What You Need to Know about Long-Term Care Insurance

What You Need to Know about Long-Term Care Insurance

One of the most crucial considerations when preparing for retirement remains the forms of insurance that will keep individuals and their nest eggs safe. Recently, high premiums have driven down the sales of long-term care insurance. This form of insurance provides coverage for long-term supports and services—from in-home custodial care to stays in skilled nursing facilities. Each policy has a different daily allotment for reimbursing policyholders for the amount they spend on such care, and consumers can shape the different options and benefits according to their individual needs.

 

Why You Should Consider Purchasing Long-Term Care Insurance

Many people avoid purchasing long-term care insurance because it often costs a very large amount of money. Several factors go into the price, including someone’s age when he or she purchases the policy, the maximum daily allotment, and the number of days or years that the policy will cover care. Often, policies have maximum allotments, so it is critical that individuals read the fine print before they sign anything.

Because Medicare and even supplemental insurance do not cover long-term care expenses, this type of insurance can help people avoid spending all of their savings on care in the event that they become unable to care for themselves. According to a survey conducted last year, the median cost for a private room is more than $250 per day, which totals to more than $97,000 for an entire year. What makes this figure scarier is that fact that someone who turns 65 today has about a 70 percent chance of needing long-term care services at some point, according to statistics from the US Department of Health and Human Services. About 20 percent of individuals will need long-term care for longer than five years.

 

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Minimizing the Cost of a Long-Term Care Insurance Policy

When purchasing health insurance, there are a few things that individuals should keep in mind to keep the costs down. For example, people tend to save money when they purchase long-term care insurance together with their partners. Many companies will provide up to 30 percent off the total cost of insurance when both individuals purchase a plan at the same time. Another option for couples is shared care, which allows individuals to share their benefits. For example, if one partner reaches the maximum on his or her policy, then he or she can draw any unused benefits from the other partner’s policy.

Additionally, individuals should keep in mind that not all insurers are created equal; therefore, it is extremely important to shop around for the right policy. Spending the time to get quotes from multiple companies and comparing coverage can save a lot of money in the long run and even provide people with better benefits. When searching for a plan, consumers should also think about inflation coverage. Most long-term care policies have their own inflation rates, which often rise faster than those in the rest of the economy.

As mentioned previously, the price of a policy is based on age, so individuals generally obtain better prices when they purchase earlier. As people approach retirement age, the cost of insurance increases quickly. Often, individuals can get some tax benefits, too, especially if they own a business or have high healthcare costs. Ultimately, it generally pays to talk to a trustworthy professional about the different kinds of policies available and what makes sense for a particular situation. Consumers should view long-term care insurance as a kind of insurance for their next egg, because paying for care out of pocket will quickly diminish one’s savings.

 

Some Alternative Strategies for Preparing for Long-Term Costs

Not all financial advisors recommend long-term care insurance, especially as premiums begin to increase. In traditional insurance settings, a low percentage of people who pay premiums end up calling on the policy for payout, so companies can cover expenses and maintain a profit. However, because the majority of individuals approaching retirement will need long-term care at some point, the prices continue to increase, and this can create some unnecessary risk, according to some industry experts.

People who choose not to purchase long-term care insurance still need to have a viable plan for covering medical expenses, even if that plan focuses primarily on maximizing savings. Some advisors would prefer that their clients invest the money that they would otherwise pay into an insurance account, but this strategy also involves risk, even if the money goes into relatively stable investments. Some people think that they should give away their assets to their heirs in order to become eligible for Medicaid assistance with long-term care. However, Medicaid enforces a penalty for assets given up within five years of seeking benefits, and individuals may face other serious repercussions for doing so.

Those who are worried about leaving a legacy for their heirs should consider creating an irrevocable trust, which will protect their assets from debt collectors if their finances become rocky down the line. Another good option is purchasing life insurance, which ensures that there is still money for heirs in the event that long-term care expenses overwhelm someone’s savings.