What Is Long-Term Care Insurance?
What Is Long-Term Care Insurance?
Long-term care insurance is intended to reduce out-of-pocket costs if someone winds up needing long-term care from a paid provider. Long-term care insurance can pay for a nursing facility or home care, and many policies also cover assisted living, though no policy will pay the full cost of any of these. People usually pay premiums for 20 or 30 years before reaching an age when long-term care is likely.
If, like most people, you never need or qualify for the policy’s benefits, or you collect benefits for only a short time, those years of premiums will turn out to have been a wasted investment. For that reason, it’s best to consider long-term care insurance as a “peace of mind” investment rather than as a sound financial one.
Who will need long-term care insurance?
Most people buy long-term care insurance in their 50s and early 60s. The cost goes up with age, but it’s still affordable for many people over age 65. Once you hit the mid-70s, though, the cost of a good long-term care policy becomes very expensive, and it may be difficult to qualify for if you already have health problems.
Even if you’re are in good health today, there’s a good chance that you’ll eventually need some type of long-term care, at least for awhile. By 2020, roughly 12 million people over the age of 65 will require some long-term care, according to a study by the U.S. Department of Health and Human Services.
But that only gives a general picture. The hard part is figuring out in advance whether you’ll need a long period of close monitoring — daily or even round-the-clock care — that you’ll have to pay for. Some 70 percent of the elderly don’t pay for their care but get it exclusively from family and friends.
The odds of needing two years or more of extensive, paid care is not high. Long-term care insurance, then, is security against a small but nonetheless real possibility of a lengthy, expensive period of care.
How much does long-term care cost?
The reason some people are willing to risk buying long-term care insurance is the staggering cost of care if it’s not provided by family and friends:
· A year in a nursing home costs more than ,000 on average.
· Home healthcare can cost ,000 a month or more.
· Assisted living facilities cost ,000 a month and up, according to the Health Insurance Association of America (HIAA), a national trade group.
Health insurance or Medicare rarely covers any of these expenses. Medicaid does cover nursing facility and some home care costs, but you’ll have to meet strict income and asset requirements to qualify. Without long-term care insurance or Medicaid, you’ll be footing the entire bill out of your own pockets. It’s the chance that these bills will continue for three, four, or five years that long-term care insurance is meant to help guard against.
What types of policies are available?
Several types of long-term care insurance are available, but they work on the same principle as regular insurance: You pay an annual premium, and the insurance company reimburses you for a specified amount of long-term care costs, should one or both spouses end up needing and qualifying for care under the policy’s terms.
Some long-term care policies are “tax qualified.” This means the policy meets certain federal regulations, and therefore some of the premium amounts may be tax deductible (as an itemized medical expense, depending on income). The benefits collected would be tax-free.
In several states — California, Connecticut, Indiana, Iowa, and New York — there’s also what’s called “state partnership” long-term care insurance. These are the same as other policies, except they provide an extra benefit that might allow you to more easily qualify for Medicaid coverage of long-term care. To qualify for Medicaid coverage, you must have very limited income and assets. With a state partnership long-term care insurance policy, you’re allowed to keep more assets and still qualify for Medicaid coverage.
Long-term care insurance policies will pay benefits either on a per diem basis (a fixed benefit no matter what your costs) or on an indemnity basis (a portion of your actual expenses are reimbursed). Some policies pay only for a certified home care agency or licensed nursing facility, while others pay the policy holder directly, to use any way you sees fit.
How much does long-term care insurance cost?
The cost of a long-term care insurance policy is determined by several factors, including:
· The age of the person covered (the older the person, the more expensive)
· The amount of the benefit
· How long the benefit is to be paid
· The types of care covered
· The health status of the beneficiary when signing up for the policy
· Whether the policy includes inflation protection