The Ins and Outs of Long-Term Care Insurance
- Long-term care insurance can help seniors pay for ongoing supports and services. Explore the world of LTC policies, including their benefits and pitfalls.
At the end of 2020, about 12 million U.S. seniors needed long-term care. For many aging adults, the prospect of paying for these services is daunting. Long-term care insurance may be the answer. In this article, you'll learn what long-term care insurance covers, where to purchase it and how it can benefit you and your family when it comes to later-in-life care.
What Is Long-Term Care?
Long-term care refers to services and supports received over an extended period of time, which typically help an aging or disabled individual execute the activities of daily living and other everyday tasks. These basic ADLs, which are associated with attending to one’s own physical needs, fall into the following categories:
- Personal hygiene
Because they can influence an individual's ability to live independently, instrumental ADLs form a second component of long-term care. These more complex tasks involve the following functional areas:
- Meal preparation and cleanup
- Managing finances
- Medication management
- Home maintenance and cleaning
- Responding to emergencies
- Caring for household pets
Decline or impairment in an individual's ability to perform basic or instrumental ADLs due to aging or illness may result in the need for long-term care, which can include mobility assistance and help with bathing and grooming.
What Is Long-Term Care Insurance?
Long-term care insurance provides financial coverage for the services and support required by individuals with chronic illnesses or disabilities that necessitate ongoing assistance performing routine daily care tasks. These services, which may be medical or nonmedical, are typically not covered by major medical insurance or original Medicare.
What Does Long-Term Care Insurance Cover?
With the exception of policies designated as facilities-only, most LTC plans cover services provided at home, in a community setting or through a residential care facility. Most policies cover the following services and supports associated with long-term care:
- Adult daycare
- Residential assisted living programs
- Home health aides
- Rehabilitation services
- Skilled nursing care
- Respite care
- Speech, physical and occupational therapies
- Homemaker services, including meal preparation and housekeeping
- Custodial care services that provide assistance with ADLs such as grooming, bathing and dressing
What Is a Shared Care Option?
When both spouses of a married couple purchase LTC insurance, companies may offer a shared care option. This lets both individuals share the total amount of the coverage, so if one spouse reaches their policy limit, they may draw on their spouse’s pool of benefits. Rates for couples are typically less costly than purchasing two separate policies.
When Do LTC Insurance Benefits Pay Out?
Although rules vary by insurer and individual plan, most long-term care policies require the insured to meet one or more of the following criteria to be eligible for the payout of benefits:
- Inability to perform at least two of the six activities of daily living: mobility, feeding, continence, toileting, dressing or personal hygiene
- Diagnosis of dementia or other significant cognitive impairment
- Initial receipt of covered supports and services
- Out-of-pocket payment for services over a predetermined elimination period, which is generally 30, 60 or 90 days
Insurers typically require medical documentation that substantiates the need for services, and most carriers must approve a formal plan of care prior to issuing benefits. Some companies also limit coverage to services delivered at or by plan-approved residential care providers.
What Are the Benefits of Long-Term Care Insurance?
Long-term care insurance can be costly, but it offers substantial benefits to older adults who may eventually require residential care or in-home assistance. These policies can help seniors protect their assets and may increase their care options.
Protecting Seniors’ Assets
Long-term care is expensive, and seniors who require home health aides, ongoing skilled nursing or residential care often find their savings depleted quickly. Plus, seniors in need of long-term care may ultimately default to Medicaid, which requires a spend-down of their assets, leaving them with little left financially.
Individuals with LTC insurance typically only incur out-of-pocket costs for the initial elimination period, after which the policy begins paying out benefits. This leaves their savings intact and safeguards their inheritance.
Increasing Care Options
Paying for quality care can be costly, and often, family members must serve as primary caregivers for seniors who can’t afford services. According to U.S. News & World Report, the average LTC policy benefit ranges from $2,000 to $10,000 monthly, which can help older Americans pay for services such as home health aides or residential care programs. LTC insurance may also make it possible for seniors to maintain their independence by receiving care in their home.
Is There a Downside to Long-Term Care Insurance?
Yes. Although LTC policies may be beneficial to aging seniors, these plans may not be a viable option for everyone. For many older adults, the cost of monthly premiums is prohibitive, and there's no guarantee you'll ever use these benefits. Plus, because these policies are often maintained over a long period of time, the carrier could experience financial difficulties, rendering your policy useless.
At What Age Should You Buy Long-Term Care Insurance?
Although it’s impossible to pinpoint an ideal age for buying long-term care insurance, the American Association for Long-Term Care Insurance recommends purchasing a policy in your mid-50s. There are a number of other factors worth considering when deciding when to purchase an LTC policy:
- Premium payments: Policyowners who purchase LTC in their 40s or early 50s typically pay lower premiums but often make payments over a longer period of time.
- Health: Active, healthy individuals may be able to wait longer to purchase a policy.
- Family health history: Individuals who have a family history of disabling diseases should consider purchasing a policy sooner, whereas adults with a history of good health and longevity may opt to wait.
As you age, health considerations may make it more difficult to qualify for coverage through some carriers. Because LTC insurance typically requires medical underwriting, individuals who are currently receiving care services or those who are in poor health may have limited choices and may incur higher rates. Discounts may be available to younger applicants who are in good health.
How Much Does Long-Term Care Insurance Cost?
The cost of long-term care insurance can vary significantly. The following factors play a crucial role in the cost of a policy:
- The insurance carrier
- Your age at the time of initial purchase
- Your gender and marital status
- The benefit's maximum daily payout amount
- The benefit's maximum amount of payout days/years
- The policy’s lifetime maximum payout
- Optional riders such as cost-of-living adjustments
Where Can You Purchase Long-Term Care Insurance?
Many commercial insurers sell long-term care insurance directly to consumers. Policies may also be purchased through an insurance agent or broker, who may be able to secure the best price for the coverage you need. Some employers may also offer this benefit to employees.
When selecting a plan, it’s crucial to look at the financial health and stability of the carrier so you don’t pay years' worth of premiums only to find out the company has gone out of business when you’re in need of benefits. It may also be worthwhile to look for an insurer that offers customizable terms so you can get as much or as little insurance as you need and can afford.