Purchasing any type of insurance can be seen as a gamble.
Am I going to need it? How much do I need? Am I just throwing my money away if I don’t use it?
These questions are valid for any type of insurance, but the answers are particularly important when it comes to long-term care insurance.
Long-term care insurance provides financial support to pay for physical health care that is not covered by Medicare or regular health insurance policies. It provides coverage for nursing home or assisted living facility stays, or in-home caretaker costs. Most regular health care insurance only offers three months coverage of such expenses.
However, you do not know if you will ever need such care. You could get hit by a bus or suffer a massive coronary, in which case the money spent on long-term care insurance would have been wasted.
Also, long-term care insurance is very expensive. Very few reputable insurance companies still offer long-term care insurance, and so the lack of competition increases the cost, as does the rising longevity of humans.
Let’s look at all of these considerations to determine the value of long-term care insurance, dispel any myths about the subject, and assist you in deciding if you need to purchase long-term care insurance.
Most basic health insurance policies, as well as Medicare or Medicare Advantage policies, cover the cost of nursing home or assisted living visits for up to three months. Such insurance assists when someone suffers an injury or condition that requires constant care for a short period, often including physical therapy sessions.
While our life expectancy rates have increased over time (except for a recent drop due to pandemic-related deaths), those increases do not reflect why a person is living longer. Many people live longer due to better health care and medical services, but often the care includes constant attention from a licensed professional. This is especially true for people suffering from Alzheimer’s, amyotrophic lateral sclerosis (ALS), or Parkinson’s diseases.
Unless you are in a family situation that can provide constant care from a child or sibling, and your personal genetic history suggests that you may live a long life, you are going to want to consider long-term care insurance. The cost of nursing home or assisted living stays is very high, and without insurance, you will find yourself or your family needing to make hard decisions about the quality of the remainder of your life when you factor in financial pressures.
It is also possible that you or your loved one wants to stay in their home until they pass away. This means that in-home care may be required. The cost of such care is not as much as moving into a long-term facility but is still very high. Long-term care insurance can help cover much of those costs.
Knowing the Odds
According to longtermcare.gov, a person who turned 65 years in mid-2020 has a 70 percent chance of requiring some form of long-term care service. Women are likely to need such care for almost four years, while men on average need long-term care service for just over two years. While those statistics indicate that 30 percent of 65-year-olds today will not need such care, they also show that 20 percent of people who turned 65 in 2020 will need such care for more than five years.
Unless your personal genetic history suggests that you will not live beyond the age of 70 (as an example), you should consider purchasing long-term care insurance.
What Medicare Provides
After the first 20 days of nursing home care, Medicare does not cover long-term care, which it rewords as “custodial care.” Medicare continues to cover some medical costs (prescriptions for example) but does not cover the cost of daily living activities, such as assistance with getting dressed or bathing.
The same is true of Medicare supplement programs, known as Medigap policies. Medigap policies offer financial coverage for costs not covered by Medicare. Medicare does not cover any long-term care costs, but neither would a supplement policy.
Medicaid, the federal program for those with very limited income or financial assets, does cover the cost of long-term care. But Medicaid recipients are not likely to be in a position to consider long-term care insurance.
Cost of Long-Term Care
According to the American Council on Aging, the average daily cost of a private nursing home room is $297. That is an annual cost over $108,000. Shared room costs are only slightly lower, $260 a day on average. Costs vary by state.
Nationally, the average cost for a room in an assisted living facility, for those who do not need 24-hour attention, is $148 a day, or $54,000 per year.
In-home care services are an option, but won’t save you much money. According to seniorliving.org, the average cost of in-home service is $163 per day. If the patient requires an in-home registered nurse, the cost rises to $387 on average, nationally.
Cost of Long-Term Care Insurance
According to the American Association of Long-Term Care Insurance, the average annual premium for long-term care insurance is $2,220; but there are several factors that impact what you will pay.
Insurance companies that offer long-term care insurance take into account the age, gender, marital status, and general health of the person to be covered by the policy. Rates for all of these factors vary depending on the insurance company making the offer.
There are insurance agents who work with a variety of insurers to help you find a long-term insurance policy that fits your needs. Many financial advisors also offer services in relation to long-term care insurance decisions.
There are fewer than 10 reputable insurance companies offering long-term care insurance. For a list of those companies, click here.
Keep in mind that long-term care insurance premiums do change from year to year. Some companies offer an inflation rider on long-term insurance policies, which cost money up front but protect you against a higher annual premium due to inflation.
Making the Decision
A decision to purchase long-term care insurance should be made with the guidance of financial and medical advisors and include the personal medical history of the person to be covered as well as the person’s family history of medical care.
There are other ways to pay for long-term medical care. Reverse mortgages are a popular choice for those who own all or most of their home and are willing to reduce the resale value of their home through this method. If the potential patient currently has a Health Savings Account (HSA) from work, those funds can be used to pay for long-term care. Funds invested in an HSA account are tax-deferred.
The cost of nursing home care is tax deductible, which will help defray some of the overall expense.
If you have reached the end of this article, you are likely considering an investment in long-term care insurance. In terms of the cost, the sooner you make a purchase, the less expensive the insurance will be.
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