As you age, you’ll likely need something to help cover the often exorbitant expenses of a nursing home or other skilled care facility, for either yourself or your spouse. Long-term care insurance is the most common solution, designed to help you cover these costs without wiping you out financially. Of course, as the case with most insurance policies, you need to buy it before you need it, as these policies become unavailable or prohibitively costly if you are in the situation where you need their protection.
The Benefit of Long-Term-Care Insurance
What long-term care insurance policies have in common is that they provide financial assistance for skilled care on a regular, usually daily basis. Generally, this type of care will extend for the rest of your life, once it begins.
What Is Long-Term Care?
As age and illness take their toll, you may need assistance doing daily routines such as dressing, bathing, and so on. Long-term care (LTC) can provide the structure to do all that for you—but it’s costly. The Alzheimer’s Association estimated that the cost of long-term care in 2016 per individual over the remainder of their lifetime was between $217,820 and $341,651. Most health and disability insurance policies don’t cover long-term care, which is why long-term care insurance exists.
What Does Long-Term Care Insurance Cover?
LTC insurance covers a wide range of facilities and treatment, including nursing home care, assisted living facilities, adult day care services, in-home care, home modification, and care coordination. Remember: LTC insurance policies are not all the same, so you’ll need to talk to your agent to get the best one that covers your exact, predicted needs.
Why You Need Long-Term Care Insurance
52% of people turning 65 today will need some long-term care at some point in their lifetimes. Buying long-term care insurance can help you have peace of mind, knowing that if you need long-term care, you won’t burden anyone with large care payments. If you get sick, you can afford the skilled care you need and still have enough money for you and your spouse to pay your other bills. Plus, your kids won’t be burdened with massive payments to continue your care.
What about Medicare and Medicaid? Aren’t government programs supposed to cover this kind of thing? First, Medicare isn’t supposed to cover long-term care costs. That’s not what it was designed for. Medicaid is supposed to cover the truly indigent who have long-term care expenses. However, it should never be the first choice if you have other potential options. After all, for various reasons, doctors and hospitals are decreasing the amount of Medicaid patients they accept annually. This, in turn, makes access to decent healthcare far more difficult for Medicaid recipients as compared to those with private insurance.
Don’t think of being smart by moving assets under someone else’s name for Medicaid to pay for long-term care. This is fraud, and the government will prosecute you if it is detected. The best way forward is to start with the best options available to you now, and long-term care insurance covers you and your family in a way far preferable to what the government can do.
While this all may seem dire, keep in mind that If your declining health makes you move to a nursing home permanently, your significant assets like your house, car, or even any savings you may have suddenly become far less useful to you. It’s likely that you will need to sell them to cover either your or your spouse’s care anyway.
Only after your assets have become completely depleted will Medicaid step in to cover your remaining long-term care expenses. However, not all nursing home facilities accept Medicaid, so you should make sure that yours does, should you need Medicaid assistance.
If only one spouse in a married couple needs long-term care, then Medicaid does protect the assets of the remaining spouse. It generally allows that spouse to keep a reasonable place to live and enough assets and income not to force them into poverty.
The point here is that private long-term care insurance generally isn’t required to protect you or your spouse from abject poverty should the need for nursing-home care arise. That’s what Medicaid is for. However, private long-term health insurance can be a valuable tool to preserve a portion your estate for your heirs if leaving a legacy to them is essential to you.
So, to insure or not to insure?
If you’re considering purchasing long-term care insurance, you’re trading a cost today in premiums against the much larger potential cost for care in the future. If you do like most people and start long-term care insurance in your 50s, you should expect to pay thousands of dollars per year in premiums, depending on your age, health, specific choices for care and so on.
Many long-term care insurance sites offer coverage calculators to help you with estimating potential premiums, but your best move is to sit down with an agent who can give you a more exact quote.
Remember, you’ll need to calculate paying for these premiums throughout your retirement, so make sure you include them in your retirement expense budget, along with other expenses.
Bottom line: since long-term care insurance is designed to protect your estate from Medicaid encroachment, it usually only makes good sense to carry private long-term care insurance if you have an overall good net worth.
If you’re at the upper end of the net worth scale, it actually may make more sense for you to self-insure by setting aside money to cover the cost of any long-term care you may need down the road. According to the American Association for Long-Term Care Insurance, only 12% of people stay in nursing homes for more than five years. Also, a typical nursing home stay is generally shorter if you’re married than if you’re not, probably because one spouse takes care of the other, delaying the onset of nursing home stays.
It’s likely that an ordinary couple will spend not more than $1 million on long-term care insurance. Therefore, if your net worth is over $2 million, long-term care insurance may be less than worthwhile.
Traditional Long-Term-Care Insurance
The cost of a semi-private nursing home room nationwide is between $80,000 to $100,000 per year. Traditional long-term care insurance ensures that a permanent stay at a nursing home is not as likely to deplete your savings or wipe out your estate, making sure you’ll always have enough to cover at least a portion if not all of the bill. Against the annual cost of long-term care, the average annual long-term care insurance premium of around $3,000 can look like a good investment in many circumstances.
Hybrid Life and Long-Term Care Policies
An alternative to traditional long-term care insurance is a policy that combines life insurance with LTC coverage. With this kind of hybrid policy, you can pull funds from the “death benefit” while you’re still around to pay for your own long-term care. If you don’t end up needing long-term care, then your beneficiaries get the full death benefit payout. However, you should know that premium rates are considered “noncancellable,” which means they’re fixed for the remainder of your life and are usually paid all at once when the policy goes into effect. As you might imagine, these hybrid policies are often used as a last resort for those who can’t get a private long-term care insurance policy due to late entry or underlying medical reasons.
The issue here is that the single, upfront premium means that you’ll need to not only come up with thousands of dollars, but you won’t have that money available for retirement investments. Also, premiums for hybrid policies are not tax-deductible, which means the potential loss of even more money. Those potential lost investment earnings could end up causing these hybrid policies the most expensive long-term care policy of all of them. As you can see, it’s worth it to do all the research before you decide how to approach long-term care insurance.
Wondering how to prepare for the possibility of needing expensive long-term care down the road? Do your research. Sort out the moving parts, look at all the options. It seems that the increasing expense of both care and the insurance that pays for it is only one part of the puzzle. New types of insurance give us even more options consider. To add to the mix, recent research calls into question the commonality of lengthy nursing-home stays and consequently, the odds of needing coverage after all. The best approach–do your research and look over your options with eyes wide open.