What are the chances that you or someone in your family — perhaps an elderly parent — will need long-term care assistance? According to the U.S. Department of Health and Human Services, roughly 70% of Americans aged 65 or over will require some form of long-term care.
How will you pay for these services? A practical solution is to purchase a long-term care (LTC) insurance policy. With LTC insurance, you can reduce the possibility that your lifetime of savings will be drained by long-term care costs. However, be aware that this type of insurance has a few downsides.
ABCs of LTC insurance
Most LTC policies operate like some other forms of insurance that you’re familiar with, such as homeowners or auto insurance. The policy’s terms control the amount of benefits you receive on a daily or monthly basis, up to a stated lifetime maximum or number of years. This is predicated on the type of care being provided, for example, in-home care or a nursing home. You may be able to add to your coverage over time.
Typically, you’re subject to a waiting period of 30 to 180 days before you’re eligible for benefits (90 days is the norm). Generally, the shorter the waiting period the more expensive the policy. Similarly, you can expect to pay more for policies with higher maximum benefits.
LTC policies generally provide benefits when you can no longer perform several of the basic activities of daily living — including bathing, dressing, eating, transferring and managing incontinence — or if you’re cognitively impaired. Once that occurs and you start receiving benefits, your premiums cease. However, if you stop paying on the policy first, you usually forfeit any future benefits. Note that coverage may be affected by several factors. For example, you may not qualify for coverage because of a preexisting condition.
Finally, recent trends regarding LTC insurance haven’t been encouraging. After underestimating nursing home costs, insurers have reduced benefits, raised premiums or dropped out of the market altogether. As a result, policies generally are now pricier and more difficult to obtain. And for individuals who already have coverage, premium costs continue to go up, assuming the policy allows it.
3 factors to consider
Unlike homeowners and auto insurance, you typically have only one good shot at buying LTC insurance. Should you take the plunge, there are several key factors to consider, including your:
Financial situation. Do you have the wherewithal to pay for long-term care assistance on your own without jeopardizing your overall financial situation? Take an objective look at your entire financial picture.
Estate planning objectives. If preserving wealth to pass on to your family is a primary estate planning objective, an LTC policy may make sense.
Age and health. As you continue to age, the cost of LTC insurance premiums will increase. Also, you may have to pay more if you have preexisting conditions (if you can secure coverage at all). Apply for a policy as soon as possible and check for policies that are more lenient at a relatively reasonable cost.
There might be other ways of obtaining coverage without buying a policy privately. For instance, you may be able to participate in a group policy offered by your employer or from another affiliation. This can be especially helpful if health conditions would otherwise hike your premiums or deny you coverage.
Turn to your advisor
There is no one-size-fits-all LTC policy. With guidance from a professional advisor, assess your needs and make an informed decision about the LTC coverage that’s right for your circumstances.