A guide to long-term care insurance
If you are rich, you can afford home care or care in a residential care center or nursing home. If you are poor, Medicaid can help you get nursing homes or home aides. But if you’re middle class, you have a tough decision to make: whether to get long-term care insurance. It’s a more complex decision than other types of insurance because it’s very difficult to accurately predict your finances or health decades into the future.
What is the difference between long-term care insurance and health insurance?
Long-term care insurance is intended for people who may develop permanent cognitive problems, such as Alzheimer’s disease, or who need help with basic daily tasks such as bathing or dressing. It can help pay for personal assistants, adult day care, or institutional housing in an assisted living facility or nursing home. Medicare does not cover such costs for the chronically ill.
How does it work?
Policies generally pay a flat rate per day, week or month, for example up to $1,400 per week for home health aides. Before purchasing a policy, ask yourself what services it covers and how much it pays for each type of care, such as a nursing home, assisted living facility, personal home care service, or adult day care. Some policies reimburse family members who provide care; ask who qualifies as a family member and whether the policy will cover their education.
You should check whether benefits will be increased to take inflation into account, and by how much. Ask about the maximum amount the policy will pay out and whether the benefits can be shared by a domestic partner or spouse.
How much is it?
According to a study by the American Association for Long-Term Care Insurance, a 60-year-old man who buys a $165,000 policy would typically pay about $2,525 annually in 2022 for a policy that grows at 3 percent per year to account for the inflation. , A nonprofit organization that tracks insurance rates. A woman of the same age would pay $3,300 for the same policy, because women tend to live longer and use them more often. The higher the inflation adjustment, the more the policy will cost.
If a company has paid out more than expected, it is more likely to increase rates. Companies need approval from your state’s regulators, so you should check whether the insurer is asking the state insurance department to increase rates for the next few years — and if so, by how much — since companies can’t increase premiums without permission. You can find contacts for your state’s insurance department through the Directory of the National Association of Insurance Commissioners.
Should I buy it?
It’s probably not worth the cost if you don’t own your home or if you have a significant amount of money saved and won’t have a significant retirement benefit outside of Social Security. If that describes you, you’ll probably qualify for Medicaid once you spend what you have. But insurance may be worth it if the value of all your savings and assets, excluding your primary home, is at least $75,000, according to a consumer guide of the association of insurance commissioners.
Even if you have savings and valuables you can sell, consider whether you can afford the premiums. While insurers can’t cancel a policy after they sell it to you, they can, and often do, increase the premium every year. The insurance commissioners group probably says you are just need to take coverage into account if it is less than 7 percent of your current income and you can still pay it without pain if the premium is increased by 25 percent.
Many insurers sell hybrid policies that combine life insurance and long-term care insurance. These are popular because if you don’t use the long-term care benefit, the policy will be paid out to a beneficiary after your death. But compared to long-term care policies, hybrid policies are “even more expensive, and the coverage isn’t great,” said Howard Bedlin, chief of government relations and advocacy at the National Council on Aging.
When should I buy a policy?
If you wait too long, you may have developed medical conditions that make you too risky for any insurer. If you buy too early, you could be siphoning away money that could be better invested in your retirement account, your children’s college tuition, or other financial priorities. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says the sweet spot is when you’re between 55 and 65 years old. People younger than that often have different financial priorities, he said, making premiums more painful.
When can I take advantage of the benefits?
Make sure you know under what circumstances you can benefit. This is known as the ‘trigger’. Policies often require evidence that you need help with at least two of six ‘activities of daily living’, namely: bathing, dressing, eating, being able to get out of bed and move around, continence and being able to get to and use the toilet . You can also claim against your policy if you have been diagnosed with dementia or another cognitive disorder. Insurance companies will typically send a representative to conduct an evaluation, or require an assessment from your doctor.
Many policies don’t start paying until you’ve paid out of pocket for a certain period of time, such as 20 days or 100 days. This is known as the ‘elimination period’.
Jordan Rau is a senior reporter at KFF Health News, part of the organization formerly known as the Kaiser Family Foundation.