Long-Term Care Insurance: What It Is and What It Isn't

Long-Term Care Insurance: What It Is and What It Isn't

 

It may be difficult to believe today, but you will almost certainly want assistance in taking care of yourself later in life. The big question is, how are you going to pay for it?

One method to prepare is to purchase long-term care insurance. Long-term care encompasses a wide range of services not covered by standard health insurance. This includes help with daily tasks such as showering, dressing, and getting in and out of bed.

When you have a chronic medical condition, a disability, or an illness like Alzheimer's disease, a long-term care insurance coverage can assist pay the costs of that care. Most policies will reimburse you for services rendered in a variety of settings, including:

• Your home.
• A nursing home.
• An assisted living facility.
• An adult day care center.

Long-term care costs should be factored into any long-term financial strategy, especially for those in their 50s and beyond. It's not a good idea to put off purchasing health insurance until you need it. If you already have a disabling ailment, you won't be eligible for long-term care insurance. Long-term care insurance is typically purchased by persons in their mid-50s to mid-60s.

Long-term care insurance may or may not be the best option for you, depending on your circumstances and choices.

Why buy long-term care insurance?

According to data from the Administration for Community Living, which is part of the US Department of Health and Human Services, about 70% of 65-year-olds will require long-term care services or support by 2020. Women require care for an average of 3.7 years, while men require care for an average of 2.2 years.

Long-term care is not covered by standard health insurance. When you simply need skilled nursing or rehab, Medicare won't help; it only covers brief nursing home stays or limited quantities of home health care. Custodial care, which involves supervision and assistance with day-to-day duties, is not covered.

In most places, if you don't have long-term care insurance, you'll have to pay for it out of pocket. Medicaid, a federal and state-run health-insurance program for low-income people, can help, but only after you've used up all of your savings.

People buy long-term care insurance for two reasons:

To keep your money safe. Long-term care bills can quickly empty a retirement savings account. According to Genworth's 2020 Cost of Care Survey, the median cost of care in a semiprivate nursing home room is $93,072 per year.

To provide you with more options for medical treatment. The more the amount of money you have, the higher the quality of care you will receive. If you need to rely on Medicaid, your options will be restricted to nursing homes that accept the government program's payments. In many places, Medicaid does not cover assisted living.

If you have a low salary and limited savings, long-term care insurance may be out of reach. Some experts advise spending no more than 5% of your salary on a long-term care coverage, according to the National Association of Insurance Commissioners.

How popular is long-term care insurance?

Since 2000, the number of insurance firms offering long-term care insurance has decreased dramatically. According to 2020 data from the National Association of Insurance Commissioners, there were little more over 100 insurers selling insurance in 2004. Currently, about a dozen are selling insurance coverage.

Since the 2008 recession, a large exodus from the market has occurred due to the uncertain cost of paying future claims, as well as low interest rates. Because insurers invest the premiums their customers pay and rely on the returns to make money, low interest rates affect them.

The market is always changing. In March 2019, Genworth, one of the few surviving carriers, stopped selling individual long-term care insurance through agents and brokers. Through its own sales department, the corporation sells policies to groups and to individual consumers.

How long-term care insurance works

You must fill out an application and answer health questions in order to purchase long-term care insurance. The insurer may request to review your medical records and conduct a phone or in-person interview with you.

You get to choose how much coverage you want. The amount paid out per day and over the course of your lifetime is normally capped by the plans.

You begin paying premiums once you've been authorized for coverage and your policy has been issued.

When you can't accomplish at least two out of six "activities of daily living," or ADLs, on your own or have dementia or other cognitive impairment, you may be eligible for long-term care benefits.

The activities of daily living are:

• Bathing.
• Caring for incontinence.
• Dressing.
• Eating.
• Toileting (getting on or off the toilet).
• Transferring (getting in or out of a bed or a chair).

When you need medical attention and wish to file a claim, the insurance company may evaluate your doctor's medical records and may send a nurse to assess you. The insurer must approve your plan of care before approving a claim.

Most policies require you to pay for long-term care services yourself for a set period of time, such as 30, 60, or 90 days, before the insurer begins to reimburse you. The "elimination period" is what it's termed.

After you become eligible for benefits and, in most cases, after you receive paid care for that time period, the policy begins to pay out. Most insurance pay for care up to a daily limit until the lifetime maximum is reached.

When both spouses purchase policies, some firms provide a shared care option. This allows you to split the entire amount of coverage, allowing you to draw from your spouse's pool of benefits if your own policy's limit is reached.

Cost of long-term care insurance

The rates you pay depend on a variety of things, including:

Your age and health: When you acquire a coverage, the older you are and the more health problems you have, the more you'll pay.

Gender: Women pay more than males because they live longer and are more likely to file long-term care insurance claims.

Marital status: Married folks pay cheaper premiums than single persons.

Insurance company: Insurance companies will charge different amounts for the same amount of coverage. That is why it is critical to compare quotations from several carriers.

Amount of coverage: Higher daily and lifetime benefit limitations, cost-of-living adjustments to hedge against inflation, shorter elimination periods, and fewer restrictions on the types of care covered will all cost more.

According to the American Association for Long-Term Care Insurance's 2020 price index, a single 55-year-old man in good health should anticipate to spend an average of $1,700 per year for a long-term care policy with a $164,000 initial pool of benefits. At the age of 85, those benefits will have compounded at a rate of 3% per year, totaling $386,500. A single 55-year-old woman may anticipate to pay an average of $2,675 per year for the same insurance. The average annual premium for a 55-year-old couple purchasing the same level of coverage is $3,050.

A caveat: After you acquire an insurance, the price may go higher; rates aren't guaranteed to stay the same throughout your life. Many consumers have seen increases in their rates in recent years as insurance companies sought approval from state regulators to raise prices. They were able to justify rate hikes because the entire cost of claims was more than expected. The rate hikes were approved by regulators because they wanted to ensure that insurance companies had enough money to continue paying claims.

Tax advantages of buying long-term care insurance

If you itemize deductions, long-term care insurance might provide tax benefits, especially as you get older. Long-term care insurance premiums can be counted as medical costs, which are tax deductible if they achieve a particular threshold, according to federal and state tax rules. The amount of premiums you can deduct increases as you get older.

Medical expenses are limited to premiums for tax-qualified long-term care insurance policies. These insurance must meet specific federal requirements in order to be classified as tax-qualified. If you're not sure whether a policy is tax-qualified, ask your insurance carrier.

How to buy long-term care insurance

You can buy directly from an insurance company or through an agent.

You might be able to get a long-term care policy via your employer. Some firms allow employees to buy insurance from their brokers at group pricing. You'll probably have to answer some health questions if you get coverage this way, but it may be easier to qualify than if you buy it on your own.

To compare pricing, get quotations from several firms for the same coverage. Even if you're offered a discount at work, you might be able to locate better deals elsewhere.

Working with an experienced long-term care insurance agent who can sell policies from at least three carriers is recommended by the American Association for Long-Term Care Insurance.

The group discovered that rates varied substantially among insurers in its 2019 price comparison.

'Partnership' programs in states: what they are and how they work

To encourage people to plan for long-term care, most states have "partnership" programs with long-term care insurance firms.

The following is how it works: Insurers agree to provide policies that fulfill particular quality standards, such as offering benefits with cost-of-living adjustments to protect against inflation. If you buy a "partnership insurance," you can protect more of your assets if you use up all of your long-term care coverage and subsequently need Medicaid assistance. In most jurisdictions, for example, a single person would need to spend down their assets to $2,000 in order to qualify for Medicaid. You may be able to qualify for Medicaid sooner if you have a partnership long-term care plan. In the majority of states, For every dollar your long-term care insurance paid out, you can keep a dollar that you would have had to spend to qualify for Medicaid.

Check with your state's insurance department to see if your state has a long-term care partnership program.

One of the most crucial items to consider when making a long-term financial plan is the possible expense of long-term care. Consult a financial counselor to determine whether long-term care insurance is right for you.