What is Long-Term Care Insurance?
Long-Term Care Insurance is a specific insurance policy that can be purchased to assist with the costs of Long Term Care not covered by private insurance, Medicare, or AHCCCS (Medicaid). Most long-term care insurance policies will cover In-Home Caregiving, Assisted Living, Adult Day Care, Assisted Living Homes, Skilled Nursing Facilities, Home Modifications, and Care Planning.
Traditional policies will have a monthly premium that will be determined based on age, health, length of benefits, inflation rate, elimination period, and the daily benefit. With traditional policies, premiums are continual and will not be returned if unused and there is no cash value. Traditional policies will have an elimination period usually around 30-180 days once you are eligible, which is the consecutive time between when the disability or illness starts and the policy benefits begin. The shorter the elimination period is, the more expensive the policy becomes. However, a long elimination period can mean high out of pocket expenses once care is needed. These policies will typically have a limit on the number of years or total dollar amount. Inflation protection will also be an important feature as costs of long-term care increases over time.
Hybrid policies combine traditional long-term care insurance with life insurance and will have a surrender value, death benefit, and long-term care reimbursement. Premiums will be paid all at once or over a span of about 10 years. After a determined period, usually 5-10 years, you will be able to receive most of your premiums back. There are no elimination periods with hybrid policies and the policy can be activated as soon as you are eligible. Eligibility will usually require dependence on multiple activities of daily living. Hybrid policies will have a total, annual, and monthly limit that will be based on the age of the policy, the initial amount invested, and the inflation option selected. If long-term care reimbursement is not used the premiums can be returned or inherited as a tax-free benefit.
Do I Need It?
According to the U.S. Department of Health & Human Services around 70% of people turning age 65 can expect to use some form of long-term care during their lives. According to Genworth, the current average cost of in-home care is $4000/month (approx 40 hours per week), adult day care $2000/month, assisted living $3,500/month, and skilled nursing $6,500-8,000/month. Those numbers are expected to increase by about 35% in the next ten years. The U.S. Department of Health & Human Services also reports that those living alone are more likely to need long-term care and predicts that women outlive men by around 5 years.
Those that have a high net worth may choose not to purchase long-term care insurance as their budget will allow for necessary care. And alternatively, those with limited assets and income who can not afford the premiums may not want to purchase it as they may be able to rely on ALTCS for long-term care.
When Should I Purchase It?
According to the American Association of Long-Term Care Insurance, the best time to purchase is in your mid 50’s. Most policies premiums will be based on your age and Traditional Policies will also be based on your health. Some insurers will provide a discount for good health and the likelihood of receiving that discount goes down with age. Once a person has been diagnosed with a chronic condition like diabetes, Alzheimer’s, COPD, cardiac disease, stroke, or cancer they will no longer be eligible to purchase most long-term care insurance policies.
How Can I Get It?
It is important to discuss which policy is right for you with an expert. You can find a Long-Term Care insurance professional in your area through the American Association of Long-Term Care Insurance here. You can also find a Financial Advisor in your area through the National Association of Person Financial Advisors here. The National Association of Insurance Commissions has provided a Shoppers Guide to Long-Term Care Insurance that can be found here.