Unlike health insurance, including Medicare, long-term care insurance offers a way to pay for assistance if you are unable to care for yourself.
This type of coverage pays for care ranging from respite care for family members to in-home assistance. Long-term care insurance also pays for assisted living residences and nursing home care.
Most people will start thinking about long-term care insurance as they approach retirement. This usually happens between becoming eligible for senior discounts and cashing your first Social Security check.
Experts disagree about the best time to consider long-term care insurance. One school of thought believes that you should wait until you are at least 60 before taking the plunge. Other advisers suggest sometime in your mid-50s as the optimal time.
Ultimately the decision is a personal one that balances the cost of about $2,000 a year with risk. However, waiting too long can result in your becoming ineligible because of pre-existing conditions. Postponing the decision until too long after retirement can result in your being priced out of the market.
Healthcare insurance and Medicare
It’s a common misconception that your private healthcare insurance or Medicare covers long-term care. Health insurance will provide for short term nursing care in a rehab or skilled care facility.
However, the watchword is short-term. There are generally upfront requirements such as a minimum three-day hospital stay before being transferred. The reason for this is to ensure that what you need is convalescent care rather than ongoing, long-term care. Usually the top end limit on this benefit is 100 days. Policies then require at least 60 days outside of the hospital or care facility for the benefit to reset.
Medicare covers even less than private insurance in terms of short-term care. It does not cover non-healthcare services delivered at home.
Medicare will pay for a home health care nurse or therapist to visit you only if it is ordered by your doctor. Then the visits will only be paid for 60 days. Beyond 60 days of home health care nurse or therapist visits the most Medicare will pay for someone to assist you with bathing once or twice a week. All other assistance such as help with medications, meals or transportation are not covered.
What about Medicaid?
Medicaid rules can be very complicated and are different from state to state. Medicaid, however, may not be available to you if you have accumulated any assets, including savings or own a home.
Medicaid is intended for people who do not have the means to pay for care. Any assets you have in excess of $2,000 must to be spent on your care before you are eligible for benefits.
The only assets you can have and still be eligible for Medicare are one car, $1,500 of life insurance, your personal belongings and furnishings and your home as long as your spouse or a dependent child live with you. Even then many nursing and assisted living facilities do not accept Medicaid. The bottom line is relying on Medicaid is usually more distasteful than beneficial.
Other considerations in long-term care insurance
The first thing to consider is the financial health and stability of the company whose long-term care insurance policy you are considering. You should look for a high rating by one or more of the rating providers. It assures that the company will be able to pay your claim if and when the time comes.
The cost of these policies is based on the percentage of your expenses you want it to pay for. That is why you should carefully consider how much of your savings you can set aside for your own care. The more you can pay for out of pocket means the less insurance you will have to buy. Lower limits on your policy can result in significant savings on premiums.
Another important consideration is whether a policy is tax-qualified or not. A tax-qualified policy cannot be cancelled by the insurance company for any reason other than non-payment. That ensures that should your health take a turn for the worse the insurer cannot cancel your policy. You will also want to give thought to how you would like benefits paid, either directly to you or to providers.
Long-term care policies allocate their benefits in two different ways and the way you choose can make a difference. Some policy terms are based on a period of time such as a number of years. Others use a fixed dollar amount (maximum payout). Hand in hand with how benefits are paid is the question of how the policy adjusts payments for inflation.
The final thing you should consider when shopping for long-term care insurance is the elimination period. This is similar to the deductible on a car insurance policy. The elimination period is the amount of time that you are required to pay your own expenses.
The elimination period begins when you file your claim. The same as with deductibles, the longer the elimination period is the lower your premium will be. Elimination periods range from 0 days to one year. You will have to consider your resources and your family’s ability to provide for your care during the waiting period.
Is long-term care insurance for you?
Long-term care insurance policies are expensive and premiums increase along with your age. The combination of high premiums and the uncomfortable nature of thinking about needing assistance shouldn’t be reasons for not at least considering long-term care insurance.
Thinking about your long-term care needs should be a part of your long term financial planning. The importance of this type of coverage increases with the amount your assets that you wish to protect.
Most independent experts agree that working with a fee-only financial planner is your best option when considering long-term care insurance. A fee-only financial planner is paid by the hour rather than commission. A qualified financial planner can help you determine if the expense of this type of insurance is worth the reward based on your financial circumstances.
