Here at Adviser Investments, we’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. As the life expectancy of older Americans increases, so does the potential need for long-term care (LTC).
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.
Is LTC Insurance for You?
It’s a common misconception that you can rely on Medicare or other types of health insurance to cover “activities of daily living”—bathing, dressing, eating, 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 won’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 we recommend you consider:
- The track record of the insurer: Your insurance company should have a high financial rating—look for an “A” rating or better on ambest.com and a record of on-time payment of claims.
- How benefits are paid: Benefits can be paid 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 but are also the most expensive. Once you qualify, the daily or monthly benefit is paid to you without any restrictions or receipts. If you expect to receive care from a friend or relative, the flexibility that cash policies provide may be the way to go.
- How the plan is administered: It’s not only important to understand how much your benefits are, but also 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.
- Length of waiting period: 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 5 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, ensure that your benefits include inflation protection.
LTC insurance isn’t for everyone—you may have family to care for you or have enough assets to pay for care out-of-pocket—and, of course, as with other insurance, you may be paying for something you won’t end up needing. We are happy to help you evaluate if LTC insurance should be a part of your comprehensive financial plan. Our financial planning team will be happy to assist. Contact us to start the conversation about your wealth management needs.