, the more expensive your policy will be.
Long-term care insurance policies are customized for individual buyers. What you pay for coverage depends on fixed factors, such as your age and health, and the specific features you choose.
Age: The older you are, the higher the premium.
Health: You’ll need to answer questions about your medical history.
Gender: Generally, women pay more because they live longer and have a greater chance of making long-term care insurance claims.
Length of time you’ll receive benefits: Some policies pay benefits for two to five years, and some pay benefits for your lifetime.
Elimination period: You probably have to pay for care on your own for a set time before benefits kick in.
Type of care: The policy may cover nursing home care, home healthcare, or both.
Time of day: home health care services are often more expensive in the evenings, weekends, and holidays.
Daily benefit: Most policies pay a fixed amount per day, either by claims reimbursement or indemnity.
Maximum benefit: Most policies set a limit, or cap, on the total benefits you can receive.
Long-term care insurance premiums are priced based on your age when you apply. But they aren’t guaranteed to stay the same over your lifetime. Yearly, the annual rate can increase on your birthday.
When LTC Insurance benefits become available
LTC insurance usually pays benefits when an insured person can no longer do some activities of daily living (ADLs). These include getting out of bed, moving around the house, eating, bathing, dressing, and using the toilet. In addition, 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.
Some policies pay benefits if your doctor deems it necessary. Other policies pay benefits only if the insurance company’s medical examiner agrees.
Think twice about buying a policy requiring prior hospitalization to qualify for benefits. 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 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.
Caring for parents
You might consider long-term care insurance as a way to provide care for your elderly parents without having to dip into your own savings or retirement accounts.
Long-term care insurance policies can pay benefits by reimbursing you after submitting claims or by indemnity, which pays you a fixed daily benefit for every care you receive.
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.
The right age to buy Long-Term Care Insurance
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. Long-term care insurance is also cheaper if you buy it younger. 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. Consider buying LTC insurance as part of an overall retirement plan to protect assets from the high costs and burdens of extended healthcare. 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.
Don’t wait until your health needs demand immediate long-term care.
Women and long-term care
- On average, women live more than five years longer than men.
- Older women are more likely than men to live alone.
- Women over 65 are more likely than men over 65 to need help with daily living.
- Women are more likely to take care of others, using their own assets to do so.
- The average woman over age 65 has an income of about $23,000 per year.
Linked benefit policies
If you do not want to pay “for something you may never use,” the linked benefit is a great option. Linked-benefit policies are life insurance policies with an added rider. You can buy a life insurance policy that accelerates or prepays the death benefit if you need long-term care as an alternative to traditional long-term care insurance.
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.
Linked benefits often are more flexible to cover expenses. For example, if you decide you need the money for something else, the policy has an option of receiving a cash value that can be roughly equal to the total premiums paid.
Long-Term Care Insurance, Its Benefits and Cost by Inna Rosputnia
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