Is Long-Term Care Insurance Right for You?

Why Plan for Long-Term Care?

As a family caregiver, you know first hand how vital long-term care support is. Your care recipient might not have planned for their long-term care needs, necessitating you to step in and provide support. As you care for your loved one, you might be wondering, “what will I do as I age?” You will begin to consider whether you would like to age at home or in a facility, and whether you will rely on a family caregiver or will pay for professional caregiving services. 

Affording long-term care support is a tremendous problem in the United States. Unfortunately Medicare doesn’t cover long-term care, and it is often prohibitively expensive to pay for care privately. The median annual cost of an assisted living facility in Florida is $48,000, according to Genworth’s cost of care survey. Unless an individual’s assets and income are within the Medicaid long-term care thresholds, they are responsible for covering their own long-term care costs. Generally people will either need to pay out of pocket for professional care, or rely on an unpaid family caregiver. 

According to a study from the Urban Institute and the US Department of Health and Human Services, “70% of adults who survive to age 65 develop severe LTSS [long-term services and support] needs before they die and 48% receive some paid care over their lifetime.” However, a lot of these care needs are covered by family caregivers, perhaps because of the prohibitive costs. The study found that only 24% of people ever spend more than 2 years of paid long-term care, and only 15% spend more than 2 years in a nursing home. 

If potentially accessing paid care is important to you, one option worth considering is long-term care insurance

What is Long-Term Care Insurance?

Long-term care insurance is designed to help cover the cost of nursing homes or paid in-home care, as an individual’s health declines. It functions similarly to auto or health insurance, in the sense that you pay monthly premiums and then make claims if you need covered services. Under most long-term care policies, you are eligible for benefits when you suffer from cognitive impairment or can’t do at least two out of six of the following “activities of daily living”: 

• Ambulating: the extent of an individual’s ability to move from one position to another and walk independently
• Feeding: the ability of a person to feed oneself
• Dressing: the ability to select appropriate clothes and to put the clothes on
• Personal hygiene: The ability to bathe and groom oneself and maintain dental hygiene, nail, and hair care
• Continence: the ability to control bladder and bowel function
• Toileting: the ability to get to and from the toilet, using it appropriately, and cleaning oneself

As AARP explains, “You can choose a little coverage or a lot to help pay for services in or out of your home. Typical policies spell out how much you can receive daily or monthly, up to a lifetime maximum or a certain number of years. Different amounts may be allowed for care in your home, a nursing home or elsewhere.”

Other factors to consider are:

• Pre-existing conditions might not be covered by benefits
• The policy’s waiting period is the length of time between a qualifying claim and when you actually begin receiving benefits. During this waiting period, you will need to pay for long-term care costs out of pocket
• Policies will generally have a benefits cap, meaning that you will have a maximum amount that insurance will pay out on your behalf. If you need many years of long-term care, you might reach your benefits cap and need to start paying for long-term care costs out of pocket
• Premiums are not fixed and can rise with inflation
• Your policy will only remain active as long as you continue to pay your premium. If you ever stop paying your premium, you will no longer be eligible for benefits – even if you’ve already paid into the policy for decades

Cost of Long-Term Care Insurance

Long-term care insurance can be very expensive. According to Consumer Affairs, the average cost for a 55 year old couple is $3,050 per year. By the age of 80, this could mean upwards of $75,000 spent on premiums. Given the high cost of long-term care, this could be well worth it if several years of paid care (either in home or at a facility) is required. However, as the Urban Institute and US Department of Health and Human Services found, only 15% of Americans will spend more than 2 years in a nursing home. If you are in the 85% who will not need long-term care in a facility, you might ultimately pay more in premiums than you receive in benefits. As with any insurance policy, you are paying for the security and peace of mind of knowing that your long-term care needs will be taken care of.

Is Long-Term Care Insurance Right for You?

Long-term care insurance is a strong solution for people in the “financial middle.” As The Balance Money explains, “If you have little income and not much in savings, you will likely need to rely on Medicaid should you need care during your retirement years. If you have a nice pension and $2 million or more saved, you may feel comfortable being self-insured, which means that you would pay out-of-pocket for care needs. If your financials are in the middle of these two scenarios, having essential coverage for a reasonable premium could be a life-saver in your later years.”

Factors to Consider

Your Family Health History

Your personal and family health history can help you evaluate the likelihood of needing long-term care support

Your Family Support

Whether or not you have family members who can help with your care will impact the likelihood of needing paid care, and therefore the importance of long-term care insurance

Your Estate Goals

Since Medicaid support will always be available to people who spend down assets on long-term care, understanding your estate goals is an important factor. If it is a priority to maintain assets for beneficiaries, you could benefit from long-term care insurance

Your Financial Resources‍

You might look at your overall financial assets, and decide that you are comfortable with the possibility of self-financing long-term care, should the need arise

‍Next Steps

Consider your overall financial, family, and health picture before deciding whether or not long-term care insurance is the right fit. AARP suggests that the sweet spot for purchasing long-term care insurance – so as to minimize premiums and maximize benefits – is generally between ages 60-65. Join Aidaly for financial coaching and support.