Many people don’t think about how their medical needs change as they age.
When you’re healthy, it’s challenging to picture a time you’d need help performing basic tasks like getting dressed in the morning, walking the dog, doing the laundry, and other “long-term care” needs.
But those situations are far more common than you might initially realize. Caregiving for daily tasks is not only prevalent but also costly. And since Medicare doesn’t cover long-term care, without protection, you could be stuck paying for all the bills yourself.
One option to pay for these extended needs is through long-term care insurance.
- What is long-term care insurance?
- How does it work?
- And is it really worth the money?
Let’s find out!
What Is Long-Term Care Insurance?
As you might have guessed, long-term care insurance covers long-term care needs, services, and support—pretty on the nose!
What does this type of care look like? Generally, you can measure your personal needs based on the six activities of daily living (ADLs)
- Bathing—shaving, brushing your teeth, showering, etc.
- Dressing—getting dressed
- Eating—preparing and eating meals
- Transferring—moving from one place to another, like from your bed to the kitchen, in and out of a wheelchair, etc.
- Toileting—going to the bathroom independently
- Continence—controlling your bladder
To qualify for coverage, most insurance companies will need proof (medical evaluation) that you cannot perform at least two of the six ADLs.
Long-term care insurance helps you pay for the care you receive for these services, like home health aids, caregivers, nursing home stays, adult day services, hospice, and more.
Having an insurance policy to offset the costs of these daily custodial needs can help you fill the coverage gap during retirement.
How Does a Policy Like This Work?
Long-term care insurance is a contract with an insurance company, and with any contract, there can be a lot of fine print.
You can purchase a policy through your employer or an insurance company, though individual policies are far more common (and often cheaper).
Generally, you have to pay for services upfront until you meet the insurer’s requirements, at which point they can reimburse you for the allowable coverage amount.
Here are some other policy nuances to keep in mind.
- When purchasing a policy, you will select daily and lifetime coverage limits. These numbers play a significant role in the total cost of coverage. Typically, the more coverage you want, the more expensive the policy.
- How you’ll request coverage. Most insurance companies require either a doctor’s note or a separate medical exam to verify your condition before they’ll start making payment.
- The elimination period. The elimination period determines how much time you’ll be responsible for paying out of pocket before insurance kicks in. Many policies give you the option for 30, 60, or 90 days. You’ll often find that the longer the elimination period, the lower your premium cost.
Once you select your coverage, there will be a monthly premium to maintain the policy. As long as you continue to pay, you’ll have coverage. Keep in mind that premium prices aren’t locked for life; they can change, so you may need to put a buffer in your cash flow plan.
How Do You Find a Policy You Like?
There are a few ways to go about procuring a policy.
First, you could look at purchasing an individual policy. Here, you’d buy a policy via an agent. This tends to be the most common approach, but it isn’t the only way.
You may also check with your employer or association to see if they have the following policies:
- Group—The underwriting can be less strict on group policies than individual policies. Most group policies offer a base plan with options for enhanced benefits.
- Association—If you are a member of an association, that association could allow insurance companies to offer long-term care to you and your fellow members. You will find that benefits and underwriting will more closely mirror individual policies.
So, How Much Will It Cost?
The big question: pricing!
Long-term care insurance policies vary based on numerous factors like your,
- Age
- Health history
- Pre-existing conditions
- Family health history
- Gender
- Marital status
- Coverage goals
- The company you buy from
According to the 2022 Long-Term Care Insurance Price Index, “a traditional policy valued at $165,000 can cost $950 annually for a 55-year-old male. The equivalent coverage for a 55-year-old woman is $1,500.” That’s $550 more each year! Why so pricey? Women’s premiums are usually higher because they live longer and may make more claims throughout their lifetime.
The National Association of Insurance Commissioners says, “some experts recommend that LTCI premiums should not exceed 5% of income.” Even still, that number is high.
Like most financial decisions, timing is really important when deciding on purchasing a policy. You want to strike the right balance between your present age and your premium cost.
If you buy too young, you may make extraneous payments throughout your life. But if you wait too long, your premiums could skyrocket, or you could develop a condition that precludes you from coverage at all.
The sweet spot for purchasing a long-term care insurance policy is often mid-50s.
If buying a policy is your goal, start planning for your payments now. You may be able to drop other insurance policies in retirement (life/disability/etc.) and redirect those dollars to an LTC policy.
We can help you review your insurance needs and create a risk management strategy you feel good about.
Can You Fund Long-Term Care Outside of Long-Term Care Insurance?
So is long-term care insurance the only way to ward against costly custodial care?
Of course not! You have several options depending on your needs.
If you’re enrolled in a high-deductible health plan, one of the best ways to save for future health is a health savings account (HSA). In 2022, you can stash up to $3,650 for single coverage and $7,300 for family coverage. Those numbers jump to $3,850 and $7,750, respectively, in 2023—a rather notable increase.
HSAs are so awesome because they teem with benefits, like:
- Triple tax benefits: Tax-free contributions, growth, and withdrawals for qualified medical expenses (long-term care insurance premiums count!).
- You can invest your contributions, giving them time to grow and compound.
- The account balance rolls over every year.
- You can take your HSA with you when you leave your job, which is perfect for career changers!
If you don’t have an HSA, there are still ways to save for additional long-term care expenses. Earmark cash flow for these costs early by allocating more to your current investments, like 401k, IRA, brokerage accounts, real estate, and other investments.
Preparing ahead doesn’t leave your health to chance and puts you in the best position to make choices for your care in retirement.
Why Should I Buy LTC Insurance?
At this point, you may be thinking:
Long-term care insurance sounds really expensive and confusing. Why pay for something I might never even need?
Well, nearly 70% of people 65 and older will need long-term care services or support. You very well could be a part of this group. Giving yourself the best chance at care is kindness to you and your family.
Alright, you might be convinced that this care is valuable, but won’t Medicare help you with the costs?
Nope!
On top of Medicare being a complex system, a common misconception is that Medicare covers long-term care costs. In original Medicare, you pay 100% for non-covered services, including most long-term care.
If you don’t have long-term care insurance, you’ll have to pay for custodial services unless you qualify for Medicaid. But you may have to spend a great deal of your own money before Medicaid steps in, leaving you with little to no savings before receiving help.
Purchasing LTC insurance or saving in other investment vehicles is a way to protect your savings and give you more choices and options for care.
Is A Long-Term Care Policy the Right Fit for Me?
Sure, long-term care insurance comes at a personal cost. But, if ensuring you have custodial care planned for, it might be a good fit for you!
Evaluate your current and projected health, family history, retirement savings, lifestyle goals, and more to determine your best route.
Call us today for any questions you may have! We don’t sell long-term insurance policies, but we can certainly help you conduct an insurance review to see if you could benefit from it.