What is Long Term Care Insurance?
Long Term Care Insurance Polices provide cash to cover the cost of your care when you cannot take care of yourself.
At some point, you may need help to get through each day. Hopefully, you have family and friends to help you, but even they can only help you to a point.
Many people find maintaining their independence and dignity an important value. Consequently, these people find Long Term Care (LTC) Insurance is an important part of their financial planning.
Defining Your Needs
You need to start thinking now about how you will plan for your own care down the road. “Long-Term Care” as a plan has many parts including:
- Where you will live
- What services you will need
- What people you can depend on
- How you will pay for everything
- What legal considerations you need to address
Additionally, part of your plan might also include insurance.
What Can Long Term Care Insurance Help You Pay for?
Long Term Care Insurance can help you pay for:
- Nursing homes & LTC facilities
- In home daily living services
- In home personal services
Who Needs Long Term Care Insurance?
According to New York Life Insurance Company, 70% of people age 65 and older will need help with daily living at some point. Moreover, almost 50% of these people will end up spending more than $107,000 on Long Term Care costs.
Reasons People Get LTC Insurance
Here are a few types of people that need Long-Term Care Insurance:
- Independent people who do not want to rely on their family to take care of them or pay for their care.
- Prepared people that do not have reliable support they can trust to help with their care.
- Determined people that want enough money to cover in home services so they don’t have to go to a nursing home.
- Planning people that do not want to drain their retirement accounts with LTC expenses.
- Finally, people that do not want to end up on Medicaid at any point in their lives.
Does Medicare Cover Long-Term Care?
Why Doesn’t Medicare Cover LTC?
To start, long-term care has mostly to do with the support and services you will need for daily living and personal care activities. These are not medical services. Consequently, they are not covered by Medicare.
- For example, if you need to see a doctor or medical provider, that is a medical expense.
- In contrast, if you need help using the toilet, that is a long-term care expense.
What About Medicaid?
Medicaid will eventually help you pay for LTC expenses. However, you must be considered below the poverty level before the Medicaid program kicks in.
As an example, my grandparents both lived to be about 87 years old. (Married 67 years!) They had enough money to cover their assisted living expenses for a while, but the last 6 months or so of their lives were spent on Medicaid. They had to do a “spend down” of all of their assets to cover LTC expenses. Once their funds were exhausted, Medicaid kicked in.
In their case, while they had money to spend, they had choices on where they lived and what services they used. However, as soon as the money was gone, they had to move to a place that had “beds” available for Medicaid recipients. As a result, they were moved around a lot in their last year.
On the much brighter side, they were together until the end and passed months apart. They were also happy and loved. So, even though the journey was difficult, we were all in it together. You can read a little more about my care-giving story here.
If you do not want to “spend down” your assets on LTC costs, you will need to have insurance to cover your care costs.
How Does LTC Insurance Work?
LTC is an insurance policy. Consequently, you take it out now to pay for a future event that may or may-not occur.
- First, you pick a plan with an insurance carrier and structure it to fit your needs. This includes deciding how large of a benefit you want.
- In addition, your decision will also depend on how much premium you can afford to pay a month for your policy.
- Premium cost is based on age, and availability of policies are dependent on health underwriting. As a result, not everyone will be able to afford a plan, and not everyone will be able to get a plan. As with most insurance, the younger and the healthier, the better. So, start soon.
- Then, you keep paying premiums until you need the policy. (Or you cancel the policy because you ended up not needing it. For example, you die before you needed it.)
When Do Long-Term Care Insurance Benefits Begin?
First, in order to start using your LTC policy’s benefits, a licensed medical practitioner will need to certify you chronically ill.
According to Mutual of Omaha, being chronically ill means, “You need help with at least two of the six activities of daily living for at least 90 consecutive days or you need continual supervision due to a severe cognitive impairment.”
The government defines Activities of Daily Living (ADLs), as “basic actions that independently functioning individuals perform on a daily basis.”
- Using the toilet
- Transferring (to or from bed or chair)
- Caring for incontinence
So, you typically need to not be able to do at least two of these to start your benefits.
Do Benefits Start Right Away?
To start, it takes a bit of time to get the right paperwork completed by your doctor, sent in and then certified by the insurance company. Even then, your policy might not kick-in right away.
To keep the cost of LTC insurance lower, many insurance companies will build-in an elimination period. Often, you can decide how long this waiting period will be before benefits begin. Naturally, the longer the waiting period, the less expensive the policy.
Will My Policy Last Until I Die?
Typically, your policy has a set payout rate. This means that it will pay out up to a specific dollar amount. If you outlive this amount, then you will have to use other resources to pay for your care.
How Much will my LTC Policy Cost?
The cost of your policy will depend on your needs, cost of living in your area, your age, your health, and many other factors. To find out an exact cost, you will need to work with an agent to discuss your unique situation.
How Much Long-Term Care Benefit Do I Need?
This is also a question we can’t answer without knowing your needs and situation. If you are wanting a rough idea of what you may need, try out this Long-Term Care Insurance Calculator from Mutual of Omaha.
What are the Alternatives to Purchasing a Long-Term Care Plan?
Long-Term Care Policies are expensive. Additionally, if you wait too long they might not be available to you. One alternative is to spend down your assets until you qualify for Medicaid. If you do not have a lot of assets left by the time you need Long-Term Care, then this may be an option for you.
However, if you have saved money and do not want to drain it all away in medical costs, then you may have another option: Life Insurance.
“As an alternative to Long Term Care Insurance, some retirees consider Life Insurance Policies that have LTC riders or a Chronic Illness Rider. For example, an insurance carrier might offer a product (like an IUL policy) with an option to purchase up-front a rider that will cover long term care events. You can pay qualified long-term care expenses with the death benefit, naturally, before death. Then, when you pass, the insurance company pays what is left to your beneficiaries.”From Our Article: Do I Need Life Insurance In Retirement.
In summary, long-term care insurance can protect you and your family against the rising costs of assisted living and nursing home care. However, it is expensive. You need to plan ahead to either secure LTC insurance early on, or find another option like life insurance with LTC riders.
- To discuss your options with a licensed agent, you can call me, Carly Cummings – the author, if you live in Nebraska or Iowa.
- If you live in any of our other fine states, please see this page to find an agent near you.