The old adage insists, “Don't put off until tomorrow what you can do today.” But does it apply to long-term care insurance?
Experts anticipate that the size of the massive Baby Boomer generation combined with the fact that people are living longer than ever adds up to a potential perfect storm when it comes to everything from senior healthcare to housing needs. Long-term care insurance is one solution which allows seniors to prepare for a future in which daily care might be needed, but is it worth it? Let's take a closer look at the issue of long-term care, along with highlighting the pros and cons involved with making this investment.
Related: Senior Care Financial Decisions Part 2: Reverse Mortgages and Senior Care Financial Decisions Part 3: Annuities
Even when the sun is shining, it's important to plan for rainy days.
The Basics of Long-Term Care Insurance
Long-term care refers to personal assistance needed over an extensive period of time. Typically, people with chronic illnesses, disabilities, and other health conditions rely on long-term care, which can include everything from help with daily hygiene activities to skilled care from medical professionals.
Employer-based health insurance plans do not typically cover long-term care. Nor does Medicare. To bridge the gap, many people purchase long-term care insurance to ensure that they'll have adequate help in the future if it becomes necessary. However, because it's impossible to predict what those needs will be, the decision to invest in long-term care insurance — let alone to sort through the various policy options — can be a tricky one. Not only that but the extent of long-term varies by the individual and can change over the years.
Related: Planning for Retirement? Don't make these mistakes
Is Long-Term Care Insurance Right For You?
What factors come into play when assessing whether long-term care is right for you? Policies cost considerably more for people who are older and/or living with chronic health conditions, so buying when you're still young and healthy can be a sound financial move.
Not only that, but premiums typically increase over time so the ongoing ability to pay this expense also needs to be evaluated. Depending on your income and assets and differs from state to state, you might also qualify for Medicaid which does cover nursing home care.
Lastly, if you have a strong support network comprised of people who are planning to help care for you should the need arise, your long-term care insurance needs may be lower.
There are also a number of more complex financial considerations involved with buying long-term care insurance, related to everything from savings and investments to taxes. A financial adviser or lawyer specializing in estate planning can help you gain a clearer picture from a money management perspective.
Pros and Cons of Long-Term Care
While thinking about it can be hard, planning for a future in which you might need long-term care is important for everyone. Why? Because nearly 70% of people aged 65 and older will need long-term care at some point in their lives, according to the U.S. Department of Health and Human Services. But what, specifically, are the pros and cons involved with the decision?
- Pro: Long-term care insurance allows individuals to maintain their independence while reducing the burden of long-term care needs and costs on their family members.
- Con: Long-term care insurance is not only initially expensive, but premiums may rise over time. Failure to keep up with the premiums may leave policy owners with no coverage despite their initial investment.
There are alternatives to long-term care insurance, including other financial arrangements, such as insurance policy riders for chronic illness and certain types of annuities which offer monthly payouts; pre-paying for care; community living; family care; and even “medical tourism” — a phenomenon which finds many Americans seeking out more affordable long-term care and assisted living options abroad.
A financial advisor can be a vital partner in long-term care planning.
Ultimately, whether or not you decide long-term care is right for you, it's essential to have a plan in place, and to make sure family members are on the same page regarding their roles and responsibility. Additionally, seeking out legal and financial help for seniors can help you sort through the intricacies of long-term care planning in order to make the most beneficial arrangements for you and your family.
Four Things To Consider When Purchasing Long-Term Care Insurance
Should older adults purchase long-term care insurance to cover the high costs of care in case they become ill in the future?
The cost of long-term care is rising. Older adults worry about how they’ll pay for care at home or in an assisted living facility. They worry about running out of money. They worry that the costs will eat into their estate and assets so that their loved ones inherit less.
One possible solution to these worries is long-term care insurance (LTCI). LTCI is an insurance policy that pays for long-term care if needed. It sounds like a wonderful solution, and in some cases it is. But there are pros and cons to long-term care insurance.
Let’s take a closer look at long-term care insurance and some things to consider before taking out a policy.
What Is Long-Term Care?
Long-term care includes the ongoing needs of a senior who’s developed a chronic illness or disability. These might include help with daily activities such as bathing and dressing, help with cooking, medication management, mobility, or more specialized medical care.
Doesn’t The Government Pay For Long-Term Care?
Many people make the mistake of thinking the government pays for long-term care. This isn’t true in most cases.
Medicare covers short rehabilitation stays in nursing homes, and sometimes covers temporary at-home care and therapy. Medicare benefits apply under very strict circumstances. Employers’ health coverage doesn’t usually cover long-term care either.
Medicaid is a State and Federal program that covers long-term care only for the very poor. Again, strict guidelines apply.
Long-Term Care Insurance Can Provide Peace Of Mind
For some people, LTCI is a way to make sure their care is paid for should they need it. LTCI can provide seniors with peace of mind. They know they have a way to pay for their care without using all their savings, assets, or estate, and leaving them impoverished.
Many seniors will require long-term care as they age. According to the American Institute For Long-Term Care Insurance, 68% of older adults will find themselves cognitively impaired, or disabled in at least two areas of daily living. The chances of needing some form of long-term care are fairly high.
Some Things To Consider Before Purchasing LTCI
#1. The Cost Can Be Prohibitive
LTCI can be expensive. Premiums can cost as much as $2,700 a year. Offset this against the costs of long-term care. Older adults can expect to pay more than $30,000 a year for an assisted living facility in today’s market. It might be worth it, but the high cost is certainly a consideration.
#2. LTCI Doesn’t Usually Cover Pre-Existing Conditions
Seniors with pre-existing conditions such as Alzheimer’s or diabetes might struggle to qualify for long-term care insurance.
Some companies may agree to insure them but won’t cover care related to that specific condition. Others might agree to pay a certain amount for those conditions, but only after a waiting period.
If they do find a policy that will cover their illness, the premiums will be exorbitant.
#3. Policies Are Only Paid After Certain Criteria Are Met
Most LTCI policies will only pay out after the policy holder meets certain criteria – known as “benefit triggers.” These qualifiers include needing help with two or three activities of daily living, such as eating, bathing or dressing. The insurer will require proof or an assessment to show that the policyholder meets these benefit triggers before they will pay out.
AARP recommends seniors look for a policy that includes bathing as one of the activities of daily living, as that is often one of the first things seniors need help with.
#4. Be Aware Of Waiting Periods and Caps
Most LTCI policies have a waiting period before they start paying benefits. This period is calculated from the moment the policyholder is certified as unable to carry out activities of daily living. Waiting periods can be up to 100 days.
Typical LTCI policies also have benefit caps. For example, they will only pay $100 a day for in-home care or $250 for care in a senior care facility.
Is Long-Term Care Insurance The Way To Go?
Long-term care insurance has both pros and cons. Each persons circumstances are different. LTCI is a good option for some people, but not everyone. We suggest talking with your loved one about these topics:
- Is long-term care insurance the best way for them to afford long-term care if they need it? Some people opt to use savings or investments to pay for care, rather than LTCI.
- Do they have any pre-existing conditions that would disqualify them from a policy?
- What level of care are they likely to need? It’s impossible to predict exactly what will happen as we age, but chatting about pre-existing conditions, family history, and how good their support network is, can all help give an idea of the future.
- How easy will it be for them to keep up with their policy payments, both now and in the future?
- Can they afford to cover the waiting period? Shorter waiting periods typically means bigger premiums. If they can afford paying for a longer waiting period another way, their premiums could decrease.
- How much of a concern is paying for care in terms of how it will impact their estates and will, and how much they can leave to their loved ones?
Tips On Long Term Care Insurance Policy Hunting
If your loved one decides to check out LTCI policies, we recommend the following tips:
- Look for insurers who are state approved, and who have experience in offering LTCI policies.
- Ask potential insurers how many times their premiums have gone up in recent years, and how much they have gone up by.
- Ask for specific details on waiting periods and caps.
- Discuss whether the activities for daily living assessment also include cognitive impairment, such as Alzheimer’s. Sometimes seniors can physically carry out a task but it isn’t safe for them to do so.
- Ask about how flexible the policy is – is it possible to increase or decrease payments depending on circumstances?
- Make sure the insurer gives you a 30-day period to review your policy, and cancel it if it doesn’t suit you. Most insurers offer this.
- Get a written copy of every policy you are considering and be sure to read the fine print carefully.
- Compare policies from at least three companies before deciding.
If in doubt, consider making an appointment with a financial advisor or lawyer who can go over the policy with you and your loved one, making sure it’s appropriate.
LTCI isn’t right for everyone, but for some, it is the best way to ensure their long-term needs are taken care of. Sit down with your loved ones and talk it over with them. Whatever the decision, you’ll feel better knowing you’re better prepared for the future – no matter what comes your way.
Another factor to consider is whether your long-term care policy will actually pay benefits when the time comes.
My mother, born in 1923, started paying premiums on her LTC policy in the late 1980’s. As she got older and less capable, she kept refusing to hire help, giving as a reason not wanting to exhaust her coverage till she really needed it.
Like most of us, that day finally came in the last 2 years of her life, 2010 – 2012 — and her insurance company fought every charge, no matter how small or unquestionable. My sister, her executor, fought back on every charge, and eventually ended up giving up on most because the amounts were trivial compared to the rest of the estate.
So my mother paid premiums for 30 years and got basically no benefits in return. That certainly helped me decide whether I wanted such insurance for myself! It’s another one of those areas where you’re better off salting away what you would pay in premiums in a separate savings account
It’s interesting what this article mentions about long term insurance taking a burden off the family for long term needs. I think it could be very beneficial to my kids to not have to worry about caring for me while I’m getting older. I think it could be a very wise investment to keep everyone comfortable, even if it is a little more expensive.