Long Term Care Insurance

Your Family Will Thank You

Long-term care

Long-term care is help you may need later in life for chronic illnesses or disabilities. It pays for assistance with activities of daily living (ADLs), such as eating, bathing, dressing, toileting, transferring, and continence.

This type of insurance is typically used to care for the elderly as their health deteriorates but can also be purchased to cover younger people who have chronic health issues.

Although one in two people will need some kind of long-term care, most people do not have it.

Why important

There is a 70% chance you will need some type of long-term care after 65!

Long-term care:

  • Helps you get the care you need in the setting of your choice
  • Allows you to maintain your independence when struggling with health issues
  • Protects your spouse and family from full-time caregiving
  • Lessens the financial burden on family and dependents
  • Pays for home health aides and private nursing homes that can be very expensive
  • Is not covered by most health insurance and government programs
  • Can be a source of tax-free income if you choose a qualified plan
  • Long-term care insurance premiums may be tax deductible

What long-term care insurance covers

Common types of coverage included in long-term care policies:

  • Nursing home care
  • 24-hr. live-in facility with full-service care
  • Assisted living
  • 24-hr. live-in facility for those with fewer needs, such as an apartment, but with some services provided
  • Adult day care
  • Daily program providing assistance with daily tasks outside the home
  • In-home care
  • Service providers that come to your home to help with daily tasks
  • Home modifications
  • Such as adding ramps or lifts to make the property wheelchair accessible
  • Future service options
  • If new technology and services are developed in the future, some policies offer flexible coverage to accommodate advancements
  • Hospice or palliative care
  • Care for end-of-life needs

Not all policies are created equal, so be sure to check the specific terms of any policy you consider to ensure it covers the type of care and services you may need.

What it doesn’t cover

Some policies will not pay benefits if you:

  • Haven’t been admitted to a hospital or nursing facility for a certain number of days
  • Have a history of substance abuse, mental illness, or self-harm
  • Require care due to certain conditions, such as heart disease, diabetes, cancer, or Alzheimer’s

Like any other insurance policy, legal requirements vary state-by-state, so be sure to check the fine print for exclusions.

How it works

Benefit Triggers

Most long-term care policies do not begin paying benefits until the policyholder meets certain conditions. Called “benefit triggers,” these conditions typically revolve around the policyholder no longer being able to perform certain “Activities of Daily Living” (ADLs) unassisted, such as:

  • Bathing
  • Eating
  • Dressing
  • Using the bathroom

Once the policyholder cannot perform a certain number of these ADLs unassisted (usually 2–3), the long-term care policy will begin paying benefits to cover the cost of necessary care.

Waiting Periods

Most long-term care policies also include a waiting period, also called an “elimination period,” which delays the payment of benefits for a set number of days after you qualify for benefits.

Waiting periods can be anywhere from 0 to 100 days. A cheaper policy would have a longer waiting period, but you would then have to pay for your own care until benefits are paid.

How it Pays

Different kinds of long-term care policies are available, and they can pay out in different ways. Be sure to do your research to find a policy that suits your needs.

  • “Indemnity” or “Per Diem”—Some policies carry a specific limit for daily expenses. You receive this amount for every day you qualify for care regardless of what you actually spend. The number of days you are covered is fixed.
  • “Expenses incurred”—Some policies only reimburse you for long-term care costs that you actually incur. You pay out of pocket for services you need and submit claims for reimbursement. There are daily, weekly, or monthly limits for how much you can claim and an overall policy limit.
  • “Integrated”—A newer kind of policy combines these benefits. It offers a set pool of money that can be used as you prefer, with daily benefit limits. If you use less than your daily maximum benefit, you can make your coverage last longer.

Premiums

The annual price, or “premium,” of a long-term care policy is determined by a number of factors:

  • Your age and health
  • Premiums are lower if you purchase when you’re young and healthy.
  • Annual premiums go up as you age.
  • If you wait to purchase a policy until later in life or after you become ill or disabled, you may be denied coverage.
  • Waiting period
  • The shorter the waiting period, the higher your premium.
  • Daily and lifetime benefit limits
  • Any additional options you choose, such as:
  • Having benefit amounts increase with inflation.
  • A nonforfeiture option that offers some protection if you drop your policy. You may receive a portion of the premiums you’ve already paid, or your policy may simply adjust to have a lower benefit amount or cover fewer days. Adding this option typically increases prices by about 20%–100%.

Good to know!

  • Policies are “guaranteed renewable”—The insurance company cannot cancel your policy as long as you pay your premiums on time.
  • Protects consumers from losing coverage due to age or illness.
  • Once your policy is in place, you have coverage as long as you pay on time.
  • Purchasing a policy when you’re younger, in your 40s or 50s, and in good health will result in lower annual premiums. The older you are when you purchase a long-term care policy, the more expensive it will be.
  • If you become unable to pay your premiums later in life, your policy can be terminated, and you will lose everything you have paid in up to that point.
  • Be sure to think about your future finances when selecting a policy.

Common questions about long-term care insurance

  1.  Is it the same as disability insurance?

Answer: No. Disability insurance covers you if you become unable to work and does not cover you after you retire. Long-term care insurance covers you at any time if you become unable to take care of yourself or perform necessary daily tasks.

  1. What is the application process?

Answer: To be approved for coverage, underwriters will interview you and look at your medical records to determine your risk profile. Certain conditions, such as past narcotics use, being on disability benefits, or being very obese, may result in being denied coverage.

  1. What will happen to the premium if you die?

Answer: It depends. If you have a policy with your spouse that allows for a shared benefit, benefits that remain after you die will be passed to them. Some policies also allow a portion of your premiums to be left to your beneficiary.

  1. What if you never need it?

Answer: Just like all insurance, long-term care coverage is there in case you need it. If you don’t, then you’ve likely had a long and healthy life. Just like having homeowners insurance but never making a claim, the peace of mind may be worth the cost.

  1. Does Medicare cover the same costs?

Answer: Medicare is not designed to cover long-term care costs indefinitely. In general, Medicare only covers these costs for a short period if they are the result of injury or illness and typically only covers a portion of costs. Medicaid will cover some long-term care costs but is only available to the very poor.

Not-so-fun facts

  • 70% of people over the age of 65 will require long-term care at some point in the years ahead.
  • 40% of adults in the United States will require long-term care before they reach 65.
  • By 2050, the number of people using long-term care is expected to skyrocket to 27 million, more than doubling since 2000.
  • Women are more likely than men to be on long-term care for an extended time.
  • Long-term care costs can vary wildly by state. In 2016, the most expensive state for long-term care was Alaska, where the average cost of a private room at a nursing home was $297,840 per year. At the other end of the spectrum, the cost in Louisiana was only $61,633.

References

  1. https://www.investopedia.com/ask/answers/09/wash-sale.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186
  2. https://www.investopedia.com/terms/w/washsalerule.asp
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  4. https://www.investopedia.com/terms/t/taxgainlossharvesting.asp
  5. https://www.fidelity.com/viewpoints/personal-finance/tax-loss-harvesting
  6. http://www.cnbc.com/2016/12/08/what-to-know-before-you-harvest-your-2016-tax-losses.html
  7. https://www.cnbc.com/2014/10/24/weighing-the-pros-and-cons-of-annual-tax-loss-harvesting.html
  8. https://investor.vanguard.com/investing/taxes/offset-gains-loss-harvesting?lang=en
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  11. http://www.cnbc.com/2014/10/24/weighing-the-pros-and-cons-of-annual-tax-loss-harvesting.html
  12. https://blog.wealthfront.com/10-things-about-tax-loss-harvesting/

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