The time to plan for long term care insurance is now—before you need it! According to a study conducted by AARP, almost 30% of “baby boomer” women said they were assuming that Medicare would take care of their long-term care needs. However, Medicare does not cover long-term care services.
According to the U.S. Administration on Aging, at least 70 percent of people over age 65 will require some long-term care services at some point in their lives.
If you have enough income and resources, it is likely that you will have to pay for your long-term care needs on your own. How you pay for these services depends on what type of assistance you need and if you have had the foresight to purchase long-term care insurance.
Long-term care insurance will help protect your assets and income if you should need long-term care services.
What Is Long-Term Care Insurance?
Long-term care insurance is a type of insurance that has been developed specifically to help cover the costs of long-term care services, most of which are not covered by either your regular health insurance or Medicare.
Long-term care insurance may help pay for services (such as assistance with Activities of Daily Living) in your home as well as care you may need in a skilled nursing facility (nursing home) or in a community-based program such as adult day care.
What Is the Cost of Long-Term Care Insurance?
Long-term care insurance premiums are based on your age, the benefits you choose, and the condition of your health when you purchase a policy.
If you decide to buy a long-term care policy in your early 50s, you probably will have a monthly premium somewhere between $65 and $150. At age 65 those figures will most likely double, and at age 70 you may need to spend $500 per month, or more.
With nursing home costs averaging more than $50,000 a year nationally, and in some areas of the country exceeding $100,000 a year, it is important for you to decide as early as you can how you will go about paying for long-term care services in the future.
Mike and Marion are both in their late 60s, retired, and in good health. Twenty years ago, Mike’s employer offered the option to purchase long-term care insurance as a job-related benefit. Although most employees opted not to purchase the insurance, Mike and Marion thought it was a good idea. They wisely chose the policy with the best benefits, which at $110 each month, was the most expensive option. Now twenty years later, they have completely paid into the plan and have an excellent array of benefits that will assure they will be completely covered for their long-term care needs.
Their friends Bob and Pam are in their mid-70s and Bob has type 2 diabetes and arthritis. They never thought about long-term care insurance and assumed that between Medicare and their savings, they would be covered. After Pam’s sister moved into a nursing home, the couple realized that they were not sufficiently covered. However, because of their age and Bob’s health problems, the cost of long-term care insurance was unaffordable. They are hoping they will not need nursing home care and are prepared to spend down their assets as well as asking their children for some assistance, if necessary.
How Do Long-Term Care Insurance Policies Differ?
If you decide to purchase a long-term care insurance policy, you have a great deal of choice, including a wide range of care options and benefits. You will need to balance the monthly premium with the type and amount of services you choose to have covered as well as any benefit restrictions or exclusions.
Long-term care insurance provisions to consider include:
Daily Benefit Amount: Most long-term care insurance policies pay a daily benefit ranging from $50 to $250 depending on the amount of coverage you have purchased and the type of care you are receiving. You will be responsible to pay any charges above the daily benefit amount.
Maximum Policy Benefit: Long-term care insurance policies have a benefit limit, which is the maximum period of time or dollar amount for which your long-term care benefits will be paid. When you purchase a policy, you can choose a benefit period that could range from one to ten years or one that lasts the remainder of your life.
Most long-term care policies convert the benefit time periods into dollar amounts and do not actually limit the number of days for which they will pay for long-term care services. For example, if you have a policy that pays a benefit of $200 per day with a maximum policy benefit of three years, instead of limiting you to 1,095 days of care (365 days X 3 year), your insurer may pay up to a total of $219,000 (1,095 days X $200).
Elimination or Waiting Period: Long-term care policies have elimination or waiting periods, which is the number of days you must receive long-term care services before your policy starts to pay your benefits. During the waiting period you will have to pay for any long-term care you receive. Typically, elimination periods range from 0 to 180 days.
Pre-Existing Condition Limitation: Some long-term policies have a pre-existing condition limitation – the period of time (usually six months) after you buy the policy that benefits will not be paid for any care related to the pre-existing condition. Some policies only apply a pre-existing condition limitation for medical conditions that you did not disclose on your application.
Policy Exclusions: All long-term care policies have a list of specific exclusions. Typically, these include:
- Mental and nervous disorders except for organic brain disorders such as Alzheimer’s disease and senile dementia.
- Self inflicted injuries or attempted suicide.
- Alcoholism and drug addiction.
- Treatment already paid for by the government
Inflation Protection: Some long-term policies have inflation protection, which each year increases the amount of your daily benefit amount based on some measure of inflation. This is a commonly offered option benefit, but it could significantly increase your monthly premium.