Almost 70% of individuals 65 and older will need some type of long-term care. Unfortunately, most families don’t have sufficient assets or insurance to cover the cost of this care.
The term “long-term care” can refer to a range of services, but for most it refers to assistance with activities of daily living which includes bathroom facilities, dressing and mobility. Many who need these expensive services will likely need the services of skilled nursing communities or assisted living facilities.
Many people believe that Medicare covers long-term care costs. In fact, Medicare coverage is limited to medically necessary skilled services or rehabilitative care and is typically much shorter duration than the typical long-term care needs. Although Medicaid does cover some long-term care, most families will not qualify because of minimum income and asset requirements and rigid state requirements.
So how should you plan for the likelihood you will need long-term care? Here are some options, along with their pros and cons:
Traditional Long-Term Care Policies – Long-term policies cost less if you purchase when you are younger and in good health. If you wait until you are 65, for example, the monthly premiums can be several hundred dollars a month per person. Also, certain health conditions may make you uninsurable. Long-term care insurance makes the most sense for upper-middle-class families. For lower-income families, the insurance is probably too expensive. For the poor, Medicaid is available. One disadvantage is that premiums are not necessarily fixed, even if you purchase the policy at a young age. These policies often have restrictions and limitations.
Single Premium Policy – In a single premium policy, an individual makes a lump-sum payment. Based on the insured age and amount of deposit, a monthly benefit for LTC is determined. There is an initial life insurance benefit that decreases over time. After five years, if you haven’t filed a claim for LTC benefits, you can request your initial investment back.
Accelerated Death Benefits – Some insurance policies include a feature that allows a tax-free advance while you are alive. Such a feature would specify under what conditions you can obtain an advance. The policy will specify the limits of the advance which can be limited to a percentage of the death benefit.
Life Settlement – If you have a life policy with cash value, you can usually sell your policy regardless of your health. The disadvantages are that you are relinquishing your death benefit and there may be income tax due on the cash value.
The longer we live, the higher the probability we will need some type of long-term care protection. It is prudent to discuss this issue with an insurance agent knowledgeable in health care issues while you are healthy and have viable options. The high costs of nursing homes and assisted living makes this issue mandatory for your long-term financial planning.