As an Adviser Investments client, you’re accustomed to taking the long view when it comes to investments. And it’s a good thing, too—medical advances mean we’re living longer than previous generations. With life expectancy of older Americans on the rise, so too is the potential need for long-term care (LTC) and a way to pay for it.
The facts are somewhat sobering: A person turning 65 today has a 52% chance of needing LTC at some point; 14% of LTC patients need care for more than five years. And at an average of $100,000 a year for a private room in a nursing home, those costs can really add up. Fortunately, you can protect yourself, your family and your money with LTC insurance.
Do I Need LTC Insurance?
It’s a common misconception that you can rely on Medicare or other types of health insurance to cover “activities of daily living”—for instance, bathing, dressing, eating and bathroom needs—if you come to need such help. Medicare pays for medically necessary nursing or home care, not the more involved (and expensive) daily care; the same goes for most supplemental insurers.
This is where LTC insurance comes in. It covers a broad range of services that other insurance doesn’t, from home health care and modifications (e.g., wheelchair ramps) to assisted living and nursing homes.
Key Features in an LTC Policy
If you are interested in LTC insurance, here are five key factors to consider:
- The track record of the insurer. Your insurance company should have a high financial rating—look for an “A” rating or better on www.ambest.com and a record of on-time payment of claims.
- How benefits are paid. These come in three ways—reimbursement, indemnity or cash. A reimbursement policy will pay based on the amount of your bill or the daily limit on your policy, whichever is less. Indemnity plans require proof of services but pay the full daily benefit regardless of the cost of your care. Cash plans offer the most flexibility—as the benefit is paid to you without any restrictions or receipts—but are also the most expensive.
- How the plan is administered. It’s important to understand how much your benefits are, how long they last and whether they are paid out monthly or daily. Monthly benefits are becoming more common, affording more flexibility since you may not receive the same level of care every day.
- Waiting period length. Called the “elimination period,” this is the number of days you must wait before the policy starts paying—90 days is most common. To minimize premiums, consider an elimination period that only starts paying you back after you’ve used a reasonable amount of your personal assets.
- The impact of inflation. Nursing home costs have risen at an annual rate of about 3.5% in the last five years and costs of assisted living facilities are up 67% since 2004. If you are purchasing a policy when you are younger (say in your early 60s), you’ll want to make sure that your benefits include inflation protection.
LTC insurance isn’t for everyone—you may have family to care for you or enough assets to pay for care out-of-pocket—and, of course, as with other insurance, you may be buying something you won’t end up needing. We are happy to help vet LTC insurance companies and plans as a part of your comprehensive financial plan. If you would like more information or want someone to review your policy, please contact your portfolio team.
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