We insure lives, our homes, and even our cars to prevent getting slammed by financial hardship should something unexpected happen. But what about our future health?
About seven in 10 Americans will need long-term care at some point after 65, and will need at least three years of senior care on average, according to a report by the Associated Press-NORC Center for Public Affairs Research. But in a country where just 8 percent of the population carries a policy providing coverage for long-term care, are we in denial, or is long-term care insurance not an ideal solution?
What is long-term care insurance?
The purpose of long-term care insurance is to cover the expenses associated with long-term senior care services, whether the care is provided at home, in an assisted living community, skilled nursing facility or other senior care setting. A long-term care insurance policy is designed to reimburse the policyholder a daily amount for services used to assist them with activities of daily living (ADLs).
A policyholder must need assistance with at least two of the five standard ADLs: eating, using the toilet, getting in and out of bed, dressing and bathing. Those limitations are determined by a doctor and are often verified by an insurance representative. Once approved for coverage, this policy will cover the daily expenses of long-term care until care is no longer needed. Sounds like a great deal, right? In some cases, it is.
3 pros of having long-term care insurance
1. The cost
With the daily cost of long-term care averaging $200-$300 daily, the expenses of care are staggering. The national average cost of a private room in a nursing home care facility totals $92,378 annually, according to Genworth's 2016 Cost of Care Study. And home health aides average $46,332 per year. Having LTC insurance can help prevent financial devastation for families looking to provide senior care for their loved one.
“Almost seven of every 10 of us will need some sort of personal assistance after age 65,” Howard Gleckman, personal finance expert, wrote for Forbes Magazine. “And we’ll need that help for an average of about three years.” He notes in the article that often the assistance is relatively modest and can be provided by family members. But that arrangement may also create unique problems.
2. An emotional and financial benefit to families
The National Alliance for Caregiving estimates that roughly 34 million people in the U.S. served as unpaid caregivers for an adult aged 50 or older at some point in the year 2015. Estimates also suggest that the majority of caregivers are female. These are generally women who also care for their families and often work outside of the home while taking on the emotional, financial, and advocacy responsibilities of caring for an aged loved one.
This decision is often tied to emotional obligations on the part of adult children, but it’s also determined by the older adult’s economic limitations. “As the son of two parents who’ve had live-in caregivers, I’ve seen the need first-hand,” NextAvenue.org contributor Richard Eisenberg wrote in a 2016 article published on the website. “And as the father of two twenty-something sons, I don’t want any long-term care costs I incur to become a financial burden for them.”
By looking at the benefits of long-term care insurance in one’s mid-fifties, policyholders can gain a comprehensive understanding of their financial situation amid retirement age, and can consider if private insurance is right for them.
3. Helps ensure loved ones get the care they need
The truth is, long-term care insurance is designed to cover the costs of care for those who aren’t necessarily going to get better, but that doesn’t mean you want quality of life to be compromised.
“The biggest benefit is that this coverage doesn’t limit your options of the type or location of facilities where you can be admitted,” Jay Brady, CEO of Aspen Skilled Health, says. “If you’re a Medicaid patient, many facilities don’t accept those admissions, or you face limited options.” With private insurance your options are more widespread, and that is important for a family who wants to have a local home.
Considering the number of people who swear by the importance of owning long-term care insurance (financial expert Suze Orman calls it “the most essential kind of insurance”), there are still many who have concerns about the possible risks of investing in this unique “resembles-health-insurance-but-isn’t”-type insurance.
3 cons of owning long-term care insurance
1. It’s expensive
I mean, really expensive. For example, the American Association for Long-Term Care Insurance states that a policyholder in their mid-fifties can expect to pay around $3,000-$4,000 per year for long-term care insurance, and the lack of a fixed payment means the sky’s the limit on raised premiums.
For example, a Kaiser Health News report stated that New York residents who bought long-term care insurance from a major provider saw a 60-percent premium increase, and that California residents who invested in a state workers’ retirement plan saw their premiums raised by as much as 85 percent.
One way to avoid unwanted surprises is to ask your provider about an inflation rider, a premium waiver, and the elimination period, also known as the deductible. These factors may increase costs upfront, but they can save you money in the long run. “You have to comprehend the whole picture to understand when you need to make a claim on your policy,” Chad Fotheringham of Amada Senior Care, says. “It’s all about understanding the intricacies of these policies.” But when you consider the costs of long-term care, this upfront investment will pay for itself, despite the price hikes.
2. Policyholders pay premiums while living off fixed income
This financial burden can strain any household budget. Gleckman advises against long-term care insurance for those with a limited income or under $200,000 in assets.
He added that if you purchase long-term care insurance at 60, you’ll likely be paying premiums that will rise over time, and that may affect whether you can still cover the payments.
3. Policy? What policy?
You may have bought your policy from a major insurance company today, but what happens if 30 years from now when you’re ready to collect, your insurance company is either bankrupt or has been bought out by another company? Gleckman notes that in a worst-case scenario, most states offer funds to protect consumers in this situation. In most cases, investing in a basic deferred annuity is a reliable option.
You may ask, “Can’t I just turn my parent’s assets over to the state, declare him indigent, and the state will cover the cost of care?” Yes, you can. And many people do. But once you turn your loved one’s assets over to the state, they’re gone. The family home, accounts, secondary property, vehicles -- anything that is considered an asset -- is forfeited to the state to pick up your loved one’s long-term care tab.
The government’s role in subsidizing long-term care can be confusing. Medicare may pay for nursing assistance after hospitalization, but none of the supportive health care programs will pay for long-term services for someone with chronic disease. So, if you believe long-term care insurance is right for you, it’s important to consider your tolerance for risk.