Taking the Long View of Long-term Care Insurance
The U.S. Department of Health and Human Services reports that roughly 70% of Americans age 65 or over will require some form of long-term care (LTC). How will you pay for these services?
For many people, the possibility that they’ll incur significant LTC expenses is one of the biggest threats to their estate plans. These expenses — such as for nursing home stays or home health aides — can quickly deplete funds you’ve set aside for retirement or to provide for your family. A practical solution is to purchase an LTC insurance policy.
What does LTC insurance cover?
Most LTC policies operate like some other forms of insurance that you’re probably familiar with, such as homeowners or auto insurance. The policy’s terms control the amount of benefits you’ll receive daily or monthly, up to a stated lifetime maximum or number of years. This is predicated on the type of care provided, for example, in-home care or a nursing home. You may be able to add to your coverage over time.
Typically, you’re subject to a waiting period of 30 to 180 days before you’re eligible for benefits (90 days is the norm). Generally, the shorter the waiting period, the more expensive the policy. Similarly, you can expect to pay more for policies with higher maximum benefits.
LTC policies typically provide benefits when you can no longer perform several basic activities of daily living — including bathing, dressing, eating, transferring and managing incontinence — or if you’re cognitively impaired. Once that occurs and you start receiving benefits, your premiums cease. However, if you stop paying on the policy first, you usually forfeit any future benefits. Note that coverage may be affected by several factors. For example, you may not qualify for coverage because of a preexisting condition.
Any factors to take into account?
Unlike homeowners and auto insurance, you typically have only one good shot at buying LTC insurance. Should you take the plunge, there are several key factors to consider, including your:
Financial situation. Do you have the wherewithal to pay for long-term care assistance without jeopardizing your overall financial situation? Take an objective look at your entire financial picture.
Estate planning objectives. An LTC policy may make sense if preserving wealth to pass on to your family is a primary estate planning objective.
Age and health. As you continue to age, the cost of LTC insurance premiums will increase. Also, you may have to pay more if you have a preexisting condition (if you can secure coverage at all). Apply for a policy as soon as possible and check for more lenient policies at a relatively reasonable cost.
There might be ways of obtaining coverage without buying a policy privately. For instance, you may be able to participate in a group policy offered by your employer or from another affiliation. This can be especially helpful if health conditions would otherwise cause insurers to hike your premiums or deny you coverage.
Assess your options
To determine whether an LTC policy is right for you, compare the costs, benefits and tax implications of various LTC insurance options. Your advisor can assess your specific needs and help you make an informed decision.
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