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Long term care insurance (LTCI) is both complex and controversial. It covers certain nursing home costs and sometimes home health care. Here is a summary of some of the main points for and against purchasing such coverage.
Do not buy long-term care insurance unless all of the following apply to you:
Here are some options for paying for long-term care, along with their advantages and drawbacks:
Applying For Medicaid
Eligibility rules vary from state to state, but beneficiaries are generally required to "spend down" their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.
Reverse Mortgage, Equity Conversion
Reverse mortgages and other forms of home equity conversion are often viable alternatives for those who wish to remain at home. Seniors borrow money against the equity in their homes and defer repayment until they die or sell their house. However, for these options to make sense, a home must have a high monetary value and be fully or mostly paid for, and the individual must intend to stay in the home for the long term.
Self-insurance--paying for costs if they arise--is a gamble but is the current strategy of choice for the majority. Self-insurance makes the most sense for people with major assets; for those who can afford a long nursing home stay and; for people of modest means, who would quickly qualify for Medicaid anyway.
Premiums for LTCI vary greatly, depending on your age at the time of purchase, the comprehensiveness of the coverage, and the company selling the plan.
According to the 2019 Long-Term Care Insurance Price Index published by the American Association for Long-Term Care Insurance (AALTCI), a 55-year-old married couple would pay $3,050 per year for long-term care insurance coverage for a potential combined benefit of over $770,000 in coverage should they begin needing care at age 85.
A 55-year-old single male purchasing new long-term care insurance protection can expect to pay $2,050 a year for benefits according to the data in the industry report. A 55-year-old single woman can expect, on average, to pay more than a single man for similar coverage; $2,700 annually in 2019. The average annual premium for a 55-year-old couple was $3,050. Costs vary significantly from insurer to insurer even for identical policies so it's always a good idea to shop around.
But, no matter how good a policy sounds, it's worth little if the company won't be there when it comes time to pay, so you should always buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up company's rating by M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.
When you compare long-term care insurance policies, consider the following:
Flexibility. A policy that covers nursing homes should also cover assisted living, a better alternative for many people who can no longer live on their own. If you want a policy with home care, look for one that offers a full range of community-based services, including adult day care, or that pays you a monthly cash allowance to spend as you please for care.
Eligibility. Look for a policy that bases eligibility on the need for help with activities of daily living. Policies that only pay for "medically necessary" care are not usually a good buy. To be sure you are covered for Alzheimer's disease, choose a policy that covers cognitive as well as physical disability and pays benefits if you meet either criterion.
Inflation. If you purchase a policy before the age of 75, inflation protection is essential to ensure adequate coverage when you need long-term care at some point in the future. Buy a policy that has an additional cost but automatically increases benefits at the rate of 5 percent annually.
Duration. Keep in mind that the chances of needing long-term care for five years or longer are relatively small. For most people, a policy covering two or three years will be more cost-effective.
Experts estimate that about 43 percent of us will spend some time in a nursing home at some point. But the risk of needing nursing home care before age 75 is relatively low. Also, most people will not need nursing home care for longer than a year.
Your chances of needing long-term care vary with your age, health, family history and longevity, exercise habits, diet, smoking, and gender. Women are at higher risk because they live longer.
Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.
The older the individual covered, the higher the premium. For instance, premiums for a set amount of coverage for a 70-year-old individual are about three times those that would apply to a 50-year-old.
Most long-term care policies are indemnity-type policies, meaning they will pay (up to the policy's limits) for actual charges by the care provider. Some long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insureds greater flexibility, allowing them to pay for home care for example, and less paperwork.
This period constitutes the number of days the insured must wait after becoming eligible for benefits before coverage actually begins. The elimination period can range from zero to 90 days, or up to one year. The longer the elimination period, the lower the premium is.
If you decide that long-term care insurance (LTCI) is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area, while others have not. Do not assume the company is a safe bet just because it is licensed by the state insurance department to sell LTCI.
No matter how good a policy sounds, it is worth little if the company won't be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company's rating by A.M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.
Seek independent advice before buying. You might find such guidance from a financial advisor; an elder-law attorney; government-funded counseling and information services; or consumer organizations.
Read the policy from cover to cover; don't rely on marketing literature.
Don't be pressured to buy the first policy you see. Compare it with at least two others.
You may receive solicitations in the mail for the following types of health insurance, or you may run across ads for them. They are to be avoided at all costs.
If you have dependents, you've probably made sure that you have adequate life insurance coverage. But what about disability coverage? Although the incidence of permanent or temporary disability during the average individual's prime earning years is fairly high, many people neglect to ensure adequately against this risk.
Disability insurance generally provides you with an income stream in case you are unable to earn income due to illness or accident. Here are some questions that will get you started in making sure you have adequate coverage.
If employer and government coverage is insufficient you should purchase a private disability policy.
Before you buy a disability policy, check out the following factors:
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