When most people start aging into retirement years, it’s not unusual to have concerns about finances. Two questions that seem to keep a lot of people up at night are:
If I Die
If I die unexpectedly, will there be enough money for my surviving loved ones?
If I get Sick
If I live past retirement age and then need long term care, will I have to spend most of my retirement?
The answer to #1 is pretty straightforward. Just make sure you have enough life insurance to replace your income if you die unexpectedly (most affordable). The answer to #2 is not that simple. Long term care can be ultra-expensive and without additional insurance coverage, you could easily spend all of your retirement money on long-term care services.
What is Long-Term Care?
Long-term care is the medical services you’ll require in the event you become ill or injured to the extent that you require specialized medical services either in a medical facility or at home. Generally, long-term care is divided into five categories of service:
Home Health Care
Home health care services are typically provided by nurses, health care aides, and other specialists who can deliver various services for the patient. These services generally include personal care, homemaking services, and therapy services for speech, respiratory, and physical fitness.
Adult daycare provides health services in a community environment (similar to child daycare) and is provided on a part-time basis.
Assisted Living Facility (ALF)
An assisted living facility is generally similar to living in an apartment that includes around-the-clock personal care and other non-skilled care services.
Nursing Home Care
Nursing home care is similar to receiving long-term hospital care due to a medical necessity which is typically the result of an injury, chronic illness, or dementia-related disease like Alzheimer’s. The care provided in a nursing facility is typically given by a licensed health professional.
Hospice care is normally considered end-of-life care for the terminally ill. Hospice care can be provided in the home or at an inpatient facility. The care given is usually medications to keep the patient comfortable.
How Much Does Long-Term Care Cost?
If you’ve ever spent any time in a hospital, it’s easy to assume how much long-term care services can cost, especially when the care is being provided by a licensed medical professional. Your costs will also depend on the area you live in and the number of caregivers and facilities that are available.
ANNUAL AVERAGE COST FOR LONG-TERM CARE IN 2018
|Home Health Aide||Homemaker Services||Adult Day Care||Assisted Living Facility||Nursing Home Care|
Data Source: Genworth 2018 Cost of Care Survey
How Does Long-Term Care Insurance Work?
Now that you have an idea of how much long-term care services can cost, it’s time to discuss the solution: Long-Term Care Insurance.
Long-term care insurance was developed to assist individuals and families with the substantial cost of long-term care (LTC) services since many of these services are either not covered or only partially covered by Medicare. The LTC policy will provide coverage for services that are delivered at home or in a facility and helps mitigate the risk that the policyholder would have to spend most of their assets to qualify for Medicaid.
The financial eligibility requirements to qualify for Medicaid in 2019 are particularly brutal:
INCOME LIMITS: $2,313 per month for individuals and $4,626 per month for married couples (New York is significantly higher)
ASSET LIMITS: $2,000 in countable assets for individuals and $126,420 for married couples who have “community assets”
The eligibility requirements for Medicaid as far as “level of care” can be very complex so individuals who are considering this option should contact a Medicaid specialist in their state.
The bottom line here is that unless you are ready to opt for losing most of your assets to qualify for Medicaid, your best option is to consider Long-Term Care insurance.
Features and Benefits of Long-Term Care Insurance
Certainly, not every LTC policy is the same but there are more similarities than there are differences. Typically, the most important aspect of a policy to consider is the Defined Benefit Amount/Period. This specifies how much your policy will pay per day or month and how long your benefits will last.
For example, your policy may be calculated to pay a benefit of $7,500 per month but that benefit would be limited by the period you select. The higher the benefit and longer the benefit period, the more premium your insurance company will charge.
Where most LTC policies differ (other than cost) is the options they offer such as Shared Care which provides for insured spouses to pool their benefits based on each spouse’s individual needs. When one spouse dies, the surviving spouse will inherit the benefits of the deceased spouse.
Another popular optional benefit is the Inflation Benefit Rider which provides for the policy’s benefit to increase over time based on inflation.
How are the Rates Determined?
Like any health insurance policy, LTC insurance applicants go through an underwriting process that considers various factors:
Age and Health of the Applicant
Since women typically live longer and therefore have a greater chance of needing LTC services, the insurers will charge more for women’s coverage.
Applicant’s Marital Status
Married people are typically charged less than a single person.
Policies that offer larger benefits and longer benefit periods and shorter elimination periods will cost more than policies that offer less coverage. Additionally, optional riders can increase your premium as well.
As we mentioned earlier, even though most insurance companies offer similar features and benefits, premiums vary considerably according to the company you select. This is the main reason that LTC shoppers need to take time to shop their coverage.
How should I Shop for Long-Term Care Insurance?
How you shop for LTC insurance is critical for getting the best rates available. The most costly mistake that most shoppers make is to contact the insurance company directly. Doing so limits your selection of companies to receive quotes from and the different products that are available in the marketplace. Always, always, always shop for LTC insurance using an independent insurance broker who will