Long-Term Care Insurance Basics

By on April 4, 2017

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More and more Americans are living longer and that means retirees will need to plan for health care well into their 80’s and 90’s. Unfortunately, your retirement savings and traditional medical care may not cover the cost of personal care services — help with daily activities such as eating and bathing, assisted living or nursing homes, adult day care and more — you might need when you are unable to care for yourself. That is where Long-Term care Insurance (LTCI) comes in!

Determining If and When to Buy Long-Term Care Insurance

Long-term care insurance helps protect your assets (home, savings or investment assets) against the high cost of extended long-term care. If you have more to protect than a house, a car and a small amount of cash, then you could use some form of insurance to cover future long-term care expenses.

Why You Can’t Rely on Medicaid or Medicare for Long-Term Care

Most people think they can use Medicaid and/or Medicare to pay for their in-home caregivers or nursing home care, then supplement the expenses with their own money or by relying on family assistance. Unfortunately, few Americans actually qualify for federal assistance programs such as Medicaid and Medicare does not cover every situation, or like in most cases, they have not saved quite enough to bridge the gap.

Medicaid is a state and federal assistance program that pays most long-term care expenses for eligible people with low incomes. To qualify for Medicaid, many retirees would have to spend down the majority of their income and assets to meet poverty guidelines. And while you would be guaranteed assistance if you qualify, you may not have the care or services you prefer.

Medicare is a federal (or state) program that pays for medical care for anyone with a disability or people over age 65. Coverage may pay some long-term care costs such as skilled care by a medical professional, however, it usually does not cover nursing home fees or in-home custodial care (someone who helps you to cook, clean, bathe, etc.).

Anyone who is not financially impoverished will need to find other ways to pay for long-term care; an insurance policy may be able to ensure you receive appropriate care while protecting your finances so you can still pass on a legacy to your beneficiaries.

Assess Your Needs and Financial Situation

Before you can build a policy to fit your long-term care needs, you should sit down with your spouse, trusted family members (who may be your caregiver) and a financial advisor to gain an understanding of your need for care and how you can pay for it. A few factors to consider are…

  • Health and Longevity: Some LTCI policies take into account your current health condition and life expectancy, so the younger and healthier you are the more likely you are to qualify for an affordable plan.
  • Existing Support System: You may have a spouse or family members who can provide some of your long-term care should you need it. Consider whether or not you would want their assistance as a caregiver and how much care you can reasonably expect from them before requiring professional assistance
  • Income and Assets: If you have difficulty paying for everyday expenses or are concerned about your income after retirement when you may have fewer assets, spending thousands of dollars a year for a long-term care policy might not make sense. However, if you are able to meet your savings goals or have income and/or assets which may disqualify you from receiving Medicaid then you may need to obtain at least minimal coverage.
  • Paying Premiums: Can you afford another monthly or annual bill — now and in the future — without breaking your budget? Premiums may increase over time or your income could go down. You could lose all the money you have paid into a policy if you cannot keep up with the premium payments.
  • Tax Savings: Many LTCI policies are tax-qualified, allowing you to deduct the value of your premiums from your current income taxes (qualifications for deduction or credit may vary). In addition, when care expenses are paid out through a policy they are (usually) not taxed as income, allowing seniors to maintain or lower their tax liability.

Building a Long-Term Care Plan

Your LTCI policy is your plan for the future so choose your service benefits, policy terms, add additional protections against cost inflation and set your premium payment at a level you can afford.

3 Types of LTCI Plans

  • Individual plans: Single individuals can purchase a comprehensive policy to cover the cost of long-term care services. These plans may come with health requirements, however they tend to offer greater flexibility when it comes to policy options, inflation protections and asset guarantees.
  • Joint policies: Couples or partners may buy a single policy to cover both parties. There is usually a total or maximum benefit that applies to everyone insured under the policy, so you run the risk of one partner depleting funds that the other partner might need 10 or 20 years later.
  • Employer/Group Policies: Groups or employers pool assets so each person can buy an affordable plan, comparable to an individual policy. One advantage to group plans is that there usually are not any medical screenings required, making plans easy and affordable but perhaps smaller in coverage. Another advantage is these plans may also cover partners, spouses or even parents; relatives may have to meet medical requirements through a screening.

LTCI May Cover the Following Services:

  • Nursing Homes: Facilities which provide a full health and personal care, rehabilitation and daily assistance. Some policies cover care service fees but not room-and-board.
  • Assisted Living: Independent apartment-style units in which care services are available when needed.
  • Home Care: Live in your own home and employ an agency or individual to help with personal care and/or daily chores, housework, shopping, etc..
  • Adult Day Care: Programs which provide health, social or other support services for seniors (ex. bus to medical exams, reading/learning for the blind or senior exercise).
  • Home Modification: The installation of ramps, shower grab bars and other specified modifications to make your home safer or more accessible for senior mobility.
  • Coordination of Services: Employment of a professional who assists with determining needs, locating services, arranging for care and sometimes monitoring of care providers.

All policies have some conditions for which they exclude coverage. You may want to consider a policy with the flexibility to adapt coverage for new types of long-term care services (“future options”) which are developed after you’ve purchased a policy. Ask your advisor to review any exclusions, additional protections or other ways to save for future long-term care expenses before purchasing long-term care insurance.

Find the Right LTCI Policy for You

It can be difficult to think about what services you might need when you can no longer care for yourself, but you will rest easier if you can lift the burden off of your spouse or children with a plan for the future. Once you have discussed your needs and desires for care in the future and decided that you need insurance to help cover costs, it’s time to choose a policy that´s right for you.

Speak with your trusted financial advisor or insurance agent with experience in long-term care insurance to help you shop around. Prices, long-term care benefits and the possibility of rate increases can vary substantially from one company to another, so specialized knowledge will help you weigh the pros and cons of similar policies. Get quotes from several companies, then review their financial stability and customer service reviews before purchasing a policy.

Long-Term Care Insurance is part of a well-planned and strong financial safety net. A little planning now will mean saving money on services and receiving the care you deserve while protecting your assets to pass down to future generations.

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About Harold Goldman

I am the founder of FinancialSafetyNet.org, and a Retirement Planning and Long-Term Care specialist. I am also the President of Emes Insurance Services, Inc., a Murrieta based insurance agency designed to help people with Retirement Planning and funding for College. I believe in educating my clients to become financially competent in an effort to develop plans for guaranteed income, protection against loss and tax-advantaged growth. To contact me Call (844)-376-2265

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