For millions of baby boomers, Gen Xers and millennials who don’t have a long-term care strategy, the pandemic has sent a message: act now or it will cost you later.
It is a serious task, no matter your financial situation, to plan for the possibility of some future disability. But putting it off until too late can have dire consequences for your savings. The reality is that more than two-thirds of Americans over age 65 will need some form of daily care for an average of three years in their lifetime, according to the Urban Institute.
These costs can add up quickly. A stay in a nursing home can cost upwards of $100,000 a year, and even care in your own home can easily run to $5,000 a month or more.
These high costs help explain why many people depend on family members for their care. “About 5% of the population in need of long-term care live in nursing homes, another 5% live in assisted living, which means that about 90% of people receive care at home, and most of it falls on the caretakers. family members,” says Howard Gleckman, a senior fellow at the Urban Institute and an expert in long-term care. If you don’t have family members willing to take care of you – or if your needs turn out to be more than they can handle – the situation can get dire.
But unless you’re rich enough to pay out-of-pocket for your care or are willing to spend to qualify for Medicaid, you’ll need to find funding – and the product many people turn to for that is long-term care, or LTC, sure.
How does LTC insurance work?
An LTC insurance policy will help cover the costs of any care needed if you end up with a chronic medical condition, disability, or disorder, such as Alzheimer’s disease. Most policies will reimburse you if this care is provided in your home, a nursing home, an assisted living facility, or an adult day care center.
You become eligible for benefits only when you are unable to perform at least two “activities of daily living”, or ADLs, on your own. This usually includes showering or showering, going to the bathroom, dressing, eating, and getting in and out of bed or a chair.
Today’s LTC Options
First, it’s not Medicare, despite what many people think, says Mary Ballin, a wealth consultant at Perigon in San Francisco. This federal insurance program covers many things after you turn 65, but long-term care is not one of them. “Medicare will pay a little bit for a stay in a nursing home for rehab, but it’s only good for up to 100 days for a lifetime, and you need to stay in the hospital for three days before it starts,” she says.
LTC private insurance options are limited today because insurance companies misjudged early 2000s market returns and the longevity of people who buy the policies. As a result, insurers have lost money and stopped providing coverage: the number of companies offering LTC insurance has dropped to just about a dozen in 2020, according to the National Association of Insurance Commissioners, from just over 100 in 2004.
While traditional plans are still offered today, about 90% of the policies sold are now what experts call “hybrid” policies, i.e. a life insurance policy that is tied to an LTC policy (also called a “hybrid” policy). extension”) or has a pilot attached, says Erik Miller, product strategist at Life Happens, a nonprofit consumer education organization in the life insurance industry.
An LTC or chronic illness rider allows you to use some or all of your life insurance death benefit while you are still alive to pay for long-term care expenses (otherwise the money would go to your beneficiary). These types of add-ons, as well as the linked products, are attractive to many because they solve the use-or-lose problem of traditional policies – if you don’t need to use these funds for LTC, you still get the death benefit.
But the insurance industry doesn’t make it easy for the consumer: Figuring out which hybrid plan to buy requires wading through a maze of provisions and fine print for each product.
How to choose the right LTC policy
With any of these policies, you can pay a fixed amount – a typical premium for an individual will fall between $50,000 and $150,000 – or pay that premium through fixed annual payments over 5, 7, 10 or sometimes 20 years.
What you can get for the cost of your policy can vary significantly due to variables, including your age, general health and medical history, how long you want coverage, and your gender (as women live longer and must spend more time in long-term care).
Also, you need to think about which aspects of a policy are most important to you. In general, says Miller:
If you are more interested in knowing that you have good LTC benefits in place, a tied benefits policy may be better for you as it tends to offer better LTC benefits than a lifetime policy with an LTC passenger. Also, only with a tied benefit policy can you add an inflation option (you will need to pay more for this), which allows your benefit amount to grow to at least 5-6 times what you paid for it.
If your primary focus is having a death benefit for your heirs, but you want the comfort of knowing that you can use that money for LTC if needed, a life policy with an LTC passenger or something called a chronic illness carrier would probably be better for you.
A chronic illness pilot typically works the same way as an LTC pilot, but is not regulated by the federal government – LTC policies are subject to federal tax and language rules – so it is not standardized across insurers in the way that LTC riders are, warns Miller. Because of this, he says to make sure you review all the details with an insurance agent before you buy, so you know exactly what provisions you’re getting.
Whatever you do, if you’re approaching or in your 50s, now is the time to figure out what kind of planning will work best for you, because the healthier and younger you are, the less your policy will cost in the long run, Ballin says. .
Write to firstname.lastname@example.org