A comprehensive estate plan should do much more than simply determine how your estate assets are to be distributed when you are gone. Another important goal of a well thought out estate plan is planning for incapacity. That includes planning for the possibility that you will need to pay for long-term care. Most people cannot afford to pay for long-term care out-of-pocket given the average nationwide cost of a year in a long-term care facility was about $80,000 in 2015 and the average stay was 2.5 years. Long-term care insurance is an option. However, is it the right option for you and your estate plan? To answer that question, you need to understand how LTC insurance works and how to evaluate the benefits offered by a particular plan.
Won’t My Health Insurance Cover Long-Term Care?
Probably not. Most health insurance policies do not cover expenses related to nursing home care, personal care at home, assisted living facilities, and/or adult day care. Don’t count on Medicare to cover these expenses either because Medicare only covers LTC expenses under very limited circumstances, and even then only for a short period of time.
Who Should Consider Purchasing Long-Term Care Insurance?
A LTC insurance policy may be purchased at any age, assuming you meet the eligibility guidelines. Premiums, however, are based on age, health, and policy benefits. Most financial planners recommend purchasing LTC insurance in your late 50s or early 60s, if you anticipate you will not be able to pay for LTC out-of-pocket should it be needed. At that point in your life the premiums should still be relatively affordable and your health still good enough to qualify.
When Will LTC Insurance Start Covering Expenses?
One of the first things you should look for when evaluating a LTC insurance plan is when the coverage begins. Most plans have an “elimination” or “deductible” period during which the policy will not pay out benefits. Think of this as a waiting period before benefits begin. The waiting period can be from zero days to one year from the time you qualify for LTC benefits. Qualifying for LTC benefits usually requires a doctor to certify that you have lost the ability to engage in at least two activities of daily living: eating, bathing, dressing, toileting, walking and/or continence. Some policies will also consider you eligible for benefits if you suffer a cognitive impairment. Once you qualify, the waiting period kicks in, meaning you are responsible for covering expenses until the “elimination” or “deductible” period has expired, which is why it is important to know how long that period lasts.
What Are the Policy Limits?
Another important factor when evaluating a LTC policy is the policy limits. Most LTC policies have a preset dollar amount or time period after which they stop paying benefits. For example, a policy might cover LTC for a total of 60 months or $1 million. If you still need LTC after the policy limit has been reached you will be responsible for the costs.
Can You Afford Long-Term Care Insurance?
As is the case with other types of insurance, there is no “one size fits all” rate for LTC insurance premiums. The rate you receive will be based on a number of factors, including: your health, your age, where you live, your marital status (couples often get a discounted rate when they purchase a plan together), and the benefits you wish to include in the plan. For 2016, however, the nationwide average yearly premium for a 55-year-old single applicant is about $2,000, according to the American Association of Long-Term Care Insurance. By comparison, a 60-year-old married couple would pay, on average, $3,381 (combined). Keep in mind that you could pay these premiums for several decades and never need to use the insurance – or you could need it the year after you purchase it. LTC insurance does not build up a cash value, meaning you lose it if you don’t use it. Moreover, if you stop paying your premiums ten years down the road, the money you paid into the policy is lost. In other words, it’s similar to auto or health insurance. For those who cannot afford to pay out-of-pocket for LTC expense and who will not qualify for Medicaid coverage, LTC insurance may be the best option. However, some LTC policies do offer a provision to payback the premiums paid upon the death of the policy holder if the benefits were not used.
To Buy or Not to Buy
Should you buy a LTC insurance policy or not? The best way to make that decision is to sit down with your financial advisor and your estate planning attorney to go over the cost of LTC insurance versus the benefits. For some people, LTC insurance is indeed the best way to plan for the possibility of needing long-term care.
