Understanding Long-Term Care Insurance
Long-term care (LTC) insurance is a type of insurance that helps cover the cost of long-term care services, which are not typically covered by traditional health insurance or Medicare. These services can include assistance with daily activities like bathing, dressing, and eating, as well as care in nursing homes, assisted living facilities, or adult day care centers.
Why Plan for Long-Term Care?
About 49% of men and 64% of women reaching age 65 today will need significant long-term care during their remaining years, according to a 2022 study from the federal Department of Health and Human Services (HHS). The average cost of long-term care will be $120,900, but individual costs can vary greatly depending on how long care is needed, where you live, and the intensity of care required.
Types of Long-Term Care Insurance
Traditional Long-Term Care Insurance
Traditional LTC insurance works like other insurance policies: you pay premiums, and if you need covered services, you make a claim. However, premiums can rise over time with regulatory approval. If you stop paying premiums before needing care, you typically lose coverage.
Hybrid Policies
Hybrid or linked-benefit policies combine long-term care coverage with life insurance or annuities. You pay a lump sum or fixed annual payments, eliminating the risk of rising premiums. These policies provide long-term care coverage and a life insurance payout if you don’t use the LTC benefits.
How Long-Term Care Insurance Works
LTC policies may limit covered conditions and often have a waiting period before benefits start. You’re eligible for benefits when you can’t perform certain daily living activities or become cognitively impaired. Benefits are typically capped daily or monthly, up to a lifetime maximum or specific number of years.
The History of Long-Term Care Insurance
Early LTC policies only covered nursing home care, but later policies expanded to include home care, assisted living, and adult day care. Insurers faced financial trouble due to underestimating claims and overestimating investment earnings, leading to significant premium increases for existing customers.
Considerations for Existing Policyholders
If you already have a traditional LTC policy and face a premium increase, you can:
- Pay the increase to keep your benefits
- Accept reduced benefits at your old premium rate
- Consider dropping the policy, but be aware that new coverage will likely be more expensive
To Buy or Not to Buy
Before purchasing LTC insurance, consider:
- Your budget: Premiums shouldn’t exceed 7% of your income
- Your assets: It’s most beneficial if you have at least $75,000 in assets (excluding your primary home)
- Your overall financial condition and goals
- Your age and health: The older you are or the more health issues you have, the more expensive or difficult it is to get coverage
Talking with financial advisors and insurance agents can help you navigate your options and make an informed decision.
Conclusion
Long-term care insurance can be a valuable tool in planning for future care needs, but it’s essential to understand the different types of policies, their costs, and how they work. By carefully considering your financial situation, goals, and options, you can make an informed decision about whether LTC insurance is right for you.
