Advances in modern medicine and technology have allowed us to live much longer than our predecessors. The longer we live, the more likely it is we’ll need help completing basic daily activities such as bathing, dressing, eating, etc.
Since 2001, every November the American Association for Long-Term Care Insurance has raised awareness around what long-term care is, how to obtain long-term care insurance should you need it, and the benefits it brings to those planning to age in place. Just like retirement savings, Medicare/Medicaid benefits, and health savings accounts, long-term care insurance is designed to help offset any cost associated with unpredictable health care needs due to aging.
What is Long-Term Care Insurance?
Long-term care insurance is unlike traditional health insurance. Its focus is meant to cover the cost of long-term care services and support. This can include things like personal care within the home, a community organization, or a long-term care facility. Those who are eligible for long-term care benefits typically suffer from some sort of cognitive decline, making it particularly difficult to complete activities of daily living.
If you find that long-term care insurance is needed, it’s important to note that after you apply, there’s typically a 90 day wait period before coverage begins. Applying sooner rather than later can help to avoid potential financial burdens and coverage disqualification.
Once coverage begins, benefit payouts can be structured in two different ways: daily maximum benefit or monthly maximum benefit. Both structures may be capped by a lifetime maximum benefit. If you haven’t already, start monitoring your health needs and your financial plans, this will help you determine when and/or if long-term care insurance is needed.
What Does Long-Term Care Insurance Cover?
Long-term care insurance typically covers expenses associated with home health care, respite care, adult day care centers, assisted living facilities, nursing homes, and special care facilities. In some cases, you can find long-term care policies that cover short-term hospice care; however, Medicare typically covers hospice care for those with a life expectancy of six months, or less so it may be a good idea to opt out of short-term hospice care when searching for a long-term care insurance policy.
It’s also worth noting that some long-term care insurance policies may not cover care provided by family members. If you opt to rely on a family member, make sure you have enough funds saved up to reimburse them for expenses such as groceries, gas, medical bills, etc.
Why Buy a Long-Term Care Insurance Policy?
As you age, your health can become unpredictable. You are at a higher risk for injury, illness, or cognitive decline. According to Fidelity, Americans 65 and older have nearly a 70% chance of needing long-term care assistance. Having a plan of care can help you mitigate expenses that come with health changes.
Typically, the longevity of long-term care needs ranges between two and five years. On average, women live six years longer than men, so women should plan to have a care plan that lasts longer than the average timeframe.
Traditional benefits like retirement plans and government funded healthcare can supplement the cost of these expenses, however, due to the COVID-19 pandemic and rising costs of healthcare, solely relying on this form of income to not only cover basic care, but unpredictable care could put your retirement income at risk.
Make sure to evaluate your needs and the associated costs so you are making the right decision on whether to buy a policy or rely on your personal income.
Is Long-Term Care Insurance Right for You?
Unlike traditional insurance policies, long-term care insurance is something you only purchase once. So, determining what type and how much coverage you will need is crucial. To figure this out, you’ll need to consider all your options first. Given that everyone’s situation is unique, there isn’t a one-size-fits-all policy. Here are a few factors that will determine your long-term care plan:
Age and Health
Your age and health will play a vital role in your policy options. The older you are, the more it may cost, and if you have an underlying health condition, qualifying for long-term care insurance may be tough. To avoid paying too much for your policy, insurance agents recommend buying a policy in your 40s or 50s.
Financial Goals & Conditions
Think about your assets and spending habits to determine if you have enough funds to pay for long-term care with or without insurance. Do you want to leave money to relatives or donate to charity? It’s important to know what your financial goals are post-retirement and create a plan that helps you achieve those goals.
Policy Length
Depending on which policy you choose, it may last two to five years, or for the rest of your life. Either way, policy length plays a huge factor in cost. The longer you need it, the more you’ll pay.
Extent of Care
This is probably the most valuable thing to consider as it will play a pivotal role in your daily or monthly costs. Determine if you plan to stay at home for care or plan to go into a facility for a more supervised type of care. If opting for homecare, remember some long-term care insurance policies may not cover care if it’s managed by a family member.
Your Budget
Review how much you plan to spend on your long-term care and how much you’ll be earning after retirement. A good rule of thumb is to find an insurance premium that takes up no more than seven percent of your income.
Additionally, you should meet with a financial advisor or insurance agent who can help walk you through your unique options before making any final decisions.
Be proactive with your long-term care strategy. Like retirement savings, investing in your long-term care plan now can help you build a solid financial foundation. Additionally, long-term care plans prove to help alleviate financial and emotional burdens not only for yourself, but for family members and caregivers who provide you with support. To get started on putting together your long-term care plan, take this brief quiz, sponsored by AARP, to see what you’ll need to start building a safer, more secure financial future.
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