Choosing Long-Term Care Insurance

When Alzheimer’s disease, an accident, a stroke or aging leaves you incapable of performing activities on your own, long-term care — in a nursing home, your own home or another residential setting — may become an essential part of your daily life.

But most health insurance programs do not typically cover long-term care expenses. The state-funded Medicaid programs, for example, pay for some long-term care, but only if you have already spent most of your savings or other assets.

As baby boomers see their parents grow old and begin to understand the costs of taking care of them as they age, they are seeking ways to cover those costs for themselves. For many, purchasing long-term care insurance is the most effective way to do this.

A long-term care insurance policy helps you pay for long-term care services in whole or in part. With such a policy, you pay monthly premiums, and in the event you need long-term care, your costs are covered as specified in your policy. A long-term care policy may also give you choices about what long-term care services you receive and where you receive them.

Protecting your assets, freeing your family from concern and controlling where and how you receive long-term care services are all good reasons to investigate this option.

What does long-term care insurance cover?

While long-term care policies vary greatly with respect to premiums and benefits, most policies cover the cost of

• nursing home care
• in-home assistance with daily activities
• adult daycare and other community-based programs
• assisted-living services, including meals, health monitoring and help with daily activities provided in a setting outside the home daily nursing supervision for those with chronic illnesses

Should you buy long-term care insurance?

Whether long-term care insurance fits into your financial planning picture is a question best answered with the help of your investment, tax or legal professional. The decision on whether to buy will depend mostly on your

• age
• health
• retirement goals
• income

How much coverage should you buy?

Long-term care policies come with a variety of features. But three key decisions you make — regarding the daily benefit amount, the benefit period and the waiting or “elimination” period — will greatly affect the cost of your policy.

Reasonable daily benefit Long-term care policies pay a per-day benefit. Nationally, the median cost of private room nursing home care is $8,821 per month, but costs vary considerably depending on the location and level of care. How much of a daily benefit do you want? Semiprivate rooms are only $7,756 per month. The higher your daily amount, the more choices you may have.¹

Lifetime benefit period When buying insurance, some recommend you estimate how long a potential stay in a nursing home may last and buy accordingly. Some investment and insurance professionals may recommend a policy with a lifetime benefit period. Such policies, though markedly more expensive, eliminate the worry that coverage will run out.

Cost-effective elimination period Policies with short elimination periods — those that begin paying benefits after your thirtieth day in a nursing home, for example — are expensive. If your savings would cover a longer period, you may want to consider a longer elimination period, which will reduce your cost.

Additional features to consider

Inflation rider Almost half of all people who live in nursing homes are 85 years or older.² If you buy a policy at age 65, you might not need coverage for almost 20 years. Over that time, the average cost of a nursing home stay might rise considerably due to annual inflation rates. The purpose of an inflation rider is to help ensure that your daily benefit amount keeps pace with the rising cost of long-term care.

Home health care option In-home custodial care accounts for most long-term care expenses. That is why many people choose to purchase a policy that covers home health care. Often divided into custodial care, intermediate care and skilled care, in-home care is not always covered by long-term care insurance. Some people who require long-term care may need help with daily activities before they require nursing home services

Must-knows about every long-term care policy

Benefit triggers Coverage often begins when a doctor certifies that you need assistance in performing some of the activities of daily living, such as dressing or bathing. A policy with an additional trigger, “medical necessity,” may be a good choice because it makes it easier to qualify for benefits. On the other hand, the term “medically necessary” carries a different meaning. If a nursing home stay must be defined as medically necessary to trigger benefits, you may need to prove that a specific medical condition exists before your admission to a nursing home or other facility is covered.

Benefit/Payment stoppages Often, your first visit to a nursing home is not your last. Some policies will count your initial stay in a nursing home, even if you do not reach your elimination period, toward that period. Example: You stay for 20 days, but your elimination period is 30 days. Other policies will restart your elimination days at zero when you are admitted a second time. Under some policies, you may be allowed to stop paying premiums when you receive benefits and then resume paying when you are discharged.

Nonforfeiture rider Most long-term care policies have no value if they are canceled or if premiums are not paid. A nonforfeiture rider will continue coverage (with reduced benefits) even if you discontinue paying premiums.

Limiting premium increases Insurers cannot increase the premium of a specific individual, but they can raise the premiums for a certain class of policy or increase a premium as you age. Be sure that you understand under what circumstances your premiums can and cannot increase.

Guaranteed renewability A guaranteed renewable provision ensures the insurer cannot cancel or refuse to renew your policy as long as you have been paying your premiums.

Deducting premiums

You can deduct payments that you have made for qualified long-term care insurance contracts up to a limit based on the age of the person being insured.

• To qualify, a long-term care insurance contract must provide coverage only for qualified long-term care services, such as services that are both necessary and meet certain other requirements.
• The person receiving the care must also have a long-term treatment plan prescribed by a licensed health care provider.
• The insurance contract must
  – be guaranteed renewable
  – provide that refunds (except refunds due to death or complete cancellation of the policy) and dividends are used only to reduce premiums or increase benefits
  – not provide for a cash surrender value or money that can be borrowed
  – not pay items already reimbursed under Medicare

When to buy

The cost of nursing home care and home care increases the longer you wait, and waiting carries an additional risk: If you wait until you reach your 70s or 80s, failing health, policy restrictions or cost could make it more difficult to purchase long-term care insurance.

Buyer beware!

Because a long-term care insurance policy is a long-term plan, you will want to shop for a policy as you would for any long-term product.

• Check with several companies before making a decision.
• If you cannot understand what a policy does and does not cover, it may not be the right policy for you.
• If you feel pressured to buy, it may be better to wait.
• Review policies carefully to avoid buying more than one policy that does the same thing — you would not insure your car twice.

Another Step

Be sure to check with your state’s commissioner of insurance or Better Business Bureau before you buy a policy.
They will maintain a list of those firms about which they have received complaints.

Whether to buy a long-term care insurance policy is a decision with long-term consequences. Make sure you read over any literature you receive from a prospective insurer carefully.

As with all financial decisions, you may want to consult with your investment, tax or legal professional before you decide to buy a specific policy.

KEY POINTS

• Most health insurance programs do not cover long-term care costs
• Most of the costs of caring for the elderly occur before they enter a nursing home
• Buying long-term care insurance may help cover long-term care costs.

Resources

American Association for Long-Term Care Insurance
aaltci.org

AARP
aarp.org

US Department of Health and Human Services, Administration on Aging
hhs.gov

Internal Revenue Service
irs.gov

State Health Insurance Assistance Program (SHIP)
shiptacenter.org

-

Important Disclosures: 

MFS Fund Distributors, Inc. is not  affiliated with LPL Financial or StrateFi Wealth Management.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. 

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. 
Investing involves risks including possible loss of principal.

The information presented should be regarded as educational in nature and not meant to provide specific advice. Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.

¹ Source: Genworth Cost of Care Survey, 2020.
²Source: HealthinAging.org