Can Long-Term Care Insurance Help Your Family?
I recently asked a group of friends at midlife what senior care topics they think they need to learn more about. One of the big responses was long-term care insurance (LTC) — and for good reason. This type of insurance can give you or your parents more options for assisted living, in-home and nursing care. LTC coverage can also keep your family’s long-term financial picture healthier by reducing the need for family members to stop working to take on full-time caregiving.
Here’s what you need to know about long-term care costs, coverage options and whether a LTC policy may be right for your family.
Long-Term Care Costs
There’s no question that long-term care is expensive, but most people don’t realize how costly it is or how likely their parents (and they themselves) are to need it. Carolyn Rosenblatt at Forbes recently described a $2 million tab for four years of senior care as “nothing unusual,” due to the cost of care and the length of time most people will need help.
Care costs vary by the type of care and by where you and your parents live. For example, right now, according to insurer Genworth, the median national yearly cost for a private room in a nursing home is $97,455 and for assisted living, it’s $45,000.
However, in states with lower costs of living, care costs are typically lower, too. Alabama’s median yearly cost for a private room in a nursing home is $77,563 and for assisted living, it’s $36,684. By contrast, high cost of living states tend to have pricier senior care. Connecticut’s median yearly cost for a private nursing home room is a breathtaking $162,060 and for assisted living, the state median is $55,200. Full-time (not round-the-clock) in-home care is generally comparable in cost to assisted living costs around the country.
The costs for a single year are high enough, but most people who need long-term care need more than one year of assistance. According to the National Care Planning Council, the average stay for seniors who need long-term care in a nursing home is “just shy of two years,” but some people require many years of care. With just about everything in life, the more you can afford, the more long-term care options you will have. Without long-term care insurance, a cash-value life insurance policy, or a lot of savings to draw on, Medicaid is the main option for long-term care coverage. Right now, 60% of American nursing home residents fund their care through Medicaid.
Medicaid is a valuable resource for the majority of seniors who need care, but not all senior care communities accept Medicaid payments, and relying on Medicaid may limit the possibility of getting care at home. If you’re concerned about the cost of long-term care and the options you’ll have, long-term care insurance may be a good choice, both for your parents and yourself. That’s especially true for women because women tend to live longer and have more long-term care needs than men.
Long-Term Care Insurance Coverage
Although older policies sometimes excluded things like in-home care, long-term care policies now typically cover a range of care options, including
- Assisted living
- In-home care
- Memory care for seniors living with dementia
- Non-acute (custodial) nursing home care
Some policies also include coverage for home modifications such as grab bars and wheelchair ramps, as well as coverage for future types of care, which leaves the door open to services that haven’t been invented yet but might be helpful later on. In general, the more care options a policy covers, the better.
Where Can You Get Long-Term Care Insurance?
There are two main ways to get long-term care coverage. The first is to buy an individual policy through an agent; the other is to opt into an employer-sponsored plan if one is available. There are pros and cons to each type of policy, as explained by the American Association for Long-Term Care Insurance and David Rando at Investopedia.
If you’re lucky enough to get to choose between individual and employer-sponsored long-term care coverage, consider these factors:
- Health concerns. The AALTCI says that employer-sponsored coverage is a better option, and perhaps the only option, for people who have chronic health problems. That’s because unlike health insurance, long-term care insurance isn’t guaranteed to everyone who enrolls. Insurers can decline to write a policy for someone whose health care is already complex and costly, or they may charge considerably higher premiums.
- Opt-in age. If you’re shopping for an individual LTC policy, the ideal time to apply is while you’re in your 50s, especially if you’re healthy and a non-smoker. At that age, you’re more likely to qualify for good-health related premium discounts that will endure for the life of your policy. Wait longer, and the odds are you’ll pay more for an individual policy — or even get turned down. Opt-in too soon and you could be paying premiums for longer than necessary.
- Policyholder choices. Rando writes that employer-sponsored plans may let you cover your spouse or partner and your parents. You can also purchase an individual policy on your parents’ behalf, as long as you have their permission and full cooperation.
With an employer-sponsored plan, you may have to opt in well before you hit your 50s, which means more premiums to pay. On the other hand, that also means you’re covered if you end up needing long-term care while you’re still comparatively young. It also means you may be able to cover your parents when they’re past the age when they would qualify for an affordable individual policy.
- Cost and benefits. When you compare employer-sponsored and individual plans, remember to look beyond the cost of premiums. See what types of care each policy covers and what percentage of the projected cost of care. For example, an employer-sponsored policy with lower premiums may be less of a bargain if in-home care isn’t included or isn’t fully covered. You may have to run a few scenarios to decide which option will work best for your family. You’ll need to compare elimination and benefit periods and lifetime maximum benefits, which we’ll look at in detail below.
- Inflation protection. Care costs rise a bit almost every year, which means the policy you buy now may not cover as much care in twenty years. Most insurers offer individuals the option to pay a bit more for inflation protection on their policies. If you’re looking at an employer-sponsored plan, be sure to see whether inflation protection is offered and, if so, what it costs.
- An individual policy belongs to the policyholder no matter who their employer is. Employer-sponsored plans may or may not be portable. If they are, you can maintain your coverage even if you’re laid off or change jobs. If not, you could lose the money you’ve paid for premiums if you stop working for that company.
- Tax advantages. If you pay premiums on an individual or employer-sponsored LTC policy, you can count them as a medical expense, up to a certain IRS-set amount determined by your age, if you itemize your deductions. Any payments contributed by your employer don’t count as income. There are tax-breaks for self-employed policyholders with individual coverage, too.
When You’re Shopping for Long-Term Care Insurance Benefits and Coverage
There are two time frames to consider when you’re shopping for long-term care insurance. The first is the elimination period, and the other is the benefit period.
The elimination period on an LTC policy is the number of days you or your parents must wait to start getting benefits after they start needing care. During the elimination period, you or your folks will have to cover long-term care costs out of pocket. In general, the shorter the elimination period, the higher the policy’s premiums will be. In 2012, according to the AALTCI, more than 90% of new LTC policies had elimination periods between 90 and 100 days. A few had even longer elimination periods, while less than 5% had shorter elimination periods.
The long-term care policy benefit period is the total number of years of care the policy will pay for. The most popular benefit period chosen by new policyholders in 2012 was three years, according to AALTCI. That period covers the average span for nursing home care and then some. The next most popular choice in 2012 was a four year benefit period. You can also find plans with benefit periods of less than three years, as well as costlier plans that offer benefit periods of anywhere from five years to lifetime.
However, it’s important to understand that many insurers measure the benefit period in dollar amounts rather than actual calendar days, and the “years” in the benefit period are shorthand for the maximum amount of benefits available over twelve months. So if your parents use only half their daily maximum benefit (which we’ll discuss below) for a year, it doesn’t mean they’ve lost the other half of their available benefits for that year. The unused benefits will still be there to cover later care.
What Your Long-Term Care Policy Will Pay
There are two big numbers to consider here, too: the policy’s daily benefit amount and the lifetime benefit maximum.
The daily benefit amount is a dollar figure that you choose when you apply for the policy. It can be anywhere from $50 to several hundred dollars, depending on the options the insurer provides. The higher your daily benefit amount, the more costly your policy will be. If you can afford it, a higher daily benefit amount can be the right choice for someone with a strong family history of senior health problems like dementia that require specialized long-term care. The daily benefit amount doesn’t require you to spend that amount each day once you start receiving benefits; it’s just the maximum per day that the policy will cover.
The lifetime benefit maximum is the total amount that a policy will pay. It’s the dollar figure represented by the policy’s benefit period. You can select the total that you want your policy to provide or you can, if your budget allows, buy a policy with no lifetime cap on benefits.
If you decide to go with an employer-sponsored policy, you’ll follow your company’s enrollment steps. If you choose to buy individual coverage, here’s what you can expect.
First, know that you can’t just “take out” a policy on a parent without his or her active participation and consent. Your parent will be the one signing the forms and authorizing the sharing of medical information on the application, even if you are the one who will pay the premiums. If you can afford to buy a policy for your parents and they qualify for coverage, you’ll be giving them a tremendous gift in the form of more care options if and when they need long-term assistance.
Next, as mentioned above, you or your parents will have to share health information when you apply for a policy. Insurers can decline coverage for people with certain pre-existing conditions or charge more for coverage.
Finally, AALTCI points out that premiums, disqualifying health conditions, and plan details vary from one insurer to another. That’s why it’s a good idea to work with an experienced agent or senior financial planner to help you choose the best LTC options for you and your family.
To learn more about long-term care options near you, call SeniorAdvisor.com at 1-800-805-3621.