There is nothing people want more than to live a long, prosperous and healthy life. But, as Americans are living longer, the amount of care that they require is also increasing, and this can become quite costly, even over a few years' time.
Making adequate arrangements for old age isn't usually the most pleasant or straightforward task. However, the minor discomfort that may accompany speaking with your loved ones or an expert about your future plans and wishes far outweighs being caught in a situation where you are in need of care and ill-prepared. The same goes for paying towards future financial security.
Long-term care insurance (LTCI) is one option for ensuring that you will be able to afford long-term care should you need it. This kind of product provides coverage for types of care that Medicare, Medicaid, and traditional health insurance do not, such as home care, assisted living, adult daycare, respite care, hospice, nursing home and Alzheimer's care.
Preplanning is especially important when it comes to obtaining LTCI, since the lowest premiums and widest range of services are available to those candidates who are healthy and middle-aged. You are also more likely to be approved for coverage around ages 40-50.
Insurance companies have established strict eligibility guidelines for these kinds of policies. They are essentially only looking for healthy people to buy coverage, and do not offer policies to individuals older than 84. If you have dementia or memory issues, mobility issues, and/or diabetes, chances are you won't be approved. However, if you are concerned about early-onset Alzheimer's or have a family history of chronic disease, purchasing a LTCI policy before you begin experiencing symptoms can make a world of difference in how you pay for care down the road.
Interestingly enough, those who need long-term care are not always suffering from chronic illnesses. People can find themselves needing assistance with activities of daily living (ADLs) at any age if they have a severe accident or suddenly fall ill. Unfortunately, most people don't plan adequately for their potential care needs. Those who have experienced caring for aging or ailing family members are more likely to realize the importance of preplanning for long-term care.
In fact, according to Tom Riekse Jr. of LTCI Partners, LLC, many of the clients he works with are "well-educated females in their late forties to mid-sixties that are in the pre-retirement planning stage." LTCI is an effective way of preserving one's assets and receiving care, which is especially important to those who have witnessed a parent having to spend down their assets for Medicaid eligibility.
Even if individuals can afford to pay for care themselves, Riekse says another benefit of LTCI is having a third party that can take some of the planning and financial burden off yours shoulders. The money is accessible, in one place, and meant specifically to be used for long-term care. In this way, LTCI is less complicated than trying to decide how much money to pull from which account in order to finance your care.
Furthermore, like any other kind of proactive planning for older age, LTCI can help to keep family turmoil at a minimum. If aging parents have a LTCI policy, this can take a great deal of burden off of their children when it comes to deciding who will fund and manage their care. Riekse says that this responsibility usually falls on the eldest daughter of the family, but LTCI can help to safeguard sibling relationships from the squabbles that are so common within families struggling to establish a viable care plan for a loved one.
There are few different LTCI products available on the market now, each with their own advantages and disadvantages:
- Stand-alone LTCI
Riekse says that the average premium for a policy of this kind for a person in their mid-fifties and in decent health is about $2,000 annually. The down sides of the stand-alone policy are that your rates may increase over time, and if you don't use it or you end up unable to make the payments, you don't get your money back. (However, we don't think about auto or home insurance in this way. It's important to realize the benefits of having coverage for something that millions of Americans are projected to need someday.)
- Linked life and LTCI program
These products include whole, universal, or variable universal life insurance and LTCI in one package. This kind of policy tends to be more expensive, since a death benefit is part of the plan. If you end up needing long-term care, your coverage comes out of the policy's death benefit, and your beneficiary receives whatever is left over.
- Annuity and LTC plan
Due to low interest rates, these plans are not very popular at the moment. However, this kind of approach allows you to retain access to your money (fees usually apply), it may be cheaper than a traditional stand-alone LTCI policy and you can avoid health eligibility requirements.
Typically, a policyholder will begin to receive LTC benefits following a variable elimination period (20 to 100 days) and once a healthcare practitioner certifies that they will need assistance with at least two out of the six Activities of Daily Living (usually bathing and dressing) for at least 90 days. Benefits may also be accessed if it is determined that a policyholder suffering from cognitive impairment or requires extensive supervision in order to ensure their health and safety.
Riekse urges potential buyers to consider purchasing a LTCI plan younger, but to be smart about your financial priorities. If you are unsure whether or not you will be able to continue paying your premiums, then this coverage is not ideal for you. For example, for individuals whose sole source of income is a Social Security benefit or Supplemental Security Income (SSI), LTCI would not be a wise investment. Those with assets and a strong income who don't want to rely on others for support would be better candidates for a LTCI policy.
There are a number of different LTCI products with variable amounts of coverage, methods of payment, premium rates, benefit limits, and customizable options. "It is best to find an experienced insurance adviser or wealth manager with access to multiple carriers (TransAmerican, Mutual of Omaha, Genworth, etc.)," Reikse says. It is crucial to conduct adequate research in order to choose the policy that is the best fit for you, or to simply go about financing your long-term care another way.