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As a follow up to my recent post about the high cost of elder care, I wanted to spend a bit of time talking about long term care (LTC) insurance. In general terms, LTC coverage applies to individuals who are not actually sick, but are not able to perform the basic “activities of daily living,” which include bathing, using the bathroom, dressing, eating, and transferring yourself in/out of a bed, chair, etc.
In most cases, coverage is also available for those with a cognitive impairment. This could include memory loss (short or long term), loss of orientation as to people (who they or others are), places, or time, and reduced capacity for deductive or abstract reasoning. If the impairment is bad enough that it requires supervision to ensure safety, most LTC policies will kick in.
According to the Department of Health and Human Services, about 60% of those aged 65 or older will require some sort of long term care during their lifetime, with over 40% requiring care in a nursing home. And, for the most part, traditional health insurance and Medicare won’t cover the costs associated with this care. In other words, you’re on your own, so you’d be well advised to plan ahead.
What follows is a list of important considerations when it comes to choosing a long term care policy. This list is by no means exhaustive — it’s mainly based on things that I’ve run across while reading through my parents’ policies — but it at least gives you a good place to start.
When to buy
First and foremost, you’ll need to decide when to buy your policy. In general terms, if you buy too soon, you may wind up paying for coverage that you don’t need (yet). But if you wait too long, the premiums will be sky high. Also, the longer you wait, the more likely you’ll be rejected for coverage. For reference, more than half of all policies are sold to those in the 55-64 age group, though an argument could definitely be made for buying as early as age 45.
Another important consideration is how much coverage you’ll need. Obviously, more is better, but higher benefits come at increased cost. It really seems like this one falls into the “it depends” category, as the costs associated with different types of care vary widely across the country. In other words, one size doesn’t fit all.
Benefit increase option
Related to the above… Costs associated with long term care will increase over time. Do you want your benefit level to increase, as well? In many cases, you can elect a “benefit increase” option to help keep pace with inflation, though this will likewise come at a cost. Still, this is worth at least considering, especially if you buy a policy relatively early.
Elimination (waiting) period
The elimination period is a bit like a deductible, in that you’ll have to pay for the care yourself (out-of-pocket) for a set period of time before your LTC benefits kick in. Elimination periods can vary from 20-120 days, though 90 days seems fairly common. Note that you can typically only count those days on which costs were actually incurred, so you can’t just pay someone to come in once a week for 3 months to satisfy a 90-day elimination period.
Waiver of premium
Once the benefits kick in, do you need to keep paying the premium? In some cases, yes, in other cases, no. In my parents’ case, the waiver of premium appears to only kick in after they’ve spent 60 days in a nursing home. In other words, it doesn’t appear to apply to in-home healthcare (though I’m still trying to track this down). This is a bit of a bummer, but it is what it is.
Maximum lifetime benefit
Finally, depending on the policy that you choose, there may be a maximum lifetime benefit. This limit can be defined either in terms of a total dollar amount, or a set number of years over which the policy will pay out. Choose carefully, as you may live longer than you expect, and these costs really add up over time.
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