Should you be purchasing long term care insurance? The premiums can certain add up to a hefty sum, especially when considering they may be paid for several years before ever needing any care. Sometimes people may even pass away before the insurance benefits kick in, which means that is money that is essentially donated to the insurance provider. If you’re healthy and expect to stay healthy, then your risks of needing this insurance actually increase.
To decide if long term care insurance is right for you, an evaluation of this type of policy’s pros and cons becomes extremely important to consider. Is it worthwhile to eliminate the need for your family and friends to care for you should something happen? Can you even afford the premiums? These questions and many more may be answered below.
The Pros of Long Term Care Insurance
1. It covers health needs that healthcare insurance does not cover.
Most insurance policies that people have do not cover long-term care. They’ll cover short-term rehabilitation, qualifying hospital stays, and other nursing facility needs that may require an out-of-facility renewal period before the benefits can be used again. Long term care insurance helps to fund the gaps of healthcare services that may need to be provided at home that even Medicare may not cover.
2. It provides a financial safety net.
The cost of a semi-private room at a nursing facility may cost more than $100,000 per year by the end of 2016. If in-home services are needed, then the cost of having a provider stop by is often a minimum of $20/hr. On a standard retirement income, these costs are not sustainable. Long term care insurance helps to fill in the gaps that the rest of the financial outlook cannot meet.
3. Payment distribution options make money matters fairly easy.
Some long term care insurance policies will pay the benefit to the policy holder directly. Others will require payment to be made to the facility or provider that is giving the services. Either way, money transfers are easy and effortless so that payments can be set up to be automatically deducted.
4. Lag times are adjustable.
How solid is your financial situation right now? Could you afford 60 days of long-term care before having an insurance policy kick-in to provide benefits? What if you could wait 120 days? Maybe 180 days? The lag times on long term care insurance policies are adjustable much like a deductible is on a healthcare insurance plan. Higher deductibles mean lower overall monthly premiums. The same is true with higher lag rates. If you could afford 6 months of long-term care on your own, then you can save big time on your insurance costs.
5. The costs of care are often lower than what is quoted.
The overall cost of care might be approaching $100k, but many people experience lower overall living experiences that come out of their income. Someone who is supporting themselves with a $70k year retirement may only need to increase their spending by $20-$30k to meet their needs and this can be a major savings on the premium costs that are required.
6. Personalize quotes are available.
Long term care insurance is based on who you are and what your medical history happens to be. This means your age, health, and lifestyle habits can all work to either increase or decrease your rates. Even being married carries with it a premium discount for many insurance providers. Make sure that you get 3 or 4 personalized quotes from different policy providers to make sure that you’re getting the best deal possible.
7. Coverage terms are guaranteed from the moment you are covered.
If something happens after you pay the first policy premium for your long term care insurance, then you are guaranteed a specific level of service. Can your stock portfolio, savings account, or IRA guarantee that you’ll receive 4.8 years of service at $160 per day for just $2,000? Maybe it will be needed and maybe it won’t be needed, but the return is phenomenal if it is needed.
8. It helps a family out of a difficult time.
Many family members don’t mind caring for someone who is in a difficult spot. This even includes bathing, daily living activities, and other regular care needs like toileting. The only problem is that family members may need to move away from their homes and careers to make this happen and their sacrifice could last years. Long term care insurance helps families avoid these difficult choices.
The Cons of Long Term Care Insurance
1. Many people don’t ever need to use this type of insurance.
Only 10% of men and 25% of women ever stay in a nursing facility for longer than 12 months. Just 10% of the entire population will need to have nursing care that lasts longer than 3 years. Men are much more likely to never need long term care insurance, but a majority of people will never need it at all.
2. Medicaid cannot be 100% relied upon.
Not all long-term care providers even accept Medicaid as a payment option for care. It is a low-income solution that at best, has a limited benefit. Someone on Medicaid can only have $2,000 in total assets before benefits will kick in and even if someone does qualify, the benefits are limited because the care options are limited.
3. The costs of a policy are often quite high.
Many Americans are funding their retirement based on their Social Security income that is being received. The costs of this type of insurance policy are high enough that they’ll take up 2-3 months of a benefit that is received. In the 65-69 age demographic where long-term care is most likely to be needed, annual costs can be as high as $2,500. In comparison, someone under the age of 40 may pay less than $1,000.
4. The insurance policy still provides a limited benefit.
Even if the insurance policy works as intended, it isn’t a 100% effective solution. The average long term care insurance policy will provide less than 5 years of daily services at $160 per day. Although this meets more than 90% of the needs that people have for long-term care, it may not meet every specific need that every individual may have. The odds are in your favor, but it’s important to remember that additional funding may be necessary.
5. Elimination periods are included in addition to lag times.
Insurance companies want to make sure households are paying their fair share for care services when they are needed. This requires a waiting period where benefits must be paid out of pocket while waiting for benefits to arrive. It’s similar to the 1 week waiting period that is mandatory of unemployment benefits. Longer elimination periods make for lower premiums and some may span as long as 1 year. This must be a consideration before signing up for a plan.
6. Premium rates may change over time.
One of the biggest complaints about long term care insurance policies is that premiums may double on someone over time. This is because early entry into this field of insurance for many companies meant not realizing the true costs of what long-term care required. If this happens, people are left with two choices: abandon the policy or pay the higher rate. This also happens if one variable changes from the initial policy offering.
7. The costs of long term care today are going to change a lot over time.
If you’re in the 40-50 age demographic right now and considering long-term care, then annual price increases must also be part of the conversation. Let’s say that right now, a married couple would need 3 years of home care each at the age of 68. The cost of this today would be about $302,000. At a 4% annual increase of cost over the next 18 years, the cost of care would be $608,000 instead. If your policy doesn’t cover the annual increases, then this couple’s coverage would only be 50% of what it needed to be.
8. About 5% of the total claims made for long term care are actually denied.
Most insurance providers will deny a claim for service because care is being given by a facility, agency, or individual that is not licensed. If care is provided by a non-licensed or non-recognized provider, then care costs come out of pocket. This may limit care options for people in rural areas or force them into a care facility that is several hundred miles away from their families.
Only You Can Decide If Long Term Car Insurance Is Something That Is Right For You
Consult with your financial advisor to determine if this type of policy makes sense. By weighing all of the pros and cons on the subject and determining what your future health and financial needs may be, you will be able to find the right solution that will meet them in an effective manner.