Planning for retirement means paying attention to different potential outcomes, including the need for advanced healthcare services. For many adults, long-term care services are part of aging. Seventy percent of people age 65 and older will need long-term care at some point, and more than 48 percent will need some form of paid care, according to the U.S. Department of Health and Human Services. Fortunately, you can plan for financing any long-term care needs by researching your options, including long-term care insurance.
What Is Long-Term Care Insurance?
Long-term care insurance offers an alternative to out-of-pocket and Medicaid payments, helping seniors pay for assisted living, skilled nursing or specialized care in a senior living community. A long-term care policy can guarantee considerable protection without depleting the assets for a surviving spouse and heirs, says Ralph Barringer, a certified long-term care consultant and financial planner at Northwestern Mutual in Louisville, Kentucky.
As with other types of insurance, you pay a premium to guarantee the insurance company will cover your long-term care costs, up to the dollar amount specified (based on your preferences for length of coverage and how much you can afford). Without it, you must use your income and savings to pay all of your long-term care costs when they arise.
But it’s more than asset protection, says Wendy Rinehart, president of ClaimJockey, a company specializing in long-term care insurance claims management. “Everybody who wants dignity and choice at this most important time in their life needs a policy in place,” Rinehart says. “People are running out of money trying to pay for their own care, and then they’re left on Medicaid, which allows little choice.”
What Does Long-Term Care Insurance Cost?
As with many services, long-term care insurance costs vary from provider to provider, and from situation to situation. When it comes to coverage and cost, several factors can impact the bottom line.
Policy costs typically increase the most between the ages of 50–64. Rinehart says the sweet spot for purchasing long-term care insurance is in your early to mid-50s.
Good health keeps costs lower at almost any age, but some health conditions can put even younger adults in a higher-cost category, and some illnesses can make you ineligible for coverage. For instance, some plans will not accept people with insulin-dependent diabetes, Alzheimer’s disease or obesity.
Long-term care insurance usually is a lifetime expense, but there is no guarantee that the premium you start with will not increase. Preferably, coverage should be based on a monthly benefit, not a daily limit, Barringer says. A single day’s medical care easily might bump your expenses beyond a daily limit, but a monthly limit should absorb the occasional higher costs. You can also purchase inflation protection, but that increases the cost of the policy.
Another consideration is the “elimination period,” part of most long-term care insurance policies. It’s similar to a deductible, and it dictates the amount you must spend out of pocket by establishing how many days you must receive care before your coverage kicks in. Although elimination periods could be set at 90 days, you can pay more for a shorter one.
Before you purchase coverage, do your homework. You can research average nursing care costs by state in order to begin planning. Next, research the financial background, history and reviews of long-term care insurance carriers in order to determine if one fits into your budget or helps you meet other goals.
What Does Long-Term Care Insurance Cover?
Long-term care insurance covers a variety of services related to care during an extended illness or disability. Depending on the type of plan, services covered can include:
- Inpatient physical, occupational or speech therapy
- Nursing care
- Assistance with activities of daily living
Long-term care insurance also covers costs associated with staying in a senior living community that provides these extended services, such as a skilled rehabilitation center or even assisted living. It’s important to note that Medicare does not cover long-term care costs beyond 120 days per year, with documented progress towards care plan goals. This means that if you are relying on Medicare for your long-term care plans, you might not be prepared enough.
Who Needs Long-Term Care Insurance?
Long-term care insurance is a personal decision, but adults should review the pros and cons for their specific situation as a part of their future planning process. It is certainly worth it to consider the costs and the potential benefits as a part of looking toward retirement and beyond.
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