Long Term Care Insurance

The Need

According to the U.S Department of Health and Human Services statistics, nearly 70% of 65-year-old people will need long-term care services or support. Typically, women need care for an average of 3.7 years, while men need it for 2.2 years.

Medicare Benefits

Medicare covers short nursing home stays or limited amounts of home health care when you require skilled nursing or rehab only. It doesn’t pay for custodial care, which includes supervision and help with day-to-day tasks. You will have to rely on family or pay for the care yourself, if you don’t have insurance to cover long-term care. Help is possibly available through Medicaid, the federal and state health insurance program for those with low incomes, but first, you must prove you’ve exhausted almost all of your savings.

Long Term Care Insurance

1. To have more choices for care. Unless you are fortunate enough to have a family member with the time and expertise needed, the more money you can spend, the better the quality of care you can get. If you have to rely on Medicaid, your choices will be limited to the nursing homes that accept payments from the government program. Medicaid doesn’t pay for assisted living in many states.

2. To protect savings. Long-term care costs can very quickly deplete your  retirement savings. The median cost of care in a semiprivate nursing home room is $93,072 a year, according to Genworth’s 2020 Cost of Care Survey. The services of a home health aide average around $55,000 and an assisted living facility is around $52,000. More recent figures are not available, but it’s reasonable to expect a rise.

How LTC Works

You start by choosing the amount of coverage you want, with policies generally capping the amount paid per day and per lifetime. You fill out an application that includes health questions, and the insurer may ask to see medical records and interview you by phone or face to face. Premium payment begins once you’re approved for coverage and the policy is issued.

Under the terms of most long-term care policies, you’re eligible for benefits when you can’t do at least two out of six “activities of daily living,” (called ADLs) on your own, or you suffer from cognitive impairment, such as dementia.

ADLs

The activities of daily living are:

  • Bathing.
  • Caring for incontinence.
  • Dressing.
  • Eating.
  • Toileting (getting on or off the toilet).
  • Transferring (getting in or out of a bed or a chair).

Claims

When you submit a claim for care, the insurance company will review medical documents from your doctor and may send a nurse to do an evaluation. Before approving a claim, the insurer must approve your plan of care.

Under most policies, there is an “elimination period,” during which you’ll have to pay for long-term care services out of pocket for a certain amount of time, such as 30, 60, or 90 days, before the insurer starts reimbursing you for any care. The policy starts paying out after you’re eligible for benefits and usually after you receive paid care for that period. Most policies pay up to a daily limit for care until you reach the lifetime maximum.

There are policies that waive the elimination period as an optional benefit.

How Long-Term Care insurance is Priced

The premium depends on a variety of factors, including:

  • Your age and health: The older you are and the more health problems you have, the more you’ll pay for a policy.
    Gender: Women generally pay more than men because they live longer and have a greater chance of making long-term care insurance claims.
    Marital status: Premiums are lower for married people than for single people. In fact, some companies offer a shared care option for couples when both spouses buy policies. This lets you share the total amount of coverage, so you can draw from your spouse’s pool of benefits if you reach the limit on your policy.
  • Insurance company: Prices for the same amount of coverage may vary among insurance companies. So, it’s a good idea to compare quotes from different carriers.
  • Amount of coverage: As you would expect, premiums are higher for richer coverage, such as higher limits on the daily and lifetime benefits, cost-of-living adjustments to protect against inflation, shorter elimination periods, and fewer restrictions on the types of care covered.

The Bottom Line

According to the 2020 price index from the American Association for Long-Term Care Insurance, a single 55-year-old man in good health buying new coverage can expect to pay an average of $1,700 a year for a policy with an initial pool of benefits of $164,000. Those benefits compound annually at 3% to total $386,500 at age 85. For the same policy, a single 55-year-old woman can expect to pay an average of $2,675 a year. The average combined premiums for a 55-year-old couple, each buying that amount of coverage, are $3,050 a year.

Tax Advantages of Buying Long Term Care insurance

Long-term care insurance may have some tax advantages if you itemize deductions; especially as you get older. Federal and some state tax codes let you count part or all of long-term care insurance premiums as medical expenses, which are tax deductible if they meet a certain threshold. The limits for the amount of premium you can deduct increase with your age.
Note that only premiums for tax-qualified long-term care insurance policies count as medical expenses. Such policies must meet certain federal standards and be labeled as tax-qualified. So be sure to ask if a proposed policy is tax-qualified.

A Caveat

 The price could go up after you buy a policy; prices are not guaranteed to stay the same over your lifetime. Many policyholders saw spikes in their rates in the past several years after insurance companies asked state regulators for permission to hike premiums. They were able to justify rate increases because the cost of claims overall were higher than they had projected. Regulators approved the rate increases because they wanted to make sure the insurance companies would have enough money to continue paying claims.

Contact me for more information: (434)373-0051.

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