Do I Need Long-Term-Care Insurance?

Many people do not fully understand which medical benefits long-term-care insurance covers. Another key issue is the age at which a person should purchase coverage. With Americans now living longer, most will need some form of long-term care after they retire. The type and amount of benefits paid depends on the kind of long-term care policy a person chooses.

Significance

• The cost of long-term care can devastate a family's finances, whether the expenses incurred are in the form of help in the home, residence in an assisted-living community or admission to a skilled nursing facility. Long-term-care insurance can help to pay for these expenses. Depending on the level of care required, the average cost of long-term care can range anywhere from $30,000 to more than $100,000 in just one year. Long-term care is expensive, and not only for the sick or disabled person. The expenses related to long-term care can be a financial burden on other family members as well. Adult children who try to help to cover the financial costs of care for aging parents often fail to realize that long-term care comes at other costs. Caregivers can lose work--and therefore, wages and other benefits--when caring for an ailing parent. That's not to mention the physical and emotional strain associated with caregiving.

Benefits

• Long-term-care insurance is one way for people to protect their financial assets as they grow older. With the rising costs of health care, long-term-care insurance helps to provide the funds to cover the cost if long-term care services are needed at some point in the future. Many long-term-care insurers now allow consumers to customize benefits. Married couples can save up to 40 percent, as most insurance companies offer discounts to couples who choose to be on the same policy. In addition to the obvious financial benefits, some long-term-care policies offer tax advantages. The premiums for tax-qualified long-term-care insurance policies are based on the policyholder's age and the rate of inflation. In order to take the tax deduction and deduct premiums paid for long-term-care insurance as a medical expense, the policyholder's total medical expenses for the year must exceed 7.5 percent of adjusted gross annual income.

Misconceptions

• Most people assume that Medicare or Medicare supplemental insurance will cover the costs of long-term-care services provided in a nursing home. But Medicare pays for home health-care services or care received in a skilled nursing facility only if it is deemed medically necessary, and only for a limited period of time. Even if an individual meets the conditions specified by the Medicare guidelines, Medicare will pay the first 100 days of skilled care, and only if a person was in the hospital for at least 3 days before being admitted to a skilled nursing facility. Unfortunately, that only covers about 5 percent of the cost of long-term care. The news isn't good when reports show that the average length of a nursing-home stay is just over 1 year. Even more alarming is that another 10 percent of those individuals entering nursing homes remain there for 5 years or more.

Considerations

• Because various kinds of long-term-care insurance products are available to consumers, it is important to research several companies before choosing a policy. The first rule is to not be pressured by an insurance agent to make a quick decision. Review all the options, then ask numerous questions. It takes time to find the right policy that will not only be affordable for your budget but will also meet your needs. Once you have narrowed down the choices and are considering a particular company, make sure the agent is licensed to sell long-term-care insurance in your state. Check the company's rating as well. Contact your state's Insurance Department if you have questions or would like more information. Keep in mind, too, that you can be denied coverage if you have certain pre-existing medical conditions.

Types

• Various types of care are covered by long-term-care insurance policies. Custodial care does not target rehabilitation; it provides assistance with the daily activities of living, whether in the home setting or in a nursing home. Custodial care can range from a couple of hours each day for a few days each week to care around the clock, 7 days a week. Intermediate care usually involves working with health-care professionals a few times each week, the purpose of which is to improve health and the level of functioning. Skilled nursing care is a higher level of care usually provided in a nursing home setting on a daily basis. Individuals receive a range of medical services, the focus of which is rehabilitation following an accident, surgery, stroke or other serious illness.

Features

• Long-term-care insurance policies have certain conditions that must be met before the policy will begin to pay benefits. Typically, a doctor must certify that the care is necessary. The insured must also be unable to perform without assistance a specified number of activities involved in daily living. Most policies are set up to pay daily benefit amounts, with a lifetime maximum. Depending on the policy you choose, benefits can last anywhere from 2 years to a lifetime. If you select lifetime coverage, you will pay higher premiums. Some policies are designed to begin paying benefits with the onset of dementia or other cognitive impairment, despite good physical health. Other long-term care policies guarantee that you will not lose your bed in a nursing home if you must be hospitalized.

Expert Insight

• Long-term-care professionals recommend making an informed choice. Some people may never need long-term care, but the chances are greater that you will. If you don't have long-term-care insurance, the money for care must be paid out of pocket--in most cases, from retirement funds and other assets. Insurance experts warn not to wait until you are older to buy a policy. Premiums increase with each birthday. If you wait until after the age of 65 to purchase long-term-care insurance, it will cost you significantly more, and you run a greater risk of being denied because of existing health problems. The best time to buy a policy is when you are in your 40s or 50s, when the premiums will be lower. Another factor to consider is inflation protection: A policy needs to keep up with inflation by increasing the value of the daily benefit on an annual basis.