With the average life expectancy surpassing age 85, the number of people who will require some sort of assistance performing daily living functions can be expected to increase dramatically. Already one in three people age 65 and older will receive care in a nursing home or through a home caregiver. After age 74, there’s a 50% chance of needing assisted care. This growing demand has driven long-term costs to climb faster than the rate of inflation. With a $7,000 per month price tag (and growing), a long-term nursing home stay could easily wipe out a lifetime of savings.
Long-Term Care Needs
The need for long-term care is usually triggered when a person is unable to perform one or more of the activities of daily living, such as getting out of bed, walking, dressing, bathing, or eating. When assisted care is required, and a spouse or personal caregiver is unable or unavailable to provide it, the only option is to hire the services of a caregiver, home health care nurse, or seek admission to a nursing home.
Paying for Long-Term Care
Most people saving for retirement don’t anticipate the costs of extended long-term care, and, therefore, accumulate enough to maintain a comfortable standard-of-living and provide for the possibility of higher medical costs. When the need for long-term care arises, it is not uncommon for couples and individuals to have to liquidate retirement assets to cover the costs. Only when all of the assets have been liquidated down to the residence and a car, will Medicaid provide any assistance for long-term care expenses. A lot of people are also poorly informed when it comes to their Medicare benefits, which only provides very limited coverage.
The people who tend to suffer the most financial devastation are the middle to upper-middle income seniors who have too many assets to qualify for Medicaid, and just enough assets to get them through a secure retirement. For these people, it makes the most sense to transfer the risk of long-term care to an insurer.
While options do exist for paying long-term care expenses, such as reverse mortgages, asset depletion, and some health plans with limited coverage, in the long run long-term care insurance can prove to be the most affordable and effective way to cover the costs. But, before you rush out to buy a policy, it is important to understand how different types of coverage pay the benefits.
How Long-Term Care Insurance Works
There are three types of coverage: Indemnity, which pays a set daily amount; reimbursement, which pays the lower of the actual expenses incurred or the covered amount; and full coverage, which pays the covered amount completely regardless of the actual expenses. The premium costs are lowest for indemnity coverage and higher for full coverage. In most cases, the coverage is for nursing home care; however, a home care option can be selected usually at slight cost.
As with other types of health insurance plans, long-term care insurance includes a deductible in the form of a waiting period. The longer the timeframe from the onset of care to the payment of benefits (typically from 0 to 120 days), the less the premium payment will be. It would also be important to consider an inflation protection option as some policies are in existence for as many as 20 years before they are needed.
Long-term care insurance may make sense for most people who want or need to protect their assets for their own use or as a legacy for their heirs. As with any type of insurance, long-term care coverage varies from provider to provider, so care should be given to shop and compare. The long-term care product landscape is vast and you have many options available to customize the right solution for your family.