Long-term care insurance pays for the cost of assisted living or nursing care in the event that you become unable to perform some basic functions of living, such as eating, dressing, bathing, and walking because of illness or injury. Long-term care insurance can be an important investment for many people because the cost of assisted living care keeps increasing.
The cost of a semiprivate room in a nursing facility is around $220 per day, or $81,000 per year. For a private room, the cost is around $250 per day, or over $90,000 per year. The majority of residents in assisted living facilities are 85 years of age or older, but up to 40 percent of long-term care claims are from people under 65.
Long-term care insurance may be right for some people, but not all. For low-income seniors, Medicaid covers the costs of assisted living for those who meet certain criteria. Meanwhile, affluent seniors can often afford to pay the costs out of pocket.
The options for long-term care range widely depending on the needs of the individual. Some people need help for just a few hours per day or week, such as assistance with medications or physical therapy. Others need daily help with basic tasks, either in their homes or at an assisted living facility. Those with debilitating illnesses may require round-the-clock care in a nursing facility.
Medicare and Medicare supplements only cover long-term care for a specified period of time following qualifying illnesses or injuries. Therefore, Medicare premiums are not a replacement for buying long-term care insurance.
When considering a long-term care policy, you should examine the terms of the contract. Policies can vary widely in the types of care provided and facilities included, the duration of care, waiting periods, and qualifying health conditions. Purchasing a group policy through an organization or your employer can provide significant savings, but you should carefully examine the terms and limitations of group policies. Sometimes employer-provided coverage ends at retirement or at a certain age.
The decision of whether to buy long-term care insurance is a personal one, taking into account your health and your family’s health history, your retirement savings and income, and your retirement goals. Long-term care insurance can be expensive, and premiums increase dramatically with age.
The alternatives to long-term care insurance are to rely on relatives and free or volunteer services in the community. The Eldercare website can help you find senior services in your community.
However these may not be adequate to provide the type of professional care that may be needed. You might plan to purchase the care you might need on your own, without buying an insurance policy. For example, selling jewelry, furniture items, electronic devices, and other valuables that are no longer needed can raise funds. Selling an automobile that is no longer driven can bring in cash and also save on auto insurance, storage, and maintenance. If you own your home, you could consider a reverse mortgage such as a home equity conversion mortgage.
You could also invest the amounts you would have spent on long-term care insurance premiums in stocks and bonds, and this may produce the sum you need to pay for assisted living care out of pocket. That depends of course on the performance of your investments.
Traditional long-term care insurance is like homeowners or automobile insurance in that you may never need it, and once paid the premiums are gone, whether you use the insurance or not. The chance that you’ll ever use a long-term care policy that you buy at age 60 is 50 percent. Most residents of long-term care facilities are age 80 or over. So if a person buys a policy at age 60 that costs $7,000 per year, they will pay $140,000 for something they may not use for 20 years, or maybe ever.
Recently, the insurance industry has come out with a new type of life insurance policy that allows you to draw down the balance if you need it for assisted living care. If you buy such a policy with a $500,000 payout, your beneficiaries will receive that amount in the event you died.
But if you became sufficiently disabled because of illness or injury to need assisted living, you could withdraw up to $9,900 per month tax-free from the policy until the policy was depleted. So you could use this policy for about four years or more to cover qualified assisted living costs. Any balance you didn’t use for care would be paid to your beneficiaries upon your death.
The cost for such a policy is slightly higher than that of an equivalent long-term care policy. For example, if a 55-year-old paid $4,500 per year for a long-term care policy that paid out $360,000 in total benefits, they could get a combination policy for $5,000 per year that paid out $360,000 in long-term care benefits, or $360,000 in life insurance death benefits. In addition, the qualifications are often less strict for this type of policy; people who didn’t qualify medically for long-term care insurance may qualify for this policy.
Another alternative to LTC insurance is an annuity with a long-term care rider. This would be a fixed-index annuity with a single premium. You pay a lump sum upfront, and in a certain number of years you begin receiving monthly payouts. If you need long-term care, the rider would pay double your regular monthly payout for a certain number of years to help cover your LTC costs.
For more information
For information about buying long-term care insurance see this article by Kiplingers.
Federal retirees, including retired military members, qualify for federal long-term care insurance.
U.S. military veterans and spouses of veterans who meet service and income conditions are eligible for assisted living through the U.S. Department of Veterans Affairs. Called the Non-Service Connected Improved Pension Benefit with Aid and Attendance, or simply Aid and Attendance, this benefit pays up to $2,085 a month for married veterans, $1,759 for single veterans and $1,130 for a surviving spouse.