It may be difficult to comprehend right now, but odds are you’ll need some assistance taking care of yourself later in life. The major issue is, how are you going to pay for it?
One method to prepare is to get long-term care insurance. Long-term care encompasses a wide range of treatments that are not covered by standard health insurance. This includes help with basic everyday chores such as showering, dressing, and getting in and out of bed.
When you have a chronic medical condition, a handicap or an illness such as Alzheimer’s disease, long-term care insurance coverage may assist pay the expenses of such care. Most insurance will pay you for treatment provided in a number of settings, including:
- Your house.
- A nursing facility.
- A facility for assisted living.
- A day care facility for adults.
Long-term care expenditures should be included in any long-term financial strategy, particularly if you are in your 50s or older. It is not an option to wait until you need the care to get coverage. If you already have a disabling ailment, you will not be eligible for long-term care insurance. The majority of individuals who get long-term care insurance do so in their mid-50s to mid-60s.
It is up to you to decide if long-term care insurance is the best option for you based on your circumstances and choices.
Before you purchase insurance, it’s a good idea to educate yourself on the following topics:
Why buy long-term care insurance?
According to 2020 estimates from the Administration for Community Living, a division of the U.S. Department of Health and Human Services, about 70% of 65-year-olds will need long-term care services or assistance. Women generally need care for an average of 3.7 years, whilst males require it for an average of 2.2 years.
Long-term care is not covered by standard health insurance. Medicare, on the other hand, will not come to your aid; it only covers brief nursing home stays or limited quantities of home health care when you need skilled nursing or rehab. It does not include custodial care, which involves monitoring and assistance with daily duties.
In most places, if you don’t have long-term care insurance, you’ll have to pay for it yourself. You may seek assistance via Medicaid, a federal and state health insurance program for low-income people, but only after you’ve depleted the majority of your funds.
Brief Tip: Beginning in 2025, Washington state will offer long-term care insurance to qualified people, which will be financed by a payroll tax that will go into effect in 2022. Employees in Washington may opt-out of the program if they purchase private long-term care insurance coverage before November 1, 2021. For additional information, go to the WA Cares Fund website.
Long-term care insurance is purchased for two reasons:
- To safeguard money. Long-term care bills may swiftly destroy a retirement nest fund. According to Genworth’s 2020 Cost of Care Survey, the median annual cost of care in a semiprivate nursing home room is $93,072.
ANNUAL MEDIAN COSTS OF LONG-TERM CARE IN 2020
|Home health aide||Homemaker services||Adult day health care||Assisted living facility||Nursing home care|
|$54,912||$53,772||$19,236||$51,600 for a private one-bedroom||$93,072 for a semiprivate room and $105,852 for a private room|
2. To provide you with additional options for medical treatment. The more money you have, the greater the level of treatment you will get. If you must depend on Medicaid, your options will be restricted to care institutions that accept government payments. In many places, Medicaid does not cover assisted living.
If you have a low salary and little resources, purchasing long-term care insurance may be out of reach. According to the National Association of Insurance Commissioners, several experts advise spending no more than 5% of your salary for long-term care coverage.
How popular is long-term care insurance?
Since 2000, the number of insurance firms offering long-term care insurance has decreased. According to 2020 statistics from the National Association of Insurance Commissioners, little more than 100 insurers were offering insurance in 2004. Today, around a dozen insurance companies are offering coverage.
The unpredictable cost of settling future claims, along with historically low-interest rates since the 2008 crisis, has resulted in a huge fight from the market. Low-interest rates are detrimental because insurers invest in the premiums paid by their clients and depend on the returns to earn a profit.
The market is changing all the time. In March 2019, Genworth, one of the major surviving carriers, ceased selling individual long-term care insurance via agents and brokers. Through its own sales department, the corporation offers insurance to organizations as well as to individual clients.
How long-term care insurance works
To get long-term care insurance, you must fill out an application and answer health-related questions. The insurer may want to review your medical records and conduct an interview with you over the phone or in person.
You decide how much coverage you want. The amount paid out every day and the total amount paid out over your lifetime are normally capped by the plans.
Once you’ve been authorized for coverage and your policy has been issued, you’ll start paying premiums.
Most long-term care plans make you eligible for benefits if you are unable to do at least two of six “activities of daily living,” or ADLs, on your own, or if you have dementia or another kind of cognitive impairment.
The following are examples of everyday activities:
- Taking care of incontinence.
- Using the restroom (getting on or off the toilet).
- relocating (getting in or out of a bed or a chair).
When you need medical attention and want to file a claim, the insurance company will check medical records from your doctor and may send a nurse to do an examination. The insurer must approve your plan of treatment before authorizing a claim.
Most plans require you to pay for long-term care services out of pocket for a certain period of time, such as 30, 60, or 90 days, before the insurer will begin reimbursing you for any treatment. This is referred to as the “elimination stage.”
The insurance begins paying out after you are qualified for benefits and, in most cases, after you have received paid care for that time. Most insurance pays for care up to a daily limit until you reach the lifetime maximum.
When both spouses purchase insurance, some firms provide a shared care option. This allows you to split the entire amount of coverage, allowing you to draw from your spouse’s pool of benefits if your policy’s maximum is reached.
Cost of long-term care insurance
The rates you pay are determined by a number of factors, including:
- Your age and health: The older you are and the more health issues you have, the more you will spend when purchasing a coverage.
- Gender: Women tend to spend more than males since they live longer and are more likely to file long-term care insurance claims.
- Marital status: Married persons pay cheaper premiums than single folks.
- Insurance company: Insurance companies’ prices for the same level of coverage will differ. That is why it is critical to compare quotations from several carriers.
- Amount of coverage: You’ll pay more for more comprehensive coverage, which includes greater daily and lifetime benefit limits, cost-of-living increases to guard against inflation, shorter elimination periods, and fewer limitations on the kinds of treatment covered.
According to the American Association for Long-Term Care Insurance’s 2020 pricing index, a single 55-year-old male in excellent health purchasing new coverage may expect to spend an average of $1,700 per year for a long-term care policy with an initial pool of benefits of $164,000. At the age of 85, those benefits compound at a rate of 3% each year, totaling $386,500. A single 55-year-old woman may anticipate spending an average of $2,675 per year for the same insurance. The typical annual premium for a 55-year-old couple purchasing that quantity of coverage is $3,050.
A word of caution: After you purchase insurance, the price may rise; prices are not guaranteed to remain constant during your lifetime. Many consumers have seen rate increases in recent years as insurance firms sought approval from state regulators to raise prices. They were able to justify rate hikes since the total cost of claims was greater than expected. The rate hikes were permitted by regulators in order to ensure that insurance firms had enough money to continue paying claims.
Tax advantages of buying long-term care insurance
Long-term care insurance may provide tax benefits if you itemize your deductions, particularly as you become older. Long-term care insurance premiums may be included as medical costs under federal and certain state tax regulations, which are tax-deductible if they exceed a particular level. The number of premiums you may deduct increases as you become older.
2021 federal tax deductible limits for long-term care insurance
|Age at the end of the year||Maximum deductible premium|
|40 or under||$450|
|41 to 50||$850|
|51 to 60||$1,690|
|61 to 70||$4,520|
|71 and over||$5,640|
Only premiums paid for tax-qualified long-term care insurance plans are considered medical costs. This insurance must fulfill specific federal requirements in order to be designated as tax-qualified. Whether you’re unsure, check with your insurance carrier to see if coverage is tax-deductible.
What is the best way to get long-term care insurance?
You have the option of purchasing straight from an insurance provider or via an agent.
You may also be able to get long-term care coverage via your employer. Some companies provide the option to buy insurance through their brokers at group pricing. When you get coverage this way, you will usually have to answer certain health questions, but you may be able to qualify more easily than if you buy it on your own.
Compare rates by obtaining quotations from many carriers for the same coverage. This is true even if you are given a deal at work; despite the group discount, you may be able to discover lower prices elsewhere.
Working with an experienced long-term care insurance agent who can offer policies from at least three carriers is recommended by the American Association for Long-Term Care Insurance.
The group discovered that prices varied substantially across insurers in its 2019 pricing comparison.
Understanding state ‘partnership’ plans
You may purchase straight from an insurance provider or via an agent.
You could also be able to get long-term care coverage via your employer. Some companies provide the option to buy coverage through their brokers at group pricing. When you get coverage this way, you’ll usually have to answer certain health questions, but you may be able to qualify more easily than if you buy it on your own.
Compare rates by obtaining quotations from many insurance providers for the same plan. That is true even if you are given a deal at work; despite the group discount, you may be able to discover lower prices elsewhere.
The American Association for Long-Term Care Insurance recommends partnering with an experienced long-term care insurance agent who can market plans from at least three companies.
In its 2019 pricing comparison, the association discovered that prices differed greatly amongst insurers.