Do you need long-term care insurance?

By: Stacey Nickens

Historically, individuals didn’t need to plan for their care in old age. Most people stayed and lived within the communities that they were born into, and younger family members were expected to care for aging relatives. However, industrialization and the centralization of jobs in cities forced many younger folks to leave their communities and live far away from aging relatives. As a result, it became increasingly necessary for aging folks to find care outside of their families.

Whether you plan to be cared for by relatives or not, it’s important to consider your potential long-term care needs and understand the cost of your different care options. Begin by considering the needs of aging relatives before you. What kind of care did they need in their old age? How long did they live? Experts currently believe that a 65 year old has a 70% chance of needing long-term care services. Around 42% those who need long-term care pay for home healthcare. Costs for home healthcare workers sit at around $4,200 a month, and this price fluctuates significantly based on where you live, your needs, and other factors. Another 37% of those who need long-term care live in a facility. On average, nursing home facilities charge around $95,000 per year and assisted living facilities charge around $50,000 per year.

Medicare can cover some nursing facility costs, but Medicare coverage is limited. Medicare Part A only covers up to 100 days in a skilled nursing facility, provided that the stay at a nursing facility follows a hospital stay. During those 100 days, Medicare will fully cover the costs of the first 20 days, but after that, you will be expected to pay a coinsurance amount. Otherwise, Medicare generally does not cover long-term care services.

Your other options include spending down your assets to qualify for Medicaid, paying for long-term care using your personal assets or savings, and/or paying for long-term care with long-term care insurance. To qualify for Medicaid, your income and assets cannot exceed a certain threshold, and those who want to leave behind assets for their children will likely not want to spend down assets to qualify for Medicaid. Similarly, spending a significant chunk of your personal assets on long-term care can work for high net worth individuals, but for others, it can impact your ability to leave behind a legacy.

Long-term care insurance often covers skilled nursing care, custodial care, home healthcare, hospice care, adult daycare, assisted living facilities, and other needs. This type of insurance could help you pay for either non-skilled or medically skilled care while living at home. You could also use this insurance to pay to live in a care facility or to receive care at a daycare facility during a caregiver’s working hours. Many policies have daily, weekly, or monthly limits of how much the policy will pay, after which the policyholder will need to pay out-of-p0cket for services.

It is usually best to apply for long-term care insurance in your 50s or early 60s, and if you choose to purchase a policy, you should consider the breadth of the coverage. In your 50s and early 60s, you’re more likely to be healthy and qualify for lower premiums. You may also be able to receive certain discounts. As you shop for policies, consider what services the policy covers, how the policy will pay for services, and any payment limits. Knowing these payment limits can help you determine how much you might need to pay out-of-pocket and whether you can afford to do so. You should review how long the policy would last once you qualified for long-term care as well as the conditions under which your insurance would come into effect. You might also consider getting a policy with additional features, such as inflation protection. This would ensure that your benefits would increase as the cost of long-term care increases.

Make sure to review the policy’s elimination period. The elimination period can be anywhere from 0-180 days and reflects the period of time between when you become eligible for long-term care and when your long-term care benefits begin. You should make sure you have funds set aside to cover your long-term care expenses during this elimination period.

What are your other options? You can also look at a life insurance policy with a long-term care rider, under which you can receive accelerated death benefits to pay for long-term care. However, your death benefit would be reduced or eliminated depending on the amount of incurred long-term care costs. These policies may be appealing if you would like the option for your beneficiaries to receive a death benefit if you do not receive long-term care. Certain annuity contracts could also be considered to provide for long-term care needs. Deciding what is best for you requires looking at your entire financial picture. Contact our professional financial planning team today for further support.