What is Long Term Care Insurance?
Long-term care insurance is designed to pay for the often astronomical costs of long-term care for people with chronic disabilities. It includes custodial care — assistance with activities of daily life like eating, bathing and getting dressed — in a nursing home, assisted living facility or the patient’s own home.
With most people living longer now, the need for long-term care insurance will likely become more pronounced. For instance, government statistics indicate that 70 percent of Americans over the age of 65 will eventually need some type of long-term care.
Today, the median cost for a year in a nursing home is $75,405 for a semi-private room and $83,950 for a private room. Home health care costs are also extremely high — home health care services provided just three days a week can cost as much as $20,000 a year.
Long-term care is not normally covered by regular medical insurance. For instance:
- Employee group health and major medical plans provide very limited long-term care coverage.
- Medicare provides only limited nursing home and home health care coverage.
- Medigap, which fills in the gaps left by Medicare, does not extend coverage for long-term care beyond Medicare limits.
- And Medicaid requires individuals to spend almost all of their savings and assets before becoming eligible for nursing home coverage.
There are other benefits to long-term care insurance as well: In some cases, the premiums may be deductible for income tax purposes.
Long-term care insurance is a relatively new form of insurance coverage and, as a result, policies vary considerably in cost and benefits. This lack of consistency can make it difficult to compare these policies and make an informed choice; therefore, consider consulting with a professional to help you sort through the options.
Who Should Consider Long Term Care Insurance?
Long-term care insurance may be a solution for you if:
- You are concerned about protecting your assets and maintaining your financial independence.
- You do not want to depend on your family to care for you and you need to enter a nursing home or assisted living facility.
- You want to try to stay in your home should you require long-term care.
- You can afford the premiums for long-term care insurance.
- You meet policy restrictions, such as pre-existing medical conditions exclusions and waiting periods.
Important Long Term Care Insurance Features, Coverage, and Rates
These long-term care insurance policy features are generally considered the most important:
- Guaranteed renewable This ensures that you will be able to continue your coverage without undergoing additional medical exams.
- Flexible benefit triggers Benefit triggers cause the insurance company to start paying benefits. Your policy benefits should be triggered if you need assistance to perform at least two of the activities of daily living (ADL), which include bathing, dressing, eating, using the toilet, continence, transferring (for example, moving from a chair to a bed) and taking medication.Another trigger should be “cognitive impairment,” which means coverage applies if you are mentally impaired, even if you are physically able to care for yourself.
- Home health care coverage Make sure your policy pays benefits for care at home as well as in a nursing home or assisted living facility. Policies that only pay for institutional care may force you to be institutionalized in order to receive benefits.
- Broad classification of nursing home care Make sure coverage is provided for any type of nursing home — skilled, intermediate care, respite or custodial care.
- Inflation rider An inflation rider will increase the daily benefit to keep pace with inflation. This feature is costly but protects you against the rising cost of long-term care.
- Company rating Make sure the insurance company is highly rated, indicating that it is stable and financially healthy — and thus able to pay your benefits when you need them.
Coverage levels: Daily benefits of a long-term care insurance policy typically range from $30 to $200. How much you need depends on the costs of nursing homes and home health care in your area, and on how much you can earmark for your care from other resources, such as your savings and investments.
Rates: Policy rates are generally affected by a number of factors, including your age, benefit period, amount of daily benefit, waiting period until the first benefit payment and policy features.