Long-Term Care (LTC) Insurance—Is It Right For You?

February 20, 2020
Long-Term Care (LTC) Insurance—Is It Right For You?

As we age, our health care needs may grow. And while most of us would prefer to remain in our homes and live independently, we may need assistance with daily activities at some point or even require nursing home care for a period of time. According to a 2019 Genworth study, seven out of 10 of us will need long-term care during our lifetime.1 It makes sense to plan ahead and work with your advisor on the best strategy for paying for long-term care costs.

Q: What triggers the need for long-term care?

A: Professionals in the long-term care community determine long-term care needs based on whether someone requires help with some of the activities that most of us do daily without assistance. Being able to do these activities helps professionals determine what type of care, long-term care insurance and health care coverage, such as Medicare, a person will need. Referred to as activities of daily living (ADL), those are defined as:2

  • Bathing. The ability to clean oneself and perform grooming activities like shaving and brushing teeth. 
  • Dressing. The ability to get dressed by oneself without struggling with buttons and zippers.
  • Eating. The ability to feed oneself.
  • Transferring. Being able to either walk or move oneself from a bed to a wheelchair and back again.
  • Toileting. The ability to get on and off the toilet.
  • Continence. The ability to control one’s bladder and bowel functions.

Q: Should I consider a LTC policy?

A: To help cover some long-term care costs, which could be over $100,000 annually1 for a private room in a nursing home, for example, a long-term (LTC) policy may be right for you. Only you can decide if you may need one based on your particular situation and your overall health. If you are considering it, you would need to purchase it while still in good health to meet the medical underwriting requirements.

One of the common counter arguments against buying long term care insurance is that, as with any insurance, you pay for it but may never use it. Most of us don’t hesitate to buy auto and homeowners insurance as a preventative measure, so should you look at LTC insurance the same way? Policies vary; much like buying a car, you can purchase a policy with a lot of features or choose a more basic one that costs less but gives you more limited coverage. By contrast, if you have sufficient savings, you may choose to self-pay and not need a policy. Consider having a conversation with your wealth advisor to decide whether purchasing a policy may be right for you or whether it makes more sense for you to fund your long-term care expenses out of your retirement accounts and Social Security.

Q: What does LTC insurance cover?

A: Most policies cover the cost of in-home care for an aid to help with the activities of daily living, as defined previously. It’s important to keep in mind that the definition of those activities may vary from one policy to the next (some may have more than six), so when considering a policy, ask what those are and how many an individual has to experience for the policy benefits to cover them. 

Generally policies require that you need assistance with two out of six activities for the benefits to start.3 In addition, policies usually cover part of nursing home care, such as $100 of a $250 daily fee. According to a 2019 study by Genworth, the monthly median cost of a semi-private room is $7,513 and $8,517 for a private room. Keep in mind, costs may be higher depending on where you live and the facility you choose.

Q: How are policies structured?

A: These policies typically offer either a daily or monthly benefit. A daily policy could be a good option if an individual only needs assistance a few times a week. Monthly options cover a set amount each month, regardless of how many days of care you receive. If you think you’ll have consistent, ongoing needs, the monthly option may be the more cost-efficient choice. 

Q: Do benefits kick in right away?

A: There could be an “elimination period” or waiting period of up to 120 days before you can collect benefits from a policy, so make sure you have sufficient savings to cover the costs in the meantime or choose a policy with a shorter waiting period.

Q: Is there a maximum benefit I can receive?

A: Most policies do place a cap on the maximum you can receive and the number of years in which you can receive it during your lifetime. For this reason, it’s vitally important to be familiar with the particulars of any policy you may be considering before deciding if it will be a good fit for your specific needs.

Q: Does Medicare cover long-term care expenses?

A: While Medicare would cover many hospital costs and some prescription costs, it only covers up to the first 100 days of nursing home care. Beyond that time frame, you will need to have another source of funding in place to cover any ongoing amounts due. Medicaid kicks in only when all funds are depleted and an individual meets the requirements of coverage for a nursing home Medicaid bed.

Partner With Your Advisor

Meet with your wealth advisor to help determine what is right for your particular situation and how best to manage your savings to account for health care costs as you age. Also, it’s a good idea to project costs and add inflation for a more accurate picture of how much long-term care could cost.

Footnotes:

1 “Cost of Care Survey 2019,” Genworth. https://bit.ly/2t3xI0f

2 “Activities of Daily Living Measure the Need for Long-term Care Assistance,: ElderLawAnswers. https://bit.ly/2UejCEc

”What Are the Activities of Daily Living for Insurance Purposes? Thebalance.com. https://bit.ly/2GyuPY9

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