You may need Long Term Care
Many need long-term care at some point in their lives and it is estimated that about half (52%) of Americans turning 65 today will develop a disability serious enough to require long-term care1.
What is Long-Term Care?
Long-term care is given to those who need assistance with the activities of daily living (“ADLs”) which are dressing, bathing, eating, toileting, continence, transferring (from bed or chair, for example) and walking. These services may occur in the home or a long-term care facility. Since long-term care services can easily exceed $5,000 per month (more in some areas) it is important to plan for this expense early in life and review all available options.
Medicare Does Not Cover Long Term Care
Medicare does not cover long-term care. This is often misunderstood for two reasons. First, Medicare does have limited coverage for care in a skilled nursing facility but does not cover long-term care. Second, Medicaid sometimes does cover a limited amount of long-term care depending on your state of residence. (Although a federal program, Medicaid is largely administered at the state level, Medi-Cal in California, for example.)
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How Can I Pay for Long-Term Care?
People often pay for long-term care in one of three ways, depending on their financial circumstances:
Self-Fund: Those with substantial savings may choose to self-fund their long-term care, relying on their savings. This option, while flexible, is potentially the most expensive choice and may reduce the inheritance of family members.
Insurance Policy: Purchasing an insurance policy is an excellent option for those without the resources to self-who do not qualify for state assistance. Although long-term care policies can be expensive, there are tax advantages for those who purchase coverage.
Medicaid: Those who meet certain asset and income requirements may qualify for long-term care through Medicaid, administered differently in each state. Although a cost-effective option for those who qualify, it may provide limited choices for which facilities may be used.
What should I consider if purchasing insurance?
Like any insurance product, you’ll want to buy from a reputable carrier with a stable financial history and reputation for good customer service. Long-term care policies do, however, have additional features that the informed buyer will wish to examine:
Daily Benefit Amount: The maximum amount of daily coverage available in your policy.
Elimination Period: This is the period of time before you will receive your benefits. (90 or 120 days, for example.)
Benefit Period: The length of time your policy will provide benefits. Check in your state to see if “partnership plans” are available which may provide additional coverage once the entire benefit period is utilized. These plans provide coverage under Medicaid once the plan’s benefit period has been exhausted but do not require the insured to spend down their assets to qualify for standard Medicaid eligibility.
Inflation Protection: This increases your benefit over time to help protect against inflation. Policies often offer simple or compound options. Since you may own your policy for many years, you should consider adding this feature.
Spousal Discount: Check your insurance carrier for any spousal discounts available. It may make sense to purchase both policies at the same company.
Hybrid options: When examining quotes for long-term care policies, you may find that the rate is out of your preferred budget. There are, however, some options that combine long-term care with other common insurance products such as life insurance or annuities. A hybrid policy might be a potential fit for you. Consider a life policy with a $1,000,000 death benefit and a long-term care feature that pays a portion of the benefit early if the owner qualifies for long-term care.
The insurance company is not actually paying anything extra since most policies are structured to pay the death benefit early at a specified amount. (A maximum of $5,000 monthly, for example.) The death benefit of your policy will be reduced for your beneficiaries, but your estate would also be reduced to pay for the care out of pocket. One challenge to finding a good hybrid policy is that not all insurance companies who offer them do so in every state, often for regulatory reasons. It may be to your benefit to shop around and get the full range of options available where you live.
By taking into account the various features above, you will increase your chances of finding a policy that fits your needs at an affordable rate. As with any other type of insurance, consider getting quotes from multiple carriers and compare the features and benefits of each.
Not only is it possible that you will need the benefits earlier in life than expected, but the younger you are the lower the premiums for long-term care insurance.
Consider speaking to someone at Pure Financial Advisors to discuss your specific situation.
- U.S. Department of Health & Human Services, https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief