One of the ways to help finance your long-term care costs is to purchase long-term care (LTC) insurance. It provides money for when you need care for activities you can no longer provide for yourself and for supervised care if you develop dementia. In-home care and adult day care can be covered by it, and assisted-living facilities and nursing homes accept it. One of the primary points to keep in mind is that you need to consider purchasing this insurance when you are healthy, preferably at a younger age when it is more affordable, because if you wait until your health is bad you might not be able to afford it, or even purchase it.
Long-term care insurance is becoming more popular with about one million policies sold each year, but you have to determine if it is for you. One of the primary reasons to purchase LTC is if you have significant assets and you want to make sure they pass through to your estate. It can protect your assets and prevent what you spent your entire life working for going down the drain, or going to the government if you have to spend down your assets to qualify for Medicaid. It also gives you some control over your situation if you have to go to a nursing home. If you have to depend on Medicaid, you may not be able to live in the nursing home you would choose for yourself, and your quality of life may diminish from what you’re accustomed to. It might be wise to consult a good financial planner who specializes in estate planning to insure you retain as much control over your care situation as possible and also insure that your estate passes to your heirs as intact as possible.
A good LTC insurance policy will pay for in-home care and adult day care centers as well as in a variety of assisted-living facilities and nursing homes. Make sure your policy pays for homemaker services and any necessary home modifications so that you can remain in your home as long as possible, where you are most comfortable. Most policies waive the premium in the event that you need care, but you should make sure that it covers all care, including in-home care, not just for facility care. But keep in mind, whenever you purchase more options the cost goes up, such as inflation protection or return of premium. Then you have to decide how much coverage you will need. An agent will offer you a daily benefit and you will decide how many years of coverage you wish to purchase. You may have to balance these two questions when you consider a policy. Do you want to concentrate more on an adequate daily benefit or longevity of stay? But you always have to remember when you’re purchasing a LTC policy you are buying a specific pool of funds. Once the funds are depleted, they are gone. A LTC policy is unique. It is not life insurance and it is not health insurance. It is a hybrid.
And this points to one of the primary concerns in purchasing LTC insurance. In fact it is such an important issue that there is a 30-day provision to change your mind and receive a full refund. You have to consider at what age you will need the funds and if you will be able to continue paying the premiums until then. If you quit paying premiums, in many cases you will receive nothing. There is a clause in most policies called a non-forfeiture option where you will receive a limited amount of coverage if you discontinue paying premiums. But it is limited and you have to pay premiums for four or five years before this clause kicks in. There is no cash value associated with most of these policies, and if you never use the policy, there is no payout and you have just spent the money for peace of mind, unless you purchase options such as return of premium or you purchase a policy that is actually a life insurance product with the payments for long-term care made through an attached rider.
Well, how much does it cost? It varies from region to region throughout the country. It’s certainly cheaper in our local tri-state area (Mississippi, Arkansas, and Tennessee) than it is in the New York, Chicago, or San Francisco area. But on average, a 25-year old may pay as little as $800 per year and a 75-year old may pay over $10,000 per year. And you can also choose different payment plans, from annually, 10-year pay, and single premium. One you might want to consider is the 10-year pay, because after that ten year period your premiums are paid in full and can’t be raised for many companies. But you have to make sure of that in your policy, because some companies can send you an assessment even after you have quit paying premiums. And you can also add more bells and whistles that will increase the premium, such as inflation protection. And your premiums can be raised, but not individually. They can only be raised on the entire class, such as every 55-year old male.
LTC insurance can be a valuable tool to help in your long-term care plans, but it only a piece of the puzzle in this plan and you have to determine where, or if, it fits into your plan. I have also added an additional page with questions you might want to ask yourself and some terms to understand before you purchase a LTC insurance policy.
