Do You Need Long Term Care Insurance?

Long-term care insurance can help cover the cost of non-medical care if you find that you can no longer take care of yourself. Find out if it’s right for you.

The average life expectancy in the U.S. is now nearly 78 years. With this increase in age more Americans find they need some type of long-term care at some point in their lives—in fact, each year about 7 million Americans receive long-term care for an average of three years.

As the name implies, long-term care insurance is used to help pay for the costs of care over a longer period of time, when you are no longer able to take care of yourself. (For short-term care needs, disability insurance is your best bet.) Long-term care typically involves non-medical help with daily tasks, such as bathing and dressing, and may be applied to nursing homes, assisted living homes, adult day-care services or home care.

It is not cheap, however. If you qualify, Medicaid will cover your long-term care needs in Medicaid-approved facilities. But if your assets and income exceed certain limits, you’re on your own to cover the costs of long-term care—which can be upwards of $50,000 a year.

So, how do you know if long-term care insurance is right for you? Here are some things to consider.

What is your family, medical and financial situation?

What are your retirement goals? Do you want to pass on your assets to your family members as an inheritance? What is your current overall health status? Can you afford to cover the insurance premiums not only today, but years into the future? Do you have family who can take care of you if you find that you can no longer take care of yourself? Do you want to put them in that position? Does your family have a history of chronic illnesses?

Think through your current situation and future goals to determine if long-term care insurance is right for you.

When should you purchase long-term care insurance?

When it comes to purchasing long-term care insurance, you don’t want to wait too long. Premiums increase as you get older, and you could be denied coverage if you wait to purchase until you begin experiencing health issues. In general, you should begin considering long-term care insurance in your 40s (or even earlier to lock in lower premiums) and purchase in your 50s. After that, monthly premiums can rise sharply.

How much will the policy pay out?

This will depend on the type of policy you purchase. The daily benefit amount for a long-term care insurance policy can range anywhere from $50 to $250—and can last for a set number of days, months or years. When choosing a policy, be sure to consider:

• Inflation protection. You may not need your long-term care insurance policy for years, even decades. So it’s important that your policy include inflation protection to make certain that your benefits keep up with the cost of care. If you can swing it, select a policy that provides 5 percent annually compounded inflation protection.
• Elimination periods. When choosing a policy, you can opt to include an elimination period, which can go up to 180 days. However, when the need for long-term care arises, you will need to cover the cost of care for the length of the elimination period you’ve selected.
• Pre-existing condition periods. Determine if the policy has any limitations with regards to pre-existing conditions. For example, the insurer may not pay benefits for care related to your pre-existing condition for a specific period of time once you begin using your policy.

How much will a long-term care insurance policy cost?

This will depend on the policy you chose and your age when you purchase it. In general, you shouldn’t spend more than 7 percent of your income on long-term care insurance.

Where can you purchase a long-term care insurance policy?

When shopping around for a long-term care policy, it’s best to stick with large, well-known insurance companies. You want to be sure that the company will be around 10 to 30 years from now, when you’ll actually need to cash in on your policy. Log on to Moody’s or Standard & Poor’s to check the financial strength of the company you’re considering.

Things to keep in mind

• When determining how much coverage you’ll need, look at the type of long-term care facility you would prefer and find out how much the daily living costs are for similar facilities in your area.
• When comparing policies, find out the insurer’s history of premium hikes. (Your state insurance regulator may have this information.)
• If you stop paying your monthly premium, you will lose your coverage—along with the money you’ve paid to that point. And, if your need for long-term care ends, you’ll need to begin paying your monthly premium again to continue coverage into the future.
• Find out if the policy you are considering will work in another state.
• After you have purchased your policy, you may have the ability to review and return it within 30 days for a full refund. Check with your state insurance regulator to see if this law applies in your state.
• You don’t have to navigate this process alone. Many state insurance departments offer long-term care insurance counseling. Financial planners can also help you with your decision.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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