A Long-Term Care Insurance Checkup

You buy insurance to protect against big, expensive misfortunes. For example, it’s common to buy homeowners insurance so you won’t be wiped out and left without a roof over your head should disaster strike. Fortunately, many of us will never actually need to tap our home insurance.

However, there is one big expense almost all of us will face down the road, and few have protection in place for it—long-term care (LTC).

It’s not fun to contemplate, but a person turning 65 today has a nearly 70% chance of needing LTC services at some point. And with a room in a private care facility costing more than $100,000 a year on average, the price for being uninsured is steep. Medicare and supplemental insurance pay for “medically necessary” nursing or home care, but they may not cover the day-to-day help needed to maintain your quality of life.

LTC insurance can help protect you, your family and your financial legacy from debt related to your care. 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 residential care. A new bipartisan bill that’s likely to pass this year may help take some of the sting out of paying your LTC premiums as well—it would allow people to use funds from their retirement savings account without penalty, lowering both gross income and taxes.

If you’re interested in LTC insurance, here are five key factors to consider:

How benefits are paid. Benefits can be paid three ways—reimbursement, indemnity or cash. A reimbursement policy will pay a percentage 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 is important to understand not only how much your benefits are worth but also how long they will last and whether they are paid out monthly or daily. Monthly benefits are becoming more common because they afford greater flexibility if you don’t need the same level of care every day.

Length of waiting period. The “elimination period” is the number of days you must wait before a policy starts paying—90 days is most common. You can minimize premiums by opting for a policy with a longer elimination period, but make sure to estimate the hit to your assets if you’ll be carrying care costs out-of-pocket for several months.

The impact of inflation. Private nursing home costs have risen about 66% over the last 18 years and costs of assisted living facilities are up 88% over the same period. If you are purchasing a policy when you are young (say, in your early 60s), make sure your benefits include inflation protection.

The track record of the insurer. Ideally, your insurer should have a high credit rating on a site such as ambest.com and a record of on-time payment of claims. Many popular providers do not have an “A” rating, but that’s not necessarily a reason to avoid them. Asking a financial professional to help find the right LTC broker for you is the best place to start—their experience can help you compare options and find the best coverage for your personal situation (health, age, affordability of premium payments, benefits, etc.).

If you would like more information on LTC insurance as part of your comprehensive financial plan or want help evaluating your current policy, please contact your wealth management team. We’re always happy to help.

And for more on this topic, check out the “Protecting Yourself With Long-Term Care Insurance” episode of our podcast.