04 Jun Purchasing Long-Term Care

The Department of Health and Human Services has found that any individual turning 65 today has a 70% chance of requiring long-term care (LTC) in some form or another as they age. Of this 70%, one out of every five who requires long-term care will need it for more than five years. 

Services such as assisted living and long-term care treatment are undoubtedly expensive. Although Medicaid has the ability to cover certain long-term care expenses, you are also required to have a relatively low income and savings to qualify. Long-term care insurance provides a different way to pay for care. 

In 2020, the American Association for Long-Term Care Insurance conducted a survey of the leading insurance companies price indexes. They claim that a 55-year-old man residing in the United States should expect to pay, on an annual basis, $1,700 for their long-term care insurance premium. This would cover around $164,000 in benefits at the time the policyholder takes out the insurance. Assuming that benefits are raised at a rate of 3 percent per year, when the policyholder reaches the age of 85, this figure increases to approximately $386,500.

Long-term care policy premiums, on the other hand, vary considerably based on the policyholder. Factors impact the premiums are a policyholders age, health and wellbeing, and the policy features through an insurance provider. One example being an inflation rider. As a result, it is important to browse around for the right deals and features to fit your needs and budget. 

What Is Long-Term Care Insurance? 

Long-term care insurance reimburses or covers for the expenses of long-term care. For instance, a policyholder may receive a daily payout of $180 or a monthly payout of $5,000. Nursing homes, in-home services, assisted living facilities, and adult daycare centers are also covered under most policies. 

If you need assistance with two or more activities of daily living (ADLs), which are described as feeding, washing, dressing, toileting, transferring, and continence, most policies will begin paying benefits. If you have a neurological disability or a doctor certifies that treatment is medically required, you may also be eligible for benefits.

Several programs, such as assistance with ADLs, housekeeping, and nursing services may be offered by your long-term care insurance policy. It is important to keep in mind that policies differ in terms of benefit rates, covered services, and when benefits begin. Carefully examine the terms of any long-term care policy you may be considering.

What Does Long-Term Care Insurance Cover?

Long-term care insurance usually covers the cost of health services that a standard health insurance policy does not. Common services that are covered include assistance with everyday activities – also referred to as activities of daily living (ADLs). In addition, long-term care insurance plans will normally reimburse you for services that are received in locations such as your house, an adult day care center, an assisted living facility, and a nursing home.

Certain long-term care policies also provide coverage for care that is related to a chronic medical condition, such as Alzheimer’s disease, on top of other cognitive disorders. Keep in mind though, some of the “standard” ADL’s are only generalizations. There is no industry norm for ADL criteria for claim eligibility or the types of conditions that may be covered by long-term care insurance providers. Each insurance company has its own set of laws and regulations to follow.

Because of this, knowing when coverage begins – and for how long – is essential. Many policies used to cover you for life. Now, most will only provide benefits to you for one to five years. If at all possible, insurance experts will advise extending the 90-day preliminary period when costs are not compensated. By doing this, you can continue to receive benefits for an extended period, preventing a possible scenario where you could max out benefits too early. 

Why You Might Need Long-Term Care Insurance 

Statistically speaking, the majority of people will most likely require long-term treatment at some stage during their lives. Some people think that because the government will pay for long-term care, they don’t have to worry about it. This is only true under certain situations. Long-term treatment is not deemed medically required under Medicare, which is an insurance health plan for medically necessary services.

For example, long-term care through Medicare can cover the costs of professional services or rehabilitative treatment in a nursing home, but only up to 100 days and that’s it. Under special circumstances, Medicaid may provide coverage for long-term care. However, in order to meet eligibility requirements for Medicaid, you must meet the criteria of low-income levels with minimal assets to your name. 

For the most part, programs like these are limited and they only cater to a specific group of people. If you are ineligible for these assistance programs, you have two choices. You will either have to preserve your income through long-term care insurance or spend it on long-term care. 

How Much Is Long-Term Care Insurance? 

The price of long-term care insurance varies significantly from one insurance provider to the next. It helps to shop around for long-term care insurance. According to the American Association for Long-Term Care Insurance, the figures listed below are the average costs for long-term care insurance. Also included are the figures for the lowest and highest insurance rates.

As of 2020, these are the annual long-term care insurance premiums, averaged from several reputable insurance providers. Premium rates are for coverage equal to $164,000 in benefits for those who are 55 years old and $162,000 for those who are 65 years old.

Annual Premiums Estimates

• Single Male, Age 55: $1,700
• Single Female, Age 55: $2,675
• Couple, Ages 55, Combined cost: $3,050
• Single Male, Excellent Health, Age 65: $1,400
• Single Male, Some Health Issues, Age 65: $2,100
• Single Female, Excellent Health, Age 65: $2,100
• Single Female, Some Health Issues, Age 65: $3,100

However, keep in mind that these are just averages dependent on a pool of data collected by major insurance companies. Long-term care insurance premiums can vary greatly, based on a number of main factors. 

Health:

Certain medical issues will disqualify you from purchasing a plan. Some conditions include muscular dystrophy, cystic fibrosis, and dementia. These conditions are excluded because the insurance companies don’t want to risk losing money on these plans. In general, the healthier you are, the chances of you having to file a claim is reduced. In addition, healthier policyholders will pay a lower premium rate.

Age:

Generally speaking, if you take out a policy when you are older, it is likely that you’ll pay more for long-term care insurance. This is because as we age, our health inevitably declines and we are more likely to require the assistance covered by a long-term care policy. For these reasons, insurance advisers recommend that you start looking for long-term care insurance between the ages of 52 and 64. 

Marital Status:

Compared to individuals purchasing a single policy, married couples often pay less for their premiums because they are combined in one policy. 

Gender:

Women pay more for insurance premiums than men because they live longer and file claims more often than their male counterparts. On average, a single woman spends $2,675 in annual premiums, while a single man of the same age pays $1,700. 

Each insurance company determines its own premiums and underwriting requirements. In reality, prices for the same services will differ significantly from one insurance company to the next. This is why you should get quotes from a number of different providers.

How COVID-19 May Affect LTC Insurance Costs 

There’s a lot of speculation right now on how COVID-19 will affect the cost of long-term care insurance premiums. Overall, the cost of insurance has been steadily increasing. This trend may persist regardless of the lower costs certain insurance providers have experienced. Currently, COVID-19 doesn’t disqualify you for a policy, although it may cause a delay in reviewing your application. 

COVID-19’s special guidelines for withdrawals from retirement accounts may have an impact on the overall cost of long-term care. If you’ve been impacted by COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows you to withdraw up to $100,000. You are given the option to pay back the withdrawal. However, if you decide against, this could have a huge effect on your retirement savings. This means there would be less funds available to cover the cost of long-term care. When and if the time comes, this would make purchasing long-term care insurance a more urgent necessity.

Understand What You Will Be Paying For 

Because insurance policies vary between providers, it’s best to ask questions to make sure you can effectively compare policies.

Here are some important questions to consider: 

Who Needs LTC Insurance and When? 

The decision to buy long-term care should be considered part of your overall financial strategy. Whether or not you need it is highly dependent on the individual circumstances.

Consider the following: 

• Do you have other sources of money that you could use to pay for long-term care? 
• If you already have a life insurance policy, could you borrow against it or surrender if necessary? 
• Are you able to cover the costs of long-term treatment on your own? 
• Do you have any relatives who might assist you? 
• Do you have limited income and assets? 

If these apply to you, you may not need a long-term care insurance plan. You can’t put off purchasing a long-term care policy until you need it. If you reach that point, it’s likely you will no longer be qualified for a policy. It is recommended to buy a policy as soon as possible. You should start to look into long-term care insurance providers and available policies between the ages of 52 and 64.

According to the American Association for Long-Term Care Insurance, the risk of long-term care insurance denial rises with age. So, you may want to start looking at alternatives earlier rather than later. 

Estimated Annual Costs for Long-Term Care Facilities and Services:

• Private Room in Nursing Home: $105,860
• Assisted Living Facility: $51,600
• At Home Healthcare Aide: $54,915
• In-home Care: $53,775

Should You Purchase Long-Term Care Insurance?

According to the Urban Institute and the United States Department of Health and Human Services, the average 65-year-old today has a 70 percent risk of seeking long-term treatment at some point. Many people who need it will only use it for two years. However, about 20 percent will use it for more than five years. The wise investor will budget for this considerable expense. 

Long-term care costs have been growing at a higher rate than inflation. Between 2004 and 2020, the total cost of home-care facilities rose by $980 a year. During the same time frame, the total cost of a private room in a nursing home facility increased by around $2,542. Unfortunately, many people’s savings funds would be depleted as a result of these expenses. Contrary to what most believe, Medicare only covers a wide range of medical expenses, such as short periods in nursing homes and small numbers of professional nursing or recovery treatment. 

How to Save Money on Long-Term Care 

Planning accordingly is the easiest way to save money on long-term care premiums. Examine your insurance portfolio and current financial position, as well as the risks you and your family face. A financial planner will assist you in determining whether or not long-term care insurance is appropriate for you. If you decide to buy long-term care policies, look for low premiums and a provider that provides flexibility and good benefit opportunities.

Helpful Tips when Paying for Long-Term Care 

If you have a health savings account (HSA), you should consider putting more money into it to save for long-term treatment. These policies, also known as health IRAs, help you to expand your money tax-free. However, to open an HSA, you must have a high-deductible insurance plan. 

It’s not a good idea to go at it alone. A financial planner will assist you in developing an insurance strategy and determining how you can pay for it. Some consultants are also registered insurance brokers if you’re in the market for insurance right now.