As the median age of the population in the U.S. climbs to an all–time high, it’s now the case that people over the age of 65 have outstripped the number of teenagers in the nation. And to further complicate the situation, people now in their 50s and 60s can expect to live longer than ever before. Life expectancy continues to rise, and as a result, Americans between the ages of 40 and 84 are looking ahead to their “golden years.”
One way those older Americans are planning for a comfortable life as they wind down from the workforce and child-rearing is by purchasing long–term care insurance.
Estimates have found that long–term care policies can cost consumers nearly $900 per year by age 50, nearly $2000 per year by age 65 and almost $6,000 if purchased at age 75.
Consider that the cost of nursing home care might total $51,000 a year on average, it’s clear that we all understand how long–term care insurance works in helping us all prepare for the future.
So What Exactly Is Long-term Care Insurance?
Long-term care – or LTC – takes care of medical and non-medical services for those suffering serious illness or disability. While most people believe LTC only covers the elderly, the truth is that anyone can become disabled well before they become seniors. That makes it critical to prepare for the unknown.
The costs of LTC coverage are usually covered by insurance, savings, public funds like Medicare and Medicaid or group insurance, and LTC life insurance policies are designed to provide people with their daily living needs down to the simple things like getting dressed, bathing and even trips to the bathroom.
So who needs to buy LTC protection? The simple answer is that you do. Most long-term care policyholders likely purchased their policies through individual insurance agents, and half of them have an income above $75,000 a year. If you earn less than $35,000 every year, it’s likely that you’re in an income group where only 16 percent own long-term care policy protection.
Jesse Slome is the executive director of the American Association for Long-Term Care Insurance (AALTCI). Slome says it’s important to research insurance company ratings when you apply for long-term care insurance. He adds that it’s vital to be assured the insurer you choose will still be operating 20 years down the road when it comes time for you to make your claim. The AALTCI offers an insurance company ratings database at their website, and Slome says you should also work with an agent who has access to a number of rates from leading long-term care providers.
Slome says it makes sense to buy as much protection as you can afford, and while more is always better, some protection is better than no protection at all.
“A policy that pays benefits for 3-years will cost between 40 to-55 percent less than one that pays for an unlimited number of years. While some people do need care for many years, our studies show that a limited duration policy is not just more affordable, it’s sufficient for the vast majority of individuals needing care,” Slome says.
In an increasingly competitive market, lot’s of long-term care providers have designed customized policies to meet changing needs with an eye toward making long-term care insurance more affordable and flexible. As an example, some providers offer discounts for couples, and some long-term care insurers also offer the same benefits to unmarried couples.
“This applies even when only one (member of a couple) qualifies for coverage,” Slome adds.
Another option is a “shared-benefit” policy. Couples can reduce the cost of long-term care by purchasing them, and they’re often available as an optional rider. Say one spouse runs out of benefits for long-term care. The couple can use the benefits remaining from their spouse’s policy to cover costs.
How Do Medicaid and Medicare Fit In to the Overall Picture?
Medicaid, a form of government medical insurance for low-income families and people with certain disabilities, is available through state and federal sources. Medicare is medical insurance offered to those over the age of 65. While Medicare doesn’t pay for some situations, it does cover the costs associated with nursing and home health care.
People believe that either Medicaid or Medicare will cover most long-term care costs, but there is a set of strict criteria which must be met for you to be eligible. Those rules vary by state.
The Kaiser Commission on Medicaid and the Uninsured say statistics reveal that Medicaid pays for some 70 percent of the costs for nursing home care – and picks up around 12 percent of services for assisted living residents – but their findings also say tighter statewide budget have resulted in dramatic reductions to covered services.
As a percentage of total Medicaid spending, long-term care accounts for some 32 percent. Experts say Medicaid can cost between 50 to 75 percent less than private pay rates of long-term care insurance.
Medicare or Medicaid can’t pay the full amount required to provide long-term care, and that’s where long-term care insurance policies come in to help fill in additional cost requirements.
How Much Should You Spend on Long-term Care Insurance?
As a rule, the experts say premiums for your policy shouldn’t exceed 10 percent of your annual income to protect against lapses in payment.
Here are the key considerations you should address about your long-term care insurance policy:
How much will your policy cover when it comes to benefits per day of care?
What is the total amount of your coverage?
Will the number of years you’ll be covered sufficient to meet your needs?
Do you now the maximum allowable daily benefit amount? That maximum daily benefit should be from $100 to $200 per day.
What Is a Benefit Period
The majority of policies cover a benefit period of from three to five years, and if you choose to pay for services less than $100 per day the benefit period will last longer. You should also know how “comprehensive” your policy will be. While most policies cover services at assisted living facilities, nursing homes, home aide care and adult day care, it might be wise to select riders which include the cost of transportation and other services outside the scope of a standard Long-term Care policy.
What Is An Elimination Period
This relates to how long will it take before a policy begins to pay out benefits. The “elimination period” is an optional choice you can specify at the time you purchase your policy. Most policies on the current market include elimination period options of 90 days – or more. Read the fine print to determine how you wish to handle this option.
Should I Consider Inflation Protection Options
Inflation might slowly degrade the amount of benefit payouts as LTC policies are purchased alway purchased for use in the future. There are a number of inflation protection options available, and these benefit options often increase coverage by some three to five percent of the original daily benefit amount over time. In general, this sort of option is available in such a way as to maintain a constant level of premium payouts.
Should I Buy Long-term Care Now? I’m Still Young…
“You should never wait too long to purchase,” Slome advises. “If you buy after your mid-fifties, there’s a likelihood you may have developed pre-existing medical conditions in that time and are going to lose any health discounts you may have – and the rate would increase significantly.”