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Do I Need Long-Term Care Insurance?

·8 min read
Inscription: long-term care insurance
Inscription: long-term care insurance

A 65-year-old person today has nearly a 70% chance of requiring long-term care services at some point, according to the Administration for Community Living (ACL) and the Administration on Aging (AOA). Of that group, 20% will need it for over five years. So, chances are, you may also need this type of service down the line. But how will you pay for it? A long-term care insurance policy is one method to help lessen the bite of care costs. Here’s how.

Consider working with a financial advisor as you prepare for the possibility that you will need to be able to pay for long-term care.

What Is Long-Term Care Insurance?

To put it briefly, long-term care insurance helps cover the costs of long-term care services, such as in an assisted living facility. Other places where a long-term care policy will reimburse you include an adult day care center, a nursing home and your own home.

Generally, eligibility starts when you can no longer perform, independently, two of the six activities of daily living (ADL): mobility, which may include being able to transfer between a wheelchair and bed; bathing or showering; using the lavatory; maintain bladder and bowel control; dressing; and eating. Then you can take advantage of a wide range of aid.

Typical health insurance doesn’t cover these types of costs. And both Medicare and Medicaid have limitations, making them unreliable for the average person’s long-term care.

Even long-term care insurance policies require you to pay for services out of pocket up to a certain amount of time. Afterward, the insurer begins to reimburse you. Policies may pay up to a daily limit, with a maximum lifetime limit as the cap. However, couples may get around that by using a shared care option. With this, you can pool benefits.

The rate you pay for the policy will depend on multiple factors, including your age, marital status, gender, health, coverage level and insurer.

What Does Long-Term Care Insurance Cover?

What type of long-term care long-term insurance covers depends on the policy you buy.

However, these policies are comprehensive and will cover the expenses that Medicare doesn’t. Costs that it pays for include:

  • In-home care

  • Care coordination

  • Assisted living facilities

  • Nursing home care

  • Adult day care services

  • Home modification

They may also include paying for assistance with ADLs, like bathing.

Additionally, it may cover stays in hospice care or respite care. Hospice care is generally short-term and provides emotional and physical support for the terminally ill and their families. In contrast, respite care or temporary care, gives primary caregivers a break by offering care through other facilities or professionals. While these two services address two different needs, policyholders can receive help paying for either.

Keep in mind, though, long-term care coverage doesn’t pay for everything. It’s designed for custodial care, not medical care costs. Certain factors may also affect your eligibility, such as a pre-existing medical condition, such as dementia or Parkinson’s disease.

It’s up to you to decide how much coverage you need and how much you can afford. It’s crucial that you purchase within your budget. But you still want a sufficient amount of benefits to support you while you age.

Reasons to Get Long-Term Care Coverage

Consider the variety of insurance policies you already own. From homeowners to auto to life, you probably have multiple reasons why you purchased them. Likewise, there are several reasons that people see the value in long-term care coverage. Here are some ways it might impact your life for the better.

Preserves your assets

While you can get an estimate, it’s hard to pinpoint the exact price you’ll pay for long-term care. While you can find estimates, such as through the Genworth Cost of Care Survey tool, the guesswork makes it difficult to save enough.

In addition, relying on Medicare or Medicaid could leave you at a financial loss. Medicare won’t help with the costs of permanent and ongoing care. Likewise, Medicaid has its limitations, namely its income guidelines and the level of care needed to qualify.

An insurance policy ensures you don’t have to drain all your savings to be eligible for financial help. And, it takes the financial burden off of your family by safeguarding some of those remaining retirement assets.

Creates care options

Handicapped woman in a wheelchair outside
Handicapped woman in a wheelchair outside

We all have an ideal future as we age. Purchasing a long-term care insurance policy ensures you have a safety net installed into your financial plan. It can be incredibly costly to pay for long-term care out of pocket. And while Medicaid can help pay for specific costs, such as nursing home care, when you’re out of savings, it won’t pay for everything. For example, it doesn’t always cover assisted living options or home-based care.

Long-term care insurance ensures you can pay for the type of care you want and need when the time comes. You can use it to supplement the savings you already have.

Protects your family

Naturally, most of us would like to stay in our own homes throughout our senior years. But with the likelihood of needing long-term care, that can put a strain on our loved ones. As a result, family members, partners and friends often take on the caregiver role, which can be difficult. According to the American Association of Retired Persons’ (AARP) data, one in three caregivers provides care completely alone. Many of which go unpaid despite caring for recipients with complex support and medical needs.

If you’re considering long-term care insurance, think about the future you see for yourself and your potential caregiver. What does the impact look like on their life? There will be financial and emotional burdens in addition to the work.

By purchasing a policy, you ensure there are some finances to pay for outside help. That takes a weight off of your shoulders and and those of your loved ones as well.

How to Buy Long-Term Care Coverage

The options available to you may vary. Some employers offer their employees the opportunity to buy a long-term care policy through their workplace. Occasionally, this comes at a discounted group rate from their broker. While you may have to answer a few questions about your health to qualify, it may be easier or less expensive than purchasing a policy on your own.

Otherwise, you can buy coverage directly through an agent or insurance company.

If you’re shopping for a policy, remember to get several quotes from varying companies. That way, you can compare your pricing options. Comparison shopping is important, regardless of whether you purchase independently or through work. The discount that may come with an employer’s plan may be nice, but it’s still possible to find competitive rates.

It’s also advisable to work with an independent long-term care insurance agent who can sell products from various carriers. From there, it’s a matter of finding a policy to fit your needs.

Do I Need Long-Term Care Coverage?

Every person’s situation is different. If you have very little funds during your senior years, you may qualify for Medicaid. This option may offer fewer choices, but it does provide funding for low-income individuals. On the other hand, if you have more than enough savings, it might be better to pay out of pocket instead.

However, if you fall between the two ends of the financial spectrum, then long-term care insurance may be worth consideration. It protects your retirement savings from pricey and unexpected medical costs, ensures choice in care and offers you and your family peace of mind.

Additionally, think about the lifestyle you live. For example, if you have no one you can rely on as a caregiver then you likely need the option of a facility. Or, if you’re a woman, you’ll likely live longer and need longer care as a result. On average, women need 3.7 years of care, whereas men only need 2.2, according to the ACL.

The Bottom Line

Happy senior couple
Happy senior couple

Long-term care is incredibly expensive. Genworth estimates that the median costs for in-home care, assisted living facilities and nursing home facilities all exceed $50,000 per year. As a result, it’s wise to evaluate how you would pay for your potential long-term care needs. A long-term care insurance policy is just one method. While it offers financial and emotional protection, it may still be an additional cost you’re not prepared to pay.

Long-Term Care Planning Tips

  • Long-term care comes with millions of questions. You can address them with an experienced financial advisor. SmartAsset’s free matching tool makes it easy to find a qualified, local professional, too. Simply answer a few questions and in no time you have up to three advisors who can guide you through your process. If you’re ready to tackle financial planning, get started now.

  • Planning for long-term care is crucial to any financial plan. A high percentage of Americans will likely need this vital service at some point. So, review SmartAsset’s guide to creating a financial plan to make sure yours includes that possibility.

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