Long-Term Care Insurance: Is it Worth It?

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Buying insurance is an important financial decision. There are several things to consider when you buy your insurance – what your deductible should be, which carrier you should choose, and the type of policy you ought to buy. Long-Term Care Insurance (LTC) is an overlooked type of insurance that can help a policy owner in their old-age or through chronic and critical illnesses.

With the rapidly increasing elderly population, long-term insurance can help many people in their time of need. The cost of a nursing home or hiring a private caretaker can take up a lot of financial resources. If you have long-term care insurance, then your insurance can cover those costs.

 

Many people wonder if a long-term insurance policy could really be worth the premium payments. The answer to that question is a complicated one, and we need to cover some of the basic aspects of long-term insurance before we can attempt to answer the question.

What is Long-Term Care?

If an individual struggles with a serious illness – such as a chronic illness, terminal illness, or a critical illness – they may need short-term or long-term help with activities of daily life. If the individual is chronically ill, or an elderly person, then they might need long-term care services that will help them with their personal needs as well as medical needs.

 

Long-term care or LTC can be provided by different parties – nursing homes, private caregivers, adult daycare centers, or by family members/loved ones. A person needs long-term care if they have trouble performing two or more of daily life activities, such as continence, moving, bathing, getting dressed, or eating.

Long-Term Care – Who Needs It?

Anyone can end up needing long-term care – there are no guarantees that you will not end up with a serious illness or require no assistance in your old age. That said, there are certain factors that can increase your chances of needing long-term care, and they are:

 

  • Age – A number of people end up needing long-term care during their old age. It could be the result of natural aging that leads to a loss of functionality in people, or it could be a chronic illness such as Alzheimer’s disease that requires a greater amount of care.
  • Gender – Statistically, it has been noted that women live longer than men. Because of their longer life expectancy, more women may end up needing long-term care.
  • Lifestyle choices – Diet and exercise are crucial for your health. Those who make poor lifestyle choices are more likely to end up needing long-term care.
  • Medical records and family history – Many serious illnesses are congenital – which means that you might inherit a debilitating disease if you have a family history of that disease.

If a person has a critical illness, then it is very likely that they will end up needing long-term care services. When someone is struggling from a disability or a serious medical condition that gets in the way of them fulfilling their basic needs, long-term care can help them immensely.

Will Medicare Cover my Costs if I’m Old?

While a considerable number of people will end up needing long-term care, most do not have any concrete plans regarding their options. There is a prevalent assumption that Medicare will see to their needs if they do end up needing LTC. Many also assume that they can solely rely on their health insurance should the need arise.

 

While health insurance and Medicare may cover certain expenses, the costs associated with custodial care services may not get covered. Medicare will only cover the costs for qualified individuals – mostly those who are too impoverished to prove for such services.

 

A lot of people will end up paying for the services out-of-pocket – and the costs can add up quickly. The basic cost of services, including adult daycare, can be about $1,674 per month. Assisted living facilities, private caretakers, or a room in a nursing home can get very expensive if you do end up needing long-term care for your illness.

Options to Pay for Medical Costs

The cost of long-term care services can be staggering, and it seems that they can always keep rising. But since LTC can be essential for those individuals who are struggling to function, the costs for LTC are covered by the following sources:

 

  • Personal funds – Long-term care can be funded by the individual through their personal funds from savings accounts, retirement savings, or proceeds from investments.
  • Health insurance programs funded by the Government – government funded programs such as Medicare and Medicaid may cover the expenses associated with nursing homes for qualifying individuals.
  • Veteran’s benefits – Veterans can usually access long-term care through their veteran benefits.
  • Services offered through Older Americans Act – The Older Americans Act, passed in 1965, sought to provide services and care for the aging demographic.
  • Long-term care insurance – If you are the policyholder of  long-term care insurance, then the costs associated with long0term care services may get covered by the insurance.

Cost of Long-Term Care Insurance

Unless you have plenty of disposable income or you qualify for Medicaid, the costs associated with long-term care can be staggering. Using personal funds can leave you with no savings or even with a significant amount of debt. So if you are at a higher risk of needing long-term care in your life, it is a prudent choice to opt for long-term care insurance.

 

The cost of long-term insurance, like every other type of policy, can vary depending on a number of factors such as age, gender, and marital status. To get an estimate of how much long-term insurance will cost you, you can talk with an insurance agent who has the license to sell LTC, or even get a quote online through your insurance company website. The average costs associated with LTC insurance are as follows, according to the 2019 National Long Term Care Insurance Price Index:

Long-term care insurance is not a cheap option. The insurance premium payments can cost anywhere from $2050 to $3050 depending on whom the insurance is for. It comes down to individual preference – would you rather pay for long-term care out-of-pocket, or would you prefer to be a policy owner of an LTC insurance policy?

 

Statistically, you may end up not needing long term care. According to the American Association of Retired Persons (AARP), 63% of Americans will not need to tap into their personal funds for long-term care, and 43% of individuals requiring long-term care will need it for a short period of time.

Alternatives to Long-Term Care Insurance

Even if you require long-term care, LTC insurance is not your only option. There are alternatives available that you may choose:

Life Insurance Policy With Long-Term Care Rider

If you are the policyholder of a permanent life insurance policy such as universal life insurance or whole life insurance, you can choose an add-on called a long-term care rider. A term life insurance policy can be converted into a permanent life insurance policy before you add the LTC rider. The LTC rider will let you access your death benefits from your life insurance policy while you are still alive -that is, if you end up with an illness for which you require long-term care. While the LTC rider will cover the costs associated with LTC services, the amount you receive will be deducted from your death benefit payout to your beneficiaries.

Critical Illness Insurance

Critical illness insurance is an insurance product that pays out a lump sum payment to the policy owner if they have been diagnosed with a qualifying illness. Critical illness insurance will cover the costs associated with heart attacks, strokes, cancer, or organ failure. While you will need a qualifying critical illness to receive the payout, the cash amount you receive can be used for medical bills as well as other expenses.

Long-Term Care Annuity 

An annuity is an insurance product that allows the purchaser to receive fixed amounts of payouts at certain intervals by paying a lump sum payment initially. An LTC annuity is a kind of deferred annuity with a long-term care rider. It splits the payment received from the purchaser into two parts. One part of it is meant to pay for long-term care expenses, while the other can be used for any purpose. If the LTC is not used by the purchaser, then a beneficiary or a loved one can receive the payout once the insurer passes away.

Life Settlement

If you are over the age of 65, you can sell your life insurance policy for cash – and this is known as a traditional life settlement. By selling your life insurance to a life settlement provider, you receive a lump sum payment, or cash paid out over a period of time. In exchange, the life settlement company becomes the beneficiary of your death benefits. You may not receive the policy face value, but the payout will be more than the cash surrender value of the policy.

 

You may even opt for a viatical settlement – where you can sell your policy if you have a qualifying terminal illness or chronic illness.

Health Savings Account

You can choose to insure yourself by depositing money in a Health Savings Account (HSA). If you contribute to an HSA, the amount of money you deposit will be pre-tax dollars – so it carries a tax advantage. If you need to withdraw an amount from the account to pay for long-term care, then it will be exempted from taxes.

When Should I Get Long-Term Care Insurance?

It is advisable that a policyholder purchases an LTC insurance early in their adult life, but a number of insurance companies will not allow you to receive a policy if you are younger than 30 years old. The older you get, the higher your LTC insurance premium payments will be. For the same insurance coverage, a 50-year-old will have a smaller premium payment than a 60-year-old. If your age is too advanced, or your health is deteriorating, then an insurance company may not issue a policy for you.

A Good Long-Term Care Policy

The long-term care

insurance coverage you receive will depend on your insurance company and the type of policy you have chosen. Not all long-term care insurances are the same, and there are a few things you must look at before you purchase your insurance:

 

  • Benefit period – The benefit period is the amount of time that your insurance policy will cover you. If you choose a longer benefit period, you will have to make higher premium payments.
  • Waiting period – The waiting period is the amount of time you will need to wait before the insurance provider will start paying benefits. If you have a shorter waiting period, then you will need to make higher premium payments.
  • Inflation protection – Inflation can have a negative impact on the value of your money. If you choose a long benefit period, then inflation can lower the value of your policy. You can opt for an inflation rider – an add-on that will add an assumed rate of inflation to your policy and provide protection to its value. A higher assumed rate of inflation means your premium payments will also be higher.

The Key Takeaway

Before buying a long-term health insurance, there are certain factors you will need to keep in mind:

  • Long-term care insurance is different from the benefits you may receive from Medicare or health insurance.
  • If you can afford to self-insure, you should tally the costs of paying for long-term care services out-of-pocket with paying for LTC insurance.
  • You may consult a financial advisor to understand what the best option for you is.
  • After you consider all the factors and decide to purchase LTC insurance, you should decide your insurance coverage and what your premium payments will be.

If you think purchasing long-term care insurance is the best option for you – then opting for it can be worth the premium payments.

Don’t lose your lifelong investment. Discover your policy’s value today.

FAQs

Is a LTC insurance the same as LTC rider?

No. An LTC rider is an add-on to your life insurance policy that will provide you with your death benefits while you are still alive. An LTC insurance is a policy that will cover the policyholder’s costs for long-term care.

Should I sell my life insurance policy instead of purchasing LTC insurance?

It depends on your personal situation. If you no longer feel the need for a life insurance policy, then you can sell it. If you are at a very high risk for needing long-term care, then LTC insurance is a good choice - where selling your life insurance can be a safety net for you.

Will Medicare/ Medicaid cover my costs for long-term care?

It depends. You need to qualify for the programs in order to receive the benefits.

Don’t lose your lifelong investment. Discover your policy’s value today.