What you need to know about long-term care insurance

What you need to know about long-term care insurance

If you are wealthy, you will be able to afford help at home or care in an assisted living facility or retirement home. If you are poor, you can turn to Medicaid for nursing home or home care assistance. But if you are part of the middle class, you will have a thorny decision to make: whether or not to take out long-term care insurance. This is a more complex decision than other types of insurance because it is very difficult to accurately predict your finances or health in the decades to come.

What is the difference between long-term care insurance and health insurance?

Long-term care insurance is for people who are at risk of developing lifelong cognitive problems like Alzheimer’s disease or who need help with basic daily tasks like bathing or dressing. It can help pay for personal assistance, adult day care, or institutional housing in an assisted living or nursing home. Medicare does not cover these costs for the chronically ill.

How it works?

Policies typically pay a fixed rate per day, week or month, for example up to $1,400 per week for home health aides. Before purchasing an insurance policy, ask what services it covers and how much it pays for each type of care, such as a nursing home, assisted living facility, in-home personal care service or adult day care. Some policies pay family members who provide care; ask who qualifies as a family member and whether the police fund their training.

You should check whether benefits are being increased to account for inflation, and by how much. Find out the maximum amount the policy will pay and whether benefits can be shared by a domestic partner or spouse.

How much does it cost?

In 2023, a 60-year-old buying a $165,000 insurance policy would typically pay about $2,585 per year for a policy that increased 3% per year to account for inflation, according to a survey by the American Association for Long-Term Care Insurance. , A nonprofit organization that tracks insurance rates. A woman of the same age would pay $4,450 for the same insurance policy because women tend to live longer and are more likely to use it. The higher the inflation adjustment, the more expensive the policy will be.

If a company paid more than expected, it is more likely to increase its rates. Businesses need approval from your state regulators. So you need to know whether the insurer is asking the state insurance department to raise rates over the next few years — and if so, by how much — since companies can’t raise premiums without permission. You can find contacts for your state’s insurance department through the Directory of the National Association of Insurance Commissioners.

Should I buy it?

It’s probably not worth it if you don’t own your home or have a significant amount saved and don’t have a sizable pension beyond Social Security. If this describes you, you will likely qualify for Medicaid once you spend what you have. But insurance may be worth it if the value of all your savings and possessions, excluding your primary residence, is at least $75,000, according to a consumer guide of the Association of Insurance Commissioners.

Even if you have savings and valuables that you can sell, you need to ask yourself if you can afford the premiums. Although insurers cannot cancel a policy once they sell it to you, they can – and often do – increase the premium rate each year. The Insurance Commissioners Group says you’re probably should consider coverage only if it’s less than 7 percent of your current income and you could still afford it painlessly if the premium were increased by 25 percent.

Many insurers sell hybrid policies combining life insurance and long-term care insurance. These are popular because if you don’t use the long-term care benefit, the policy pays a beneficiary after your death. But compared to long-term care policies, hybrid policies “are even more expensive and the coverage is not great,” said Howard Bedlin, director of government relations and advocacy at the National Council on Aging.

When should I take out a policy?

Wait too long and you may have developed health problems that make you too risky for any insurer. Buy too early and you could divert money that would be better invested in your retirement account, your children’s college tuition or other financial priorities. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says the “sweet spot” is between ages 55 and 65. People younger than that often have other financial priorities, he said, that make premiums more burdensome.

When can I benefit from the benefits?

Make sure you know what circumstances qualify you for benefits. This is called the “trigger”. Policies often require proof that you need help with at least two of six “activities of daily living”, namely: bathing, dressing, eating, being able to get up and move, continence and being able to get up and move around. use the toilet. You may also be able to draw on your policy if you have a diagnosis of dementia or another type of cognitive impairment. Insurance companies will usually send a representative to do an evaluation or require an evaluation from your doctor.

Many policies will only start paying after you have paid out of pocket for a set period of time, such as 20 or 100 days. This is called the “waiting period”.

Jordan Rau is a senior reporter at KFF Health News, part of the organization formerly known as the Kaiser Family Foundation.

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Eric D. Eilerman

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