Have you considered your long-term care needs in the future? As of 2018, the median cost of long-term care for individuals in the United States was just over $100,000 annually. Taking into account that most of those in nursing homes stay for 3 years on average, this cost can quickly balloon to over $300,000.
And before you put off how long-term care isn’t necessary in your present life, long-term care is expected to grow in the next two decades: By 2028, those same three years of care are projected to reach $400,000; and it will grow to upwards of $500,000 by 2038. Unless you have substantial savings and investments set aside, these costs are very real and can dramatically impact your long-term care options.
The solution to affording long-term care? Long-term care insurance. Private long-term care insurance goes beyond Medicaid/Medicare service and fills the gaps that healthcare insurance typically doesn’t cover (i.e., custodial care) when it comes to such services as:
- Hospice care
- Respite care
- Home visits by healthcare/caregiving professionals
- Home renovations to accommodate aging individuals
- Nursing home/assisted living stays
- And more
The truth is that long-term care insurance is more affordable than you think, with many options to pay for it depending on your unique situation. Our independent insurance agents can help guide you through all of the ways to afford long-term care insurance that you may or may not be aware of. Before we look at those ways of paying for it, let’s familiarize ourselves with some of the unique characteristics of long-term care insurance.
What is Long-Term Care Insurance?
Long-term care (LTC) insurance is designed to cover long-term care services in a variety of settings such as your home, a community organization, nursing home, or other facility. These insurance policies reimburse policyholders a daily amount up to a predetermined limit to include services that assist individuals with daily activities such as bathing, toileting, eating, and dressing.
When purchasing a long-term care insurance, you’re able to select a range of benefits and care options that enable you to get the services you need and where you need them. This goes beyond Medicare and Medicaid, as you can choose from a wider range of care options than currently offered. Also, long-term care insurance enables you to pick from most care facilities covered by insurance, whereas those on Medicare/Medicaid are limited to facilities where it is accepted.
How is the Cost of Long-Term Care Insurance Determined
Of course, there are a number of factors that determine the cost of your long-term care policy. These include:
- How old you are when you first purchased the policy
- The maximum amount that a policy will pay per day
- The maximum number of days/years that a policy will pay
- Any optional benefits you choose, such as benefits that increase with inflation
It’s important to note that the lifetime maximum amount that the policy will pay is determined by the maximum amount per day multiplied by the number of days the policy covers.
Qualifying for Long-Term Care Insurance
Not everyone qualifies for long-term care insurance either. If you are currently in poor health or already receive long-term care services, insurers may disqualify you for long-term care insurance. A large number of applicants are rejected because of their height/weight ratio, and many companies are denying coverage if a parent had Alzheimer’s.
This is because of the increased risk to insurers, as most individual policies require medical underwriting. That’s why it’s crucial to get long-term care insurance as soon as possible. Most experts recommend getting long-term care insurance by the time a person reaches the age of 50. Considering that median age for Americans to live is more than 78 year of age, starting coverage in your 50s is a wise decision to protect your assets and get the decent healthcare that you deserve.
Limits to Long-Term Care Insurance
Another consideration when purchasing long-term care insurance is that there are limits to how long and how much they will pay for. Generally speaking, most long-term care insurance policies will pay the costs of your long-term care between two to five years. However, there are other insurance companies that offer LTC policies that will pay your long-term care costs for as long as you live and no matter how much this long-term care costs. Of course, there are very few insurers that have no such limits, but they do exist for certain qualified individuals.
How to Pay for Long-Term Care Insurance?
Now that you’re up to speed on long-term care insurance, let’s look at how much it costs. According to American Association for Long-Term Care Insurance, the average annual premium for long-term care insurance policy with an initial benefit of $150 per day for up to three years is:
- $3,500 for a 60-year-old couple
- $1,870 for a single 55-year-old male
- $2,965 for a single 55-year-old female
This cost can significantly impact those who have limited income, savings, or live on a fixed income (such as Social Security). Let’s look at a number of ways to pay for long-term care insurance.
Purchase LTC Insurance as Early as Possible
As mentioned in the previous section, experts recommend purchasing long-term care insurance once individuals reach their 50s. Most insurers offer lower annual premiums the earlier you buy the coverage. That being said, you will have to pay premiums for a longer period of time, but spread out to have less of an impact on your monthly finances.
Choose a Smaller Daily Benefit
Another option is to opt for a smaller daily benefit, but focus on a longer benefit period. While this option is a bit of a gamble (assuming that you don’t need expensive daily care as your health worsens), the policy tends to cost less for the same total pool of money.
Go with a Shared Policy
If you have a partner or spouse, you can get a policy with shared benefits. This means that, for example, if both individuals bought a shared policy with three years of benefits, those years would be pooled for a total of six years available to either person at the same daily benefit rates as a single individual.
Insurers often give discounts for shared policies, so it’s important to check out your options between participating insurers. Annual premiums may increase between 15% to 30% for equal coverage for each individual (as if they were single and insured) but can extend coverage for a spouse/partner who has greater long-term care needs than the other.
Taking Out a Hybrid Long-Term Care Insurance Policy
If you do have a life insurance policy and want long-term care insurance coverage, a hybrid LTC policy is the answer. There are many benefits to hybrid coverage which enables individuals to either pay a lump sum or make premiums for 10 years while still securing a death benefit to your beneficiary(ies) if you don’t end up needing long-term care. However, if you do need care, you can generally receive about three times the death benefit in long-term-care coverage. And because single women tend to live longer than men, hybrid policies tend to be a good deal as they generally pay 50% more than for single men for traditional LTC policies.
Furthermore, a hybrid policy helps save your policies from being taxed through a 1035 Exchange, enabling you to roll over assets without being charged for it. This makes it a popular financial instrument for individuals that want to get coverage while providing for their loved one when they pass away.
If you’re deciding between a hybrid insurance policy or relying on Medicare/Medicaid for your health needs, you may be able to afford long-term care insurance by participating in a Long-Term Care Partnership Program. These programs are federally supported, state-operated initiatives that enable individuals who purchase a qualified long-term-care insurance policy. The advantage of these policies is that they can protect a portion of a policyholder’s assets that they would generally need to spend before qualifying for Medicaid coverage.
It should be noted that not all states participate in a partnership program, and there is a wide variance in how much individuals are covered for and need to spend. For more information, visit the FLTCIP website.
Life Insurance with Chronic Care Rider
If you have a life insurance policy with a chronic care rider, you may be able to access a portion of your death benefit if you meet certain long-term care requirements. Bear in mind that some companies regularly charge 5% to 15% extra for this feature and limit withdrawals up to 2% of the death benefit each month.
And because you’re drawing money from an insurer, other insurers won’t charge extra for accessing long-term care but instead reduce your death benefit by more than dollar-for-dollar if you decide to withdraw money early for care. This can be a good option for those who don’t want another long-term care policy and can deal with providing a reduced death benefit when they pass away.
What Happens If I Can No Longer Pay for LTC Insurance?
Even with careful planning, sometimes the unforeseen happens. Money that you had set aside for LTC insurance premiums must be used for something else which results in your inability to pay your premiums. What happens? Well, it depends on if you purchased a policy with “forfeiture benefit.”
- If you’ve purchased a LTC policy with some type of nonforfeiture benefit, you will not forfeit all benefits at the end of the period covered by your final premium payment. Instead, you will remain eligible for reduced benefits which provides some value for the money that you paid into the policy.
- The insurance company then gives you a “paid-up policy," when gives you the choice of a nonforfeiture benefit according to the fine print in your policy. There are typically a number of options to choose from:
- Reduced paid-up benefit: If you allow your policy to lapse for a number a specified years, the LTC policy will continue indefinitely with reduced daily benefit amounts. However, it’s important to note that some insurance companies only apply this to nursing home benefits.
- Shortened benefit period: Also referred to as an "extended-term benefit," this benefit will continue to pay the same benefits that you would have normally been covered for a limited period of time if you allow your policy to lapse after a specified number of years.
- Return of premium: As one of the most expensive types of nonforfeiture benefits, an insurer will return all or part of the premium that you paid if you drop coverage after a certain amount of years.
For those who haven’t purchased a nonforfeiture benefit, the LTC policy terminates at the end of the premium paying period. This means no further benefits for expenses incurred after that date — even if you paid premiums for twenty years before dropping the policy.
The cost of nonforfeiture benefits can be pricey which may double the cost of the policy (the average increase is around 40% of the base premium). The cost of nonforfeiture benefits is determined by a number of factors, including:
- The age of the policyholder at the time of purchasing the policy
- The type of nonforfeiture benefit you select (see above)
- Whether the policy includes inflation protection
As with any insurance policy, each state is different. Some states require insurers to make a written offer of nonforfeiture options when you apply for LTC insurance. Additionally, if you don't accept the offer of a nonforfeiture benefit, some states require insurance companies to provide a contingent benefit upon lapse. Essentially, this means that a nonforfeiture benefit must be provided if the company increases the premium by a specified percentage based on the original issue age of the policyholder. The younger you are when you first purchased the LTC policy, the higher the percentage must be to activate this contingency (which comes in the form of a Reduced Paid-Up Benefit or the Shortened Benefit Period Benefit). As an example, if your issue age is 35, the required premium increase may be as high as 200%. However, if your issue age is 80, the required premium increase may only be 20% to qualify.
Now that you’re aware of the many ways to pay for long-term care insurance, it’s time to speak with an independent insurance agent. These insurance experts can guide you to companies that offer the most comprehensive long-term care that fits your unique needs. Contact us today to gain the peace of mind that comes with caring for your long-term care needs in the future.
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