It’s no secret that health care costs in the United States are growing at a rate much higher than inflation and have been doing so for well over the past decade. With the availability of life-saving procedures and advanced medical information that result in a longer life expectancy, it makes sense that long-term care insurance policies began as a way to hedge against these significant costs.
WHAT DOES LONG-TERM CARE INSURANCE COVER?
Long-term care insurance (LTCI) policies cover the costs for those who need long-term care such as those services provided in a nursing home, adult day care, assisted living center or even within their own homes. As opposed to medical insurance, the costs covered under long-term care policies are generally related to day-to-day living assistance rather than medical costs. These services were often provided by family members in the past, but due to changing situations, these responsibilities are generally being shifted and there is a greater need for this assistance.
WHAT ARE THE BASICS OF LTCI?
Long-term care insurance benefits are subject to what is referred to as an elimination period. This is the amount of time before the long-term care benefits begin. Common elimination periods are 30, 60 or 180 days, but there is a huge range of options.
The benefit period is defined as the maximum time for which benefits are paid. Common benefit periods are 1-4 years as well, up to lifetime benefits. Other policies pay a maximum benefit amount such as $100,000 total.
In order to qualify to use your long-term care benefits, a person must be unable to perform two activities of daily living, referred to as ADLs. There are 6 activities of daily living:
- Eating
- Bathing
- Dressing
- Using the toilet
- Maintaining continence
- Transferring in or out of a bed, chair/wheelchair
HOW MUCH DOES LTCI COST?
Long-term care insurance premiums are expensive, making them cost prohibitive for younger people that have a low risk of needing these benefits. The recommended minimum age to consider purchasing long-term care insurance policies is 40 years old, which is often the minimum age many insurance companies will even consider coverage.
The factors that affect long-term care insurance premiums include:
- Age and gender
- Current health status
- Marital status
- Benefit types, such as coverage in a long-term care facility or including at-home coverage
- Elimination period
- Daily or monthly benefit amount
- Lifetime benefit amount
A 50 year-old person should expect to pay at least $2,000 annually for a basic long-term care policy with a daily benefit of $160 and coverage for 5 years.
WHAT ELSE DO I NEED TO KNOW?
These are just the absolute basics of long-term care policies and my purpose is to simply let you know that this insurance exists to plan for your future needs. There is such a wide range in long-term care policies that if you are considering purchasing one, you will need to analyze in-depth the policy coverage including the exact benefits provided both in amounts and in exclusions and inclusions to determine what exactly will be covered.
In addition, if you have access to an HSA (Health Savings Account), this is a great alternative to long-term care insurance for younger people that have time to grow their investments. Your HSA funds can not only be used to cover qualified long-term care expenses that a long-term care insurance policy would include, but can also be withdrawn penalty-free and used as retirement funds after your reach age 65. This way, you don’t have the risk of having sunk insurance premium costs and you enjoy tax-free benefits that cover a wider range of potential costs!
