There seems to be an insurance option for nearly everything. Some are more straightforward and obvious, and some are a little more obscure or seem like they may not be as necessary.
Long-term care insurance usually falls into the latter category if you’re young or in good health, but there are actually some very good reasons to have a long-term care insurance policy regardless of your health or age. You should also know the difference between short vs long-term disability insurance.
So, why do you need long-term care insurance? What does long-term care insurance cover? Let’s go over it in this complete 2022 guide.
What is Long-Term Care Insurance?
When long-term care insurance is brought up, you probably think of skilled nursing homes. However, individual-long term care insurance benefit payments can be used to pay for many different forms of care and for many different places where care can be delivered.
This often makes it seem like a less necessary form of insurance to people who are in good health, but the unpredictability of life and the fact that everyone eventually ages makes it a great option for the majority of people.
Why is Long-Term Care Insurance Necessary?
Long-term care is very expensive and rises annually with inflation. If an injury requires you to spend a long period of time in a nursing facility, unable to perform multiple activities of daily living (eating on your own, going to the bathroom on your own, etc…), or if you reach a stage in life where you can no longer care for yourself, the costs of care will be astronomical.
For many with a limited income, paying for this skilled care requires them to sell off all of their assets, use their own funds for as long as possible, and often rely on government programs to receive the care they need. For example, the average nursing home stay costs an annual rate of nearly $100,000, or around $8000 per month((1)). Even the highest-paid professionals would have a considerably difficult time paying such costs. Don’t forget there is also a waiting period for a disability insurance policy.
The liquidation of one’s assets to pay for long-term medical expenses and personal care usually means that any estate and financial legacy are then gone, with nothing left over to pass on to loved ones.
Long-term care insurance helps with this, and it can preserve one’s finances despite the need for extremely expensive, all-intensive, long-term care.
Who is Long-Term Care for?
Many people don’t think about long-term health care coverage until they are at an advanced age, and their chances of entering a nursing home or other residential care facility are at their highest. This is for a good reason. The vast majority of people who use long-term care insurance policies are elderly, and their health is usually degrading, or they don’t have family members capable of helping them in an in-home environment.
However, that’s not the most ideal way to approach it.
Most financial advisors recommend enrolling in a long-term care insurance policy at an earlier age. This is due to a couple of reasons.
Younger policyholders premium costs are much lower than older policyholders. This is due to the low likelihood that they’ll actually use the insurance any time soon. However, having the policy in place will make any transition into long-term care later on an easier and less stressful process. If you don’t need it until you’re older, you’ll have put quite a bit of money over many years into your policy, and you’ll likely have more to work with when you actually need it.
While most people don’t tend to fixate on it, life is fairly unpredictable. You might be 30 years old and at peak physical condition, but a sudden accident or succumbing to any of a wide range of unforeseen health conditions can rapidly change your health status and land you needing some living adjustments and a range of services or nursing care.
Sometimes, this may be temporary care. You might have to recover from a stroke in a nursing home for a few years. Sometimes, it’s a more lasting affair requiring permanent residential care facilities.
As you age, the likelihood of poor health putting you in an assisted living facility increases. Having long-term care coverage is a pre-emptive measure that protects you in case life takes a harsh turn.
How Much Does Long-Term Care Insurance Cost?
Long-term care insurance prices are heavily influenced by your age, and they’re normally paid via an annual premium.
For a 60-year-old adult, the average price is between $1000 and $4000 per year((2)). That’s a fairly high insurance price, but that’s why financial advisors recommend getting it while you’re young.
That price tends to be lower the younger you are when you purchase a policy, and it will obviously be higher if you wait until you’re older.
Long-term care insurance has the potential to be the most impactful insurance you have. So, we recommend using a professional policy advisor to find a policy that suits your unique circumstances.
What Does Long-Term Care Insurance Cover?
Long-term care insurance isn’t just for nursing homes. There’s actually an extensive list of care and medical costs you can use your long-term care benefits for. There’s also a lot of packages you can add to your policy if additional requirements are needed.
Nursing Home Care
This is the most common usage for long-term care insurance. Nursing home care for people is usually permanent, and this quality of care is extremely expensive. Most often, individuals have to liquidate all of their wealth to get this type of care.
Long-term care insurance will pay for your long-term care expenses in a licensed nursing home, and it gives you far more flexibility in which special care facilities you can stay in when compared to your options with government-funded long-term care programs.
In fact, Medicare only pays 4% of your annual long-term care costs((3)). The rest usually comes from insurance or personal wealth. Medicaid long-term care services payments fluctuate heavily based on the recipient, but it still has lower limits than the vast majority of private plans, and it’s not optimal coverage((4)).
Assisted Living Care
This is similar to a nursing home, but it’s more for people who are at risk when left alone or those who need help with day-to-day tasks than it is for the terminally ill or others who require extensive medical care daily.
Assisted living might be necessary for people of all ages. Young individuals with disabilities and no family capable of providing care often end up in assisted living, those who are seriously injured sometimes require assisted living, and of course, elderly people who are at-risk living on their own frequently require it.
Long-term care insurance will usually pay 100% of your policy’s maximum for assisted living, but some policies pay for less.
If you don’t need a form of “custodial care”, but you do need help throughout the day, there are adult day care centers that provide daytime support through an outpatient program. This is frequently used for accident recovery, therapy for disabled individuals, and elderly people who can mostly care for themselves but still need minimal personal care services assistance throughout the day.
Sometimes, both old and young people suffering from a medical issue require care, but they can remain in the comfort of their own homes.
This is often used to treat conditions that don’t require constant monitoring but are too complex for self-administration or for a family to help.
Long-term care insurance will pay for a licensed nurse or similar medical professional to come to your home each day, or on a similar schedule, and provide the medical attention you need.
The items listed above are the core features of any long-term care policy. However, you have the option to purchase add-ons that cover specific forms of care or services that are related to those features.
Return of Premium:
This is a very important add-on to get. There is no guarantee that you will need your long-term care insurance policy. While life is unpredictable and many people need nursing home services or other long-term care services, just as many people live their entire lives independently.
However, you will pay a large amount of money into your policy over your lifetime.
A “return of premium” feature ensures that, should you not need your policy before you die, all of the money you paid in premiums will be returned to your estate and inherited by your next of kin or whoever you decide will receive your legacy.
If you do not have this, all that money can be kept by the insurance company, and you will have essentially paid an insurance company for no reason.
If you plan on getting a long-term care policy, look for a “return on premium” feature, or get help from a qualified policy consultant to find the right policy.
This is a less-important feature, but it can be useful, and it’s inexpensive. If for any reason you have to leave a long-term care facility, this feature will pay to reserve your spot in that facility until you return.
This can be extremely useful due to long waiting lists at many facilities, and it can ensure that you don’t lose your spot at your preferred facility due to a long hospital stay or similar issue.
This is a service that benefits your family. If you are cared for in-home by family members, a Respite Care plan will pay for qualified nursing staff to step in temporarily and provide your family with the time they need to de-stress and practice self-care.
Taking care of a family member is stressful and difficult work, and it requires great personal sacrifices. Respite Care can make it much easier on those caring for you.
If you would like to receive care from a family member or friend, this policy addition will pay to have them trained as a certified caregiver. This allows them to legally care for you, and they can receive payment for their time and effort.
This can help keep you in your home and surrounded by those you love while compensating them for the work they do.
If you suffer a serious injury or illness and require a long period of recovery, this policy addition will pay for the care you receive. This can be very useful for younger policyholders, as it’s something they’re more likely to deal with.
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Should I Get Long-Term Care Insurance as an Older Adult?
Adults over the age of 55 should have a long-term care insurance policy, and that’s usually the age when most people start shopping for one.
Past the age of 55, you’re much more likely to need long-term care due to the effects of aging on your health, and your higher likelihood of requiring extensive care due to accidents or illnesses.
However, this isn’t optimal. Not only will your premiums be much higher due to the higher likelihood of you using your premium, but you will also have a harder time getting approved for a policy. You’re more likely to have pre-existing conditions or bad bills of health, and insurance companies can deny your application for just about any of those problems.
Should I Get Long-Term Care Insurance in My Youth?
This could be a good period to purchase a long-term care policy. Between the ages of 25 and 35, you’ll get the best long-term care insurance premium rates, and you can reasonably accept lower-coverage policies without worrying too much to get even better deals. Your policy can always be upgraded as you age.
You’re also a lot less likely to be denied when you get a policy as a younger adult. You’re less likely to use your policy, and you probably won’t have the pre-existing conditions that cause many older adults to be denied.
Getting long-term care insurance at this phase of your life may seem like an expense that doesn’t pay off, but it could be a cost-effective time to buy it, and it may come in handy when you least expect it.
Always Get the Help of a Professional Policy Advisor
Long-term care insurance isn’t simplistic. It’s not something you’re guaranteed to use at any point, and there are a lot of factors you need to consider that aren’t always obvious or easy to determine.
Getting the help of a policy advisor such as PolicySolver will ensure that you purchase a policy that gives you the most coverage at the lowest cost, and PolicySolver’s experts can help you determine which features you need and what you can afford to pass on. Schedule an appointment to discuss your needs.
1: Jessica Render, sourced January 21, 2022, from Nursing Home Costs in 2021: Average Costs by State and Room Type, https://www.consumeraffairs.com/health/nursing-home-costs.html
2: Insurance Dodo, January 21, 2022, from Long-Term Care Insurance Quotes for 60 to 69 Years Old, https://www.insurancedodo.com/long-term-care-insurance-quotes-for-60-to-69-years-old/
3: Department of Banking and Insurance, Sourced January 21, 2022, Official Policy Overview, https://www.state.nj.us/dobi/ins_ombudsman/ltcguide.htm
4: Senior Care Counsel, Sourced January 21st, 2022, https://www.seniorcarecounsel.com/blog/how-much-does-medicaid-pay-for-long-term-care