With people living longer than ever before, more and more seniors require long-term healthcare services in nursing homes and assisted living facilities. However, such care is extremely expensive, especially when it’s needed for extended periods of time.
Traditional healthcare insurance doesn’t cover such services. Medicare typically only covers up to 90 days of care. Medicaid might be available but it can be difficult to get, and requires you to deplete nearly all of your assets before being eligible unless you do proactive planning to shield your assets. To address this gap in coverage, long-term care insurance was created.
First introduced as “nursing home insurance” in the 1980s, long-term care insurance is designed to cover expenses associated with “intensive care” or long-term skilled nursing services. These services are typically delivered in a nursing home, assisted living facility, or other senior care setting. Some policies cover care delivered in your own home, as well.
Such intensive care is required when you are no longer able to care for yourself. These policies cover the cost of skilled nursing services that support you with activities of daily living (ADLs). These include:
- Ambulating (walking or getting around)
- Dressing and grooming
- Using the toilet
Before your coverage kicks in, most policies require that you demonstrate you have lost the ability to engage in at least two or three ADLs. The policy may have a deductible and an elimination period – a set number of days between the time you become disabled and the time your coverage kicks in.
Long-term care policies typically have a specific number of years of care it will pay for, such as 3 to 5 years. Most policies also come with a cap on the dollar amount of coverage that will be paid for care on a daily basis, known as a daily benefit amount.
Obviously, the younger and healthier you are when you buy the policy, the cheaper the premiums will be, so the sooner you invest in getting covered, the better. If you wait until your too old or already ill, it can be impossible to get covered.
The following conditions generally disqualify you from obtaining coverage:
- You already need help with ADLs
- You have AIDS or AIDS-Related Complex (ARC)
- You have Alzheimer’s Disease or any form of dementia or cognitive dysfunction
- You have a neurological disease, such as multiple sclerosis or Parkinson’s Disease
- You had a stroke within the past year to two years or have a history of strokes
- You have metastatic cancer
- You have kidney failure
Increasing Premiums, Decreasing Benefits
With the elderly population booming, there has been a surge in demand for long-term care services, which has led to a marked increase in the cost of such policies. At the same time, many insurers have been cutting back on the benefits their policies offer.
Given this, other types of hybrid policies are springing up. One increasingly popular type of hybrid policy combines long-term care insurance with life insurance. With this type of policy, if you don’t use the long-term care benefits, the policy pays a death benefit to your family when you pass away.
If you are looking to purchase long-term care insurance, you should speak with multiple insurance providers and compare their benefits, care options, and premiums. Different companies may offer the same coverage and benefits, but they can vary dramatically in price. Always ask about the insurance company’s history of rate increases, including the amount of the most recent increase.
For the best chances of success when shopping for a policy, get help from a fee-only planner, who is not compensated based on your choice of coverage. Or, if you are working with a commissioned agent, meet with your elder law attorney who can review the policy terms to ensure it’s a good fit for you before you sign on the dotted line.
When meeting with an insurance provider, you must get answers to following three questions about your policy:
- How long is the elimination period before the policy begins paying benefits?
- What capacities, or ADLs, must you lose before coverage kicks in?
- How many years of care are covered?
- What is the daily benefit amount and the lifetime benefit amount?
Buying long-term care insurance should be a family affair, because you are going to need your family members to advocate for you and file a claim for the policy when you need to use it. Make sure your family knows what kind of policy you have, who your agent is, and how to make a claim.
You should definitely have a well-drafted, updated, and regularly reviewed power of attorney on file as well.
Keep Your Policy Updated
Once you are in your 40s, you should annually review your long-term care policy to evaluate new insurance products on the market and update your policy based on your changing needs. Whatever you do, make sure you don’t miss a premium payment. If you stop paying, even for a short period of time, you’ll lose all of the money you invested and will have no access to the benefits when you need them.
Long-term care insurance, along with life insurance, can be key components in your estate plan. When combined with the right estate planning vehicles, you can rest assured your family will be protected and provided for no matter what happens to you.