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It was estimated in 2017 that 52 percent of those turning 65 that year would need some form of long-term care in their lifetime. Long-term care (LTC) refers to services that help people, often the elderly, who have a physical or mental condition and are unable to care for themselves. These services can include assistance in dressing, eating, bathing, medication management and more.
Despite such a widespread need for long-term care, the service isn’t covered by Medicare. And while Medicaid can sometimes offer long-term care coverage, the individual must prove a need for financial assistance.
This leads to a dilemma that many Americans have started to face year after year. Long-term care is expensive—for example, it costs an average of $225 per day for a semi-private room in a nursing home. Middle-class families who saved a nest egg for retirement will find that they don’t qualify for Medicaid coverage.
And yet, just a few short years into paying for a partner’s long-term care costs, they’re left broke and returning to work at an advanced age.
For some, the natural answer is long-term care insurance. Long-term care insurance helps to offset the costs of long-term care services. Many long-term care insurance policies cover nursing home care, assisted living facilities, adult day care services, in-home care, home modification and care coordination.
However, long-term care insurance can be quite complicated. It’s imperative to understand the policies’ requirements and limitations, as well as the other options available.
Who qualifies for long-term care insurance?
Each provider will analyze your current health status and medical history before qualifying you for long-term care insurance. Note that approval is much faster for individuals who are young and healthy. If you are older with existing health problems, you may not qualify. Or, your provider will not cover your costs if these existing health problems result in you needing long-term care.
Most people who have debilitating conditions won’t qualify. Additionally, if you’re already receiving long-term care services, you likely will not be eligible.
Some providers will simply not cover certain medical conditions, so make sure to understand your provider’s policy and limitations.
Many individuals choose to purchase long-term care insurance in their 50 and 60s.
Why should you consider buying long-term care insurance?
End-of-life care can be costly, adding up to hundreds of thousands of dollars. If you don’t have enough money to cover these costs easily should they arise, you may want to consider long-term care insurance. Otherwise, your savings may be depleted, leaving nothing for your partner or your family.
Another important note is that long-term care insurance provides more options for end-of-life care than Medicaid can. With the right insurance policy, you may have more flexibility in choosing the type of end-of-life care you receive, such as assistance in your home or a higher-quality nursing home.
How does long-term care insurance work?
You can purchase long-term care insurance through an insurance company, an agent or sometimes through work. Coverage through work, when available, is often an excellent choice as you may be able to benefit from a group discount.
You need to qualify for long-term care insurance. Providers will assess your current health and medical history before approving you for a policy.
Typically, you pay an annual premium fee. You can expect your premium to be more expensive the more your provider covers. Note that many insurance providers can increase their premiums without telling you. You can request information on the company’s premium rates over the last few years to understand their average rate of increases.
Additionally, as you age and your health declines, you’ll find that your premiums increase as well.
Note that long-term care insurance doesn’t cover all the costs associated with long-term care. There are usually limitations on how much it will cover per day, and the maximum benefit limit—meaning, how many months or years of nonstop coverage it will cover.
For example, a policy may state that after eight years of nonstop care, the individual receives no more coverage. This limit can also be expressed by a cap dollar amount, such as after an individual has received $1 million in coverage.
How much does long-term care insurance cost?
Long-term care insurance is a personalized plan. First, you’re evaluated and given some quotes for different coverage levels. Next, you pick the coverage that seems to suit your needs.
Ultimately, your coverage will depend on a variety of factors, such as your:
- Age
- Current health condition
- Medical history
- Gender
- Marital status
- Insurance provider
- Amount of coverage
The average cost of a long-term care yearly premium is between $925 and $1,765 for a 55-year-old male. However, recent stories have shown that the cost can be much higher if you want a substantial amount of coverage. And remember, prices can change even after you’ve bought your policy.
Traditional vs. hybrid long-term care insurance
In recent years, a new hybrid long-term care insurance has come onto the market. This hybrid model is far more popular with people for many reasons.
Hybrid policies are simply life insurance policies that allow you to draw money out for long-term care. You can access your death benefit while you’re still alive. If you don’t use the funds for long-term care, your beneficiaries will receive all the money.
One of the significant benefits of the hybrid model is that you lock in a premium initially, so you protect yourself from increasing prices. Additionally, this model will qualify individuals who are older and/or in poor health.
Unfortunately, the downside of a hybrid model is its price. You’ll often find you’re paying two to three times more than for typical long-term care insurance. However, it’s an understandable cost as you’re essentially paying for the guarantee of getting money back.
When should you buy long-term care insurance?
It’s recommended you purchase long-term care insurance in your late 50s or early 60s, before it gets more expensive. Additionally, the longer you wait, the more risk there is that a health condition will pop up that disqualifies you.
What are some alternatives to long-term care insurance?
There are a few alternatives to long-term care insurance, including short-term care insurance, HSAs, VA benefits and Medicaid.
Short-term care insurance
Short-term care insurance covers care services with a time limit (usually of one year). Individuals who don’t qualify for long-term care insurance often turn to this option.
HSAs
If you have an eligible high-deductible health insurance plan, you’ll have access to a Health Savings Account (HSA). An HSA allows you to put away money, tax-free, for medical costs—including long-term care. If you have an HSA (or a health IRA), you can pay for long-term care insurance premiums with money from this account.
Veterans’ benefits
Veterans can receive long-term care services if they have a service-related disability. The Department of Veterans Affairs provides this coverage. Family caregivers may also be able to receive compensation through the Aid and Attendance program.
Eligible veterans include:
- Those who have a service-related disability
- Vietnam veterans who were exposed to Agent Orange and developed health problems later in life
Medicaid
If all other financial options have been depleted, Medicaid will step in. Medicaid will pay for nursing care and, in some states, home healthcare services. Unfortunately, Medicaid will not pay for assisted living.
Note that the federal government requires states to recoup these costs whenever possible. This means that if a person’s home is sold after their death, all or some of the proceeds may go back to the state.
Medicaid should never be your only plan. First, you have to show that you’re financially spent and have no other options to receive this help. Secondly, you’ll have limitations on where and what kind of long-term care you’ll receive. Some long-term facilities simply won’t accept Medicaid patients.
What is your long-term financial plan?
Even though it’s not fun to think about requiring long-term assistance in the future, it’s an essential factor to address. Like planning for your death with a will, you should have an idea in mind of how you’ll pay for long-term care if it becomes a necessity. Planning ahead will pay off, as you can get cheaper rates when you sign up early.
It’s recommended you work with an independent insurance agent and a financial advisor to understand if long-term care insurance is right for you. Make sure to receive several price quotes from different providers before signing with anyone. Making these plans and considerations now will save you, your partner and your family a lot of headaches in the future.
A significant part of responsible financial planning is looking to the future. Make plans to protect yourself now and you’ll thank yourself later on.
