It's a fact:
People today are living longer. Although that's good news, the odds of
requiring some sort of long-term care increase as you get older. And as the
costs of home care, nursing homes, and assisted living escalate, you probably
wonder how you're ever going to be able to afford long-term care. One solution
that is gaining in popularity is long-term care insurance (LTCI).
What is long-term care?
Most people associate
long-term care with the elderly. But it applies to the ongoing care of
individuals of all ages who can no longer independently perform basic
activities of daily living (ADLs)–such as bathing, dressing, or eating–due to
an illness, injury, or cognitive disorder. This care can be provided in a
number of settings, including private homes, assisted-living facilities, adult
day-care centers, hospices, and nursing homes.
Why you need long-term
care insurance (LTCI)
Even though you may
never need long-term care, you’ll want to be prepared in case you ever do,
because long-term care is often very expensive. Although Medicaid does cover
some of the costs of long-term care, it has strict financial eligibility
requirements–you would have to exhaust a large portion of your life savings to
become eligible for it. And since HMOs, Medicare, and Medigap don’t pay for
most long-term care expenses, you’re going to need to find alternative ways to
pay for long-term care. One option you have is to purchase an LTCI policy.
However, LTCI is not for
everyone. Whether or not you should buy it depends on a number of factors, such
as your age and financial circumstances. Consider purchasing an LTCI policy if
some or all of the following apply:
You are between the ages
of 40 and 84
You have significant
assets that you would like to protect
You can afford to pay
the premiums now and in the future
You are in good health
and are insurable
How does LTCI work?
Typically, an LTCI
policy works like this: You pay a premium, and when benefits are triggered, the
policy pays a selected dollar amount per day (for a set period of time) for the
type of long-term care outlined in the policy.
Most policies provide
that certain physical and/or mental impairments trigger benefits. The most
common method for determining when benefits are payable is based on your
inability to perform certain activities of daily living (ADLs), such as eating,
bathing, dressing, continence, toileting (moving on and off the toilet), and
transferring (moving in and out of bed). Typically, benefits are payable when
you’re unable to perform a certain number of ADLs (e.g., two or three).
Some policies, however,
will begin paying benefits only if your doctor certifies that the care is
medically necessary. Others will also offer benefits for cognitive or mental
incapacity, demonstrated by your inability to pass certain tests.
Comparing LTCI policies
Before you buy LTCI,
it’s important to shop around and compare several policies. Read the Outline of
Coverage portion of each policy carefully, and make sure you understand all of
the benefits, exclusions, and provisions. Once you find a policy you like, be
sure to check insurance company ratings from services such as A. M. Best,
Moody’s, and Standard & Poor’s to make sure that the company is financially
When comparing policies,
you’ll want to pay close attention to these common features and provisions:
Elimination period: The
period of time before the insurance policy will begin paying benefits (typical
options range from 20 to 100 days). Also known as the waiting period.
Duration of benefits:
The limitations placed on the benefits you can receive (e.g., a dollar amount
such as $150,000 or a time limit such as two years).
Daily benefit: The
amount of coverage you select as your daily benefit (typical options range from
$50 to $350).
rider: Protection against inflation.
Range of care: Coverage
for different levels of care (skilled, intermediate, and/or custodial) in care
settings specified in policy (e.g., nursing home, assisted living facility, at
The waiting period (e.g., six months) imposed before coverage will go into
effect regarding treatment for pre-existing conditions.
Whether or not certain conditions are covered (e.g., Alzheimer’s or Parkinson’s
Whether or not your premiums will increase during the policy period.
The opportunity for you to renew the policy and maintain your coverage despite
any changes in your health.
Grace period for late
payment: The period during which the policy will remain in effect if you are
late paying the premium.
Return of premium:
Return of premium or nonforfeiture benefits if you cancel your policy after
paying premiums for a number of years.
Whether or not a hospital stay is required before you can qualify for LTCI
When comparing LTCI
policies, you may wish to seek assistance. Consult a financial professional,
attorney, or accountant for more information.
p style="margin-bottom: 7.5pt; line-height: normal; background-image: initial; background-position: initial; background-size: initial; background-repeat: initial; background-attachment: initial; background-origin: initial; background-clip: initial;">What’s it going to cost?
There’s no doubt about
it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including
the type of policy that you purchase (e.g., size of benefit, length of benefit
period, care options, optional riders). Premium cost is also based in large
part on your age at the time you purchase the policy. The younger you are when
you purchase a policy, the lower your premiums will be.
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