Do I Need Long-Term Care Insurance

Long-term care insurance helps pay for what Medicare and traditional health insurance policies don’t cover: nursing homes, assisted living facilities, and home healthcare. The best time to start shopping for a policy is when you’re in your 50s. Most people purchase policies that cover a four- to five-year span.

By Walecia Konrad

In my house we think a lot about getting older. I have a 93-year-old father who suffers from dementia and macular degeneration.

Luckily, my three siblings do a wonderful job of taking care of my father, who still lives in his own home hundreds of miles away from me in suburban Detroit. My husband, son, and I visit as often as we can, and all four siblings contribute about $10,000 a year, combined, for extras such as physical therapy, part-time home healthcare, and prescription drugs that my father’s insurance and VA benefits don’t cover.
Like many people with elderly parents, my husband and I wonder whether there’s a way we can make sure our son doesn’t have the same financial burden when we get older and need help. In fact, his burden could be even greater, given longer life spans and higher healthcare costs. Despite recent reforms, those costs are expected to continue to rise faster than inflation.
Insurance protection

Long-term care insurance may be one solution. The policies are designed to help pay for a nursing home, assisted living facility, home healthcare, and other expenses that traditional health insurance policies and Medicare don’t cover. Long-term care insurance can be costly: The average annual premium is roughly $2,700, according to estimates done by the American Association for Long-Term Care Insurance. But the alternative can be even more costly.

Government statistics show that about 70% of those who reach age 65 will need long-term care at some point. That’s a high percentage, especially when you consider that the average cost of a nursing home, in 2012, was $83,950.1 The average annual cost of an assisted living facility — where residents can still live independently but get help with meals, medication, and so on — was $42,600.2

The questions and answers below should give you a good idea of how to shop for a long-term care policy.
When should I begin looking?

A good time to start shopping for long-term care insurance is when you’re in your early 50s, says Marilee Driscoll, an author and expert on long-term care insurance. The younger you are, the lower your monthly premiums. Of course, if you buy in your 50s, you may be paying for a longer stretch of time than if you buy in your 60s. However, if you do wait until you’re older, you may start to have health problems and not qualify for a policy at all.
How much care should I consider?

Long-term care policies pay a daily benefit — anywhere from $50 to $500, with the average around $150 — whether you’re using the money for a nursing home or something else.

The higher the daily benefit, the more you’ll pay in premiums. But you’ll also be able to afford more home healthcare or a higher quality nursing home.

Before you decide, find out what nursing home costs are in your area, as they vary considerably from state to state. (You can look up the government’s quality rankings for nursing homes using Medicare’s Nursing Home Compare tool.)

With traditional benefits, you may only be allowed to file a claim for a fixed amount each day. For more flexibility, look for a policy that pays a monthly rather than a daily benefit. That way, you can spend more on some days and less on other days — for example, when a family member is available to help.
How many years of coverage should I consider?

Most long-term care policies specify a maximum benefit amount, or a total dollar amount, that the policy will provide.

Policies with lifetime benefits are extremely expensive, but they put to rest any worries you may have about running out of coverage.

Less expensive policies come with four- or five-year limits. Many people are willing to bank on these, because the average nursing home stay is about two-and-a-half years.
When will payments begin?

The payments start after the so-called elimination period — that is, the length of time you’re in a nursing home or receiving home healthcare before insurance coverage kicks in.

Policies with short elimination periods, such as 30 days, are far more expensive than policies with longer ones. If you expect to have enough savings to cover costs for six months or a year, you can save a considerable amount on premiums.
How do payments start?

Under most policies, claim payments start when you can’t perform two of six activities of daily living (such as eating, bathing, or dressing yourself), or if you have a severe cognitive impairment. Be sure to look closely at the details of your policy.
What about inflation protection?

That’s a good idea, if you can afford it. Say you buy a policy now, when you’re in your 50s. You may not need coverage for 20 years or more. Over that time, the cost of a nursing home stay might rise from $220 per day to $482 if inflation averages a modest 4% annually.

A long-term care policy with an inflation rider will ensure that your daily benefit keeps pace with rising nursing-home costs.
Tax breaks

There are some tax breaks that offer some relief from high healthcare costs in later life.
  • If you invest in certain deferred fixed annuities with long-term care benefits, you’ll receive those benefits tax-free. In addition, if you take payouts from a life insurance policy with long-term care benefits, that too will be tax-free. (However, your death benefit — that is, the money paid to your heirs — will still be reduced if you use your benefits for long-term care.).

Key Points:

  • Because of increased longevity and rising health care costs, you may want to consider long-term care insurance.
  • The policies provide coverage for nursing homes, assisted living facilities, and home healthcare.
  • If you buy such a policy in your 50s, the premiums should be lower than if you buy later on.
Walecia Konrad is a New York–based freelance writer specializing in personal finance and health.

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