A Long-term care insurance policy will help cover the costs of assisted living, nursing homes, and home health care. It exists in case you can no longer care for yourself due to age, disability, or a chronic condition.
Long-term care insurance can be a sensible coverage option for many. Especially when you consider the fact that, 70% of individuals 65 and over will need this type of care at some point as according to, the U.S. Department of Health and Human Services.
So why doesn’t everyone opt for this option? The truth is not everyone can purchase long term care insurance. Many will wait too long which can cause the prices to rise far beyond their desired range. To clarify, a 64 year old couple could purchase a long-term care insurance policy for $4,500 with 3% inflation protection. If this same couple were to hold off and wait until age 75 to purchase, that policy could double to nearly $8,700. Others will find themselves ineligible for coverage at any price due to underlying health issues.
Rates on the rise
In the past, long-term care insurance policy holders who purchased plans in the 1990s, experienced steep premium rises. These earlier spikes were a result of miscalculations on predicted claims versus actual claims. This means that the number of actual claims made by policyholders, far surpassed the number of predicted claims and lapses. Additionally, back then insurers did little to no underwriting. This extended coverage to nearly everyone and contributed to the miscalculation on costly claims. The end result, resulted in higher premiums for current policyholders to try and make up for the miscalculations and costly claims of others.
Today, things are different when it comes to obtaining a policy. These insurers have now been around longer and have a better method for calculating predicted claims. They have corrected their pricing and underwriting models drastically. This allows for more predictable premiums and less premium spikes for policyholders. There are now decades of claim history to base data and predictions off of. Additionally, medical underwriting has become very detailed and they will no longer extend coverage to just anybody.
For this reason some will now find themselves ineligible for long-term care insurance however, there are other options without medical underwriting such as hybrid long-term care insurance.
Weighing the options
When it comes to paying for the costs of your long-term care you have options and you must pick the one best suited for you. You should know that medicare will NOT cover the costs of your long-term care. Medicare will usually only account for medical related costs for a limited amount of time. Therefore, Medicare will not extend to the long-term custodial care that is Long-term care. Medicare is not an option but here are some alternative ways to help foot the bill:
- Long-term care insurance
- Group long-term care insurance
- Long-term care Annuities
- Hybrid Long-Term care Insurance
- HSA Savings
- Pensions and SS
- Veterans benefits
- Medicaid (only eligible for some)
- Home equity
Group Long-Term Care Insurance
For those who are unable to obtain individual long term care insurance, a group plan may be a good alternative. This is an option available to some through an employer benefit system. Some employers may even help cover the costs of your premiums.
When available, these policies can oftentimes be more accessible to individuals unable to obtain an individual policy. Group plans will often feature a more simplified underwriting process making coverage more obtainable for some. These group plans are not offered by many employers and you will want to verify that this is a benefit extended by your employer before counting on this route.
Long-Term Care Insurance
Long term care insurance is a great option for those who do not wish to run through their assets and savings should they need care. These policies allow for optimal customization to help meet your long- term care needs and feature premiums paid in return for long-term care benefits. Many of these benefits can be applied within nursing homes, memory care, and even home health care. These policies typically feature an extensive medical underwriting process and not all will qualify. This is why it is best to apply for this type of coverage sooner than later.
During underwriting, insurers will consider a variety of factors when determining your premium and whether or not to extend coverage. The younger and in better health you are at the time of your application the more likely you are to obtain coverage as well as lower premiums.
The Hybrid Route
Hybrid long-term care insurance features life insurance with a long-term care rider. These riders allow policy-holders to utilize their death benefit to pay for long-term care insurance. If long-term care is not needed, the death benefit is then passed down to your appointed beneficiaries proceeding your death. This is a very appealing option for those who are weary of paying into a policy they may never use.
These policies tend to be a bit costlier upfront however, they are a great option for those looking to afford care and also pass down to their beneficiaries. They policies are also often exes from premium rises or spikes. The hybrid option is increasingly popular and offer the best of both worlds by combining life insurance and long-term care benefits all into one non binding option. This option is also great for those with less than ideal health and the underwriting process is less vigorous.
A health saving account can help pay for care for those who qualify for a high-deductible health insurance plan. An HSA account will allow you to put aside tax free cash that can be used for medical care as well as long-term care. You can use the funds from this account to help cover your premiums for your individual long-term care insurance policy.
Long-Term Care Annuities
Long-term care annuities are a great option for covering your home health, assisted living and nursing home care expense. Although often overlooked, these annuities are also a great option for even those with poor health. You should note that this option will require a steep upfront payment especially if you wish to opt for immediate benefits. This is a great option for those who can afford to do so but may have had trouble with medical underwriting. The taxes applied to these annuities can be a bit more complex and you may opt to work with a knowledgeable consultant if opting for this route.
Life Plan Communities
These can often be referred to as continuing care communities and are in fact quite costly. This method is designed for residents to live independently within a community nearby aged individuals. The community will often be in charge of leading community events and activities and thus require a large monthly payment. Many individuals will transition from these communities into assisted living, memory care, community ran nursing homes, as needed. These communities will often require a large upfront payment in additions to their monthly fees. These costs can amount to several hundred thousands of dollars however, members are then guaranteed care even if they are ever unable to pay for it.
If you suffered a service- related disability the Department of Veterans Affairs may be able to help cover the costs of your long-term care. Additionally, family caregivers may be entitled to compensation through some of their programs.
In order to qualify, you must be a veteran with a service related disability. You should note that even Vietnam veterans without a service-related disability may still be eligible. Particularly those exposed to agent Orange who later developed a health condition. The rules for this program are complex and you will want to consult with the Department of Veterans Affairs for assistance. They can help you understand eligibility requirements as well as walk you through application process.
If you are retired and find that you have made no significant investments you may be overlooking one of your most valuable assets: your home. Although this is not always recommended using your home to pay for you long-term care is certainly an option. Some of the ways to do so are by: accessing home equity through a line of credit, reverse mortgage, or simply selling your home to use the funds for long-term care.
Keep in mind that this option is usually used as a last resort as they all result in the loss of your home.
Social Security & Pensions
This option varies depending on the amount of your monthly payments and the level of care you may need. Some may be able to pull from their pension or social security to afford the costs of their monthly care. This option will not be feasible for all.
If you have exhausted all your options and are still ubalne to afford care, the government will then step in. Keep in mind that the previous statement must apply and only those with depleted assets will qualify for medicaid. Even so, some restrictions may apply and medicaid will not cover assisted living. Medicaid will cover nursing home care and some home health care when eligible. Many states are required to try and obtain the costs of that care when possible. For many this will look like, selling off their parents home and then re-paying the proceeds to the state instead of their beneficiaries.
Due to the fact that Medicaid is a last resort with many restrictions, it is not an ideal way to cover the costs of your care. You will have to spend down all of your assets to qualify and some facilities in your state may not accept Medicaid. This can result in relocation amd even further restrictions.
Instead, of relying on last resorts, you should opt to plan ahead. Choose to investigate which of the above methods are best suited for you. Although planning for this future event may not be fun, it is certainly necessary. Given the overwhelming statistics you will more than likely need care. Keep in mind that other factors such as your health and family history may also contribute to your likeliness for care. Other factors to consider is whether you live alone or have family that would be able to care for you. Additionally, women tend to outlive their spouses and often require longer care. Many will wish to ensure they do not burden their families financially or with time.
Some will wish to age at home and others will need more extensive and even specialized care. There is no way to predict the level of care you will later require or for how long you may require care. There are however, many ways to prepare yourself for what is to come. The sooner you start the longer you can rest assured your future needs will be handled as desired.
How to start
The best way to get started is by acknowledging that you will likely need care. Map out where you would ideally like for this care to be down to the state, at home, facility, etc. Now realize that your circumstances may not allow for this and think of some back up plans. Carefully review the costs associated with the type of care you desire and consider price inflation. How would you afford care now and later? Consider your family history and access your possible future needs. Did anyone in your immediate family suffer for alzheimer’s or dementia?
If it is likely that you may develop a chronic illnesses factor in those costs as well as additional service you may require. Familiarize yourself with which type of options may be available to you and which that process entails. If you have decided to opt for long-term care insurance get to know your insurer options. Research the different types of policies, benefits, riders, and application processes. Many will opt for working with a trusted advisor to help guide them along the way.
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