"Aging is not lost youth, but a new stage of opportunity and strength." —Betty Freidan
When you think about long-term care, it probably doesn’t seem like a new stage of opportunity and strength. In fact, it might seem like just the opposite. But if you have a plan for dealing with the side effects of aging or disability, the whole process becomes less scary.
Long-term care insurance helps pay for the cost of care as you age, including in-home care, nursing homes, and assisted living.
What does long-term care insurance do?
It helps you cover the cost of assistance with daily living should you become disabled or otherwise unable to care for yourself. For most people, this happens when they age and can no longer manage tasks like cooking, eating, washing, and dressing. You can use the insurance money to pay for things like an in-home health aide, an assisted living facility, or a nursing home.
Did you know that Medicare, Medicaid, and most private health insurance plans will not cover the cost of long-term care? It’s true. This is because tasks like dressing or bathing, for example, aren’t considered part of a specific medical treatment. Instead, they are considered “ADLs,” or “Activities of Daily Living.”
Your options then become (a) depending on family members to help with your care, or (b) paying out-of-pocket for a home health aide, assisted living facility, or nursing home.
But what if there were a third option…a better option? There is. It’s called long-term care insurance.
What does it cover?
Every policy is a little different—you have the flexibility to choose a policy that covers your care up to a specific dollar amount, a specific number of years, or that pays for specific services.
For example, your policy might pay for long-term care for 2 years, 5 years, for the rest of your life, or for the cost of care up to $500,000 or $1,000,000. Keep in mind that the higher your coverage amount, the more you’re likely to pay on a monthly basis.
Most policies allow you to arrange for care in a variety of settings, depending on your specific needs:
- In your own home
- Receive on-site help with bathing, eating, dressing, etc.
- Receive skilled medical care as needed
- Receive physical therapy or rehabilitation help as needed
- Adult day care service centers
- Residential care facilities
- Assisted living facilities
- Nursing homes (including special care facilities for Alzheimer’s patients)
- Hospice care
What does it cost?
You probably know what we’re going to say—it varies. Here are a few sample figures released by a government clearinghouse:
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If you’re thinking those numbers are high, think again. The cost of care is much higher. For example, in 2007, the average annual rate for a private room in a nursing home was $65,700. In 2012, it was $81,030—or about $6,752 per month. Would you rather pay $800 per month now, or almost $7,000 per month later?
When's the best time to buy a policy?
If you're young and healthy, now is the time to buy long-term care insurance.
Now. (We’re not kidding.) The best time to buy is when you’re young and healthy.
If you apply when you’re young and healthy, the insurance company knows two things: (1) you’re not sick yet, which means you don’t need immediate care, and (2) there’s a chance you might not need long-term care at all. In either case, they won’t be paying out on your behalf anytime soon. This means you represent less of a risk and they’ll charge you less as a result. Your long term care insurance cost will be less over the long haul.
If you wait to apply until you’re already sick, the insurance company knows they’re going to have to pay out on your behalf. This means they’ll charge you more. It’s also possible that you could be refused coverage. Here are a few situations that may keep you from getting insured:
- You already pay for long-term care
- You already have a form of dementia, such as Alzheimer’s Disease
- You already have a personal history of strokes
- You already have a serious medical condition requiring long-term care, such as multiple sclerosis, Parkinson’s Disease, metastatic cancer, or AIDS
When does it start paying out?
Most policies have a “trigger,” which is a set of circumstances you must fulfill before they’ll start paying. This is usually when you need help with a certain number of ADLs (2 out of 6, for example).
Another good reason to buy a policy when you’re young and healthy is the waiting period (also called the “elimination period”). This is the exclusion period written into most policies that specifies how long you have to wait to receive benefits. When you buy a policy, you’ll get to pick the elimination period you want, whether it’s 30, 60, or 90 days. Keep in mind that a shorter elimination period will mean a higher cost. Whether you have a waiting period will also depend on the long term care insurance company you select.
Some policies also require that receive care during the elimination period, which may mean you’re paying for care out-of-pocket. This is the insurance company’s way of ensuring the care is necessary and required. You aren’t likely to pay out-of-pocket for care you don’t need, are you? We didn’t think so…and the insurance companies don’t either.
If you’re ready to add long-term care to your portfolio of financial tools, click the orange button below to get started.
National Clearinghouse for Long Term Care Information
Genworth 2012 Cost of Care Survey