A Guide to Long-Term Care Insurance

It’s a fact, people today are living longer, and the odds of requiring some sort of long-term care increases as you get older. As the costs of home care, nursing homes, and assisted living rise, you may wonder how you’re ever going to afford long-term care. One solution gaining in popularity is long-term care insurance.

What is long-term care?

While, most people associate long-term care with the elderly, it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living, such as: bathing, dressing, or eating due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including: private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

Why do you need long-term care insurance?

Even though you may never need long-term care, you’ll want to be prepared in the event you do, because long-term care is often very expensive.

Did you know…

• Approximately 52% of people will need long-term care at some point during their lifetime after reaching age 65.¹
• Approximately 8% of people between the ages of 40 and 50 will have a disability that may require long-term care services.¹
• The cost for a semi-private room in a nursing home is $6,844 per month, or $82,128 per year.²
• The cost for a private room in a nursing home is $7,698 per month, or $92,376 per year.²
• The cost for a one-bedroom unit in an assisted living facility is $3,628 per month.²
• The cost for services in an adult day healthcare center is $68 per day.

Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements. In most cases, you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don’t pay for most long-term care expenses, you may need to find alternative ways to pay for long-term care. One option is to purchase a long-term care insurance policy.

How does long-term care insurance work?

Typically, you pay a premium, and when benefits are triggered and you need long-term care, the policy pays a selected dollar amount per day, for a set period of time, for the type of long-term care outlined in the policy.

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living.

Some policies, however, will begin paying benefits only if your doctor certifies the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

What do you need to know about long-term care insurance policies?

Before you buy long-term care insurance, it’s important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A.M. Best, Moody’s, and Standard & Poor’s to make sure the company is financially stable.

When comparing policies, you’ll want to pay close attention to these common features and provisions:

• Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). This is also known as the waiting period.
• Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
• Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
• Optional inflation rider: Protection against inflation.
• Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g. nursing home, assisted living facility, at home).
• Pre-existing conditions: The waiting period (e.g. six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
• Other exclusions: Whether or not certain conditions are covered (e.g. Alzheimer’s or Parkinson’s disease).
• Premium increase: Whether or not your premiums will increase during the policy period.
• Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
• Grace period of late payment: The period during which the policy will remain in effect if you are late paying the premium.
• Return of premium: Return of premium or non-forfeiture benefits if you cancel your policy after paying premiums for a number of years.
• Prior hospitalization: Whether or not a hospital stay is required before you can qualify for long-term care insurance benefits.

When comparing long-term care insurance policies, you may need assistance. Consult a financial professional, attorney, or accountant for more information.

What’s it going to cost?

The costs of long-term care insurance depends on many factors, including the policy type (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

Is long-term care insurance right for me?

Long-term care insurance is not for everyone. Whether or not you should buy depends on a number of factors, such as age and financial circumstances. Consider purchasing a long-term care insurance policy if some or all of the following apply:

• You are between the ages of 40 and 84.
• You have significant assets you would like to protect.
• You can afford to pay the premiums now and in the future.
• You are in good health and insurable.

Should you make long-term care insurance part of your retirement plan?

The cost of long-term care is expensive and you may have difficulty affording extended care if you need it with out-of-pocket money. Investment Services, provided by CUSO Financial Services, L.P. (CFS),* can review your current situation and help determine if long-term care insurance is needed for your specific situation and future goals. Contac