When you’re young, long-term care insurance is not something you’re likely to think about. You might also think that long-term care insurance is something to worry about well into your 60s or 70s. But in reality, an illness or disability can strike at any time and at any age, and long-term care does not come cheap.
In fact, Genworth’s 2019 Cost of Care Survey found that the average monthly cost of professional care in the U.S. ranges from $4,051 for care at an assisted living facility, to $8,517 for a private room in a nursing home. A live-in nurse averages $4,385 monthly.
While these numbers can be startling, especially after estimating the number of years you will need care, there are measures you can take now to plan for long-term care that will protect you falling into dire financial straits down the road.
Long-term care encompasses medical and non-medical services for those who are seriously ill or disabled. LTC policies are designed to assist individuals with activities for daily living (ADLs) such as bathing, getting dressed and going to the bathroom. Long-term care costs are generally covered by individual savings, insurance, public funds (such as Medicare and Medicaid) and group insurance.
Jesse Slome, executive director for the American Association for Long-Term Care Insurance (AALTCI), says potential policyholders should check the insurance company ratings before they apply for long-term care insurance.
“You need to know that the insurer will still be around in 20 years when you are ready to make a claim,” says Slome.
If you’re shopping for long-term care insurance, you can also check insurance company ratings at the AALTCI website.
You should also work with an agent who has access to a number of rates from leading long-term care providers.
“Rates can vary by as much as 50 to 70 percent in price, depending on the insurance company,” he says. “It’s never a good idea to just contact a couple of companies because there is always a better deal out there.”
Also, Slome recommends buying as much protection as you can afford.
“A policy that pays benefits for 3-years will cost between 40 to-55 percent less than one that pays for an unlimited number of years,” explains Slome. “While some people do need care for many years, our studies show that a limited duration policy is not just more affordable, it is sufficient for the vast majority of individuals needing care. We advise people to buy only what you can afford because some protection is always better than none.”
To stay competitive, many long-term care providers have introduced customized policies that are designed to better meet the needs of policyholders and make long-term care insurance more affordable.
In addition, potential LTC policyholders might want to consider taking advantage of available discounts for couples. Some long-term care insurers extend these benefits to unmarried couples, such as Mass Mutual, MetLife and Prudential.
“This applies even when only one qualifies for coverage,” advises Slome.
Couples can reduce costs of long-term care is by purchasing a shared-benefit policy. A shared-benefit policy is shared by a couple and is generally offered as an optional rider. For example, if one spouse runs out of benefits for long-term care, they can use the remaining benefits from their spouse’s policy.
Who’s buying long-term care?
The majority of long-term care policyholders have purchased policies through individual insurance agents. In addition, 50 percent of those policyholders have an income that is above $75,000 annually. Those who earn less than $35,000 annually make up 16 percent of all long-term care policyholders, according to a June 2009 study by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured, in partnership with health advisor Avalere Health.
Don’t rely solely on Medicaid/Medicare
Medicaid is a form of government medical insurance for low-income families and people with certain disabilities. Funding for Medicaid/Medicare is provided through state and federal partnerships. Medicare is medical insurance for those who are over the age of 65. Medicare doesn’t pay for ADLs, but it does pay for nursing and home health care, according to Medicare.gov.
While you may think Medicaid or Medicare will cover most of your long-term care costs, there are certain strict criteria you have to meet to be eligible, which varies by state. Medicaid is primarily in place for needy folks who lack financial resources to fund long-term care. Recent statistics show that Medicaid pays for 70 percent of the costs for nursing home care and 12 percent of services for assisted living residents, according to The Kaiser Commission on Medicaid and the Uninsured, but with increased statewide budget cuts, nearly all services covered have been dramatically reduced.
In fact, long-term care accounts for 32 percent of total Medicaid spending. Also, Medicaid is generally 50 to 75 percent less than the private pay rate of long-term care insurance. Since Medicare or Medicaid cannot be relied upon to pay for the full amount required to fund long-term care, having a long-term care insurance policy can alleviate any additional costs.
When it comes to premiums, most experts suggest getting a policy that does not exceed 10 percent of your annual income, otherwise there is a chance of the policy may lapse because the policyholder cannot afford the premium.
When considering a long-term care insurance policy there are several key factors you should consider, according to Kaiser Family Foundation.
Maximum allowable daily benefit amount. On average, most insurance experts recommend a maximum daily benefit amount of $100 to $200 per day. Keep in mind, the higher the benefit amount, the higher the premium.
Benefit period. Most policies provide a benefit period of three to five years. If you choose to pay for services that are less than $100 per day, the benefit will last longer.
Services covered. How comprehensive is your policy? Most policies cover services at nursing homes, assisted living facilities, home aide care and adult day care. Other services you might want to consider include transportation and services not provided in a standard LTC policy.
Elimination period. How long will it take before the policy begins to pay benefits? You have the option to select an elimination period when you purchase the policy. A good percentage of the policies sold on the market today have elimination periods of 90 days or more.
Inflation protection options. Inflation can eat away at the amount of benefit because LTC policies are purchased for future use. Fortunately, policyholders can purchase a number of inflation protection options. Under an inflation protection option, the benefit generally increases by a percentage of 3 to 5 percent of the original daily benefit amount, while maintaining a level premium.
How can you reduce your premium?
Buy early when you are in good health.
“You should never wait too long to purchase,” says Slome. “If you buy after your mid-fifties there’s a likelihood you may have developed pre-existing medical conditions in that time and are going to lose any health discounts you may have and the rate would increase significantly.”
Take advantage of all discounts by asking your agent what’s available.
Lower benefit amounts and shorter coverage periods can lower your premium.
Also, the amount of annual premium you pay can vary by state.
