Long-term care insurance: How does it work?

More and more Americans between the ages of 40 and 84 – especially those in their mid 50s – will start to prepare for their older years as life expectance continues to rise.

It’s estimated that, 10,000 people turn 65 every day in the U.S., and the number of older adults will more than double over the next several decades to top 88 million people and the aged people will represent over 20 percent of the population by 2050. And as we age to this milestone birthday, one of our top priorities and concerns becomes long-term care insurance.

High and increasing costs of healthcare is significantly challenging to older Americans who are increasingly aging in place. Planning ahead for your later years is a huge undertaking. It’s a project that encompasses retirement and estate planning, health care and financial security. And it’s one whose stakes run dramatically high.

As the data shows, millions of aging Americans require the long-term daily care, whether in the home or in a full-time nursing facility. However, Medicare doesn’t cover that. For that, you either need to pay out of pocket.

The median yearly cost of in-home care with a home health aide in 2020 was $54,912; and the median cost for a private room in a nursing home was $105,850 or have less than $2,000 in assets so that you can qualify for Medicaid. Medicaid provides health care, including home health care, for more than 80 million low-income Americans.

What is Long Term Care Insurance?

Long term care insurance

Though long-term care insurance is not a part of your Medicare benefits – which kick in at 65 – it is a substantial part of planning for your future. An estimated 70 percent of elderly people will need long-term care services (nursing home or other assisted living facility). If you’ve planned ahead and purchased Long Term Care Insurance, you may be able to limit the amount of money spent on this essential service.

Long term care insurance is a product that provides protection against the cost of long-term care services (nursing home, assisted living and/or home health care). Long-term care insurance policies provide benefits for daily living expenses incurred as a result of an illness. Usually, these payouts are tax free.

How does Long Term Care Insurance work?

The first step in determining whether you should buy long-term care insurance is to figure out what your risks are. If you have chronic medical conditions or certain health conditions, your risk is greater than if you have no health problems at all.

Changes in family status may also increase your need for long-term care insurance. For example, a spouse or adult child may need to hire caretakers if you become disabled.

Once you’ve determined your needs, you can apply for long-term care insurance.

Family finances are also important when talking about long-term care insurance. For example, a family with healthy assets and no major medical problems may have no need for long-term care coverage. If your total liabilities are significantly higher than your net worth (i.e., if you owe more than you own), your need for the coverage is greater.

Other factors that affect long-term care insurance include:

Age and health: The older you are, the greater your need for long-term care insurance. As you age, it’s wise to take steps that will prevent disability and reduce the need for long-term care services. For example, taking classes to keep your brain sharp can lower the risk of Alzheimer’s disease later in life. A healthier lifestyle (exercise, eating right, getting regular medical checkups), can help prevent diseases such as diabetes and heart disease.

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Health conditions may also increase your need for long-term care services. Conditions such as Alzheimer’s disease, stroke, cancer and diabetes may increase your risk for needing long-term care.

Family history: If your parents or siblings had (or have) a health condition, you are more likely to be affected by that condition as well.

Family finances: If you don’t have the assets to support yourself in your later life, long-term care insurance is essential. Remember though, the premium payments will likely reduce those assets over time and could even deplete them entirely if premiums are not properly handled.

Program design

The cost of long-term care insurance depends on two things: how much coverage you need and how old you are when purchasing the policy. If you are younger when you buy the policy, it will cost more than one bought after a person reaches 55.

It’s also more expensive if you need care for more than two years. The cost is lower if the policy covers less time or a reduced amount of money.

Levels of care covered by long-term care insurance

Most policies cover at least three levels of care: custodial, assisted living and nursing home care. The level of coverage depends on the specific plan purchased, which is based on many factors, including price, your location and illnesses/conditions present when applying for coverage. Check with an insurance professional to figure out what kind of coverage is best for you and your budget.

Long-term care insurance can be a great way to protect yourself and your family from the rising cost of nursing homes, assisted care facilities, home health care services and other long-term care needs.

Because it’s so important to plan for this expense, the U.S. Department of Health and Human Services provides seniors with tips for buying long-term care insurance and an online tool to help people determine if they may need long-term care services in the future.

So, depending on your circumstances and the features you choose, long-term care insurance may provide benefits for:

  • Physical therapy and speech therapy
  • Skilled nursing facility stays
  • Home health care (medical)
  • Adult daycare (non-medical)
  • Hospice and respite services.

Long-term care insurance pros and cons

Pros cons of long term care

Insurance providers know that some people will not be able to afford long-term care on their own without assistance. Which means they are more likely to offer these plans at reasonable rates with minimal premiums.

This is because they know that the people who need long-term care will be eager to buy these types of policies to protect themselves and their families from the financial burden of care.

Final lines,

As mentioned above, long-term care insurance coverage is tailored to your needs and can include a variety of levels of care.

If you’re thinking about buying long-term care insurance, or want more information about how it works, talk to a licensed life insurance agent. An agent can recommend several carriers based on your situation, needs, budget and health status.