Long-term Care Insurance

Statistics show that at least 6.4 million people aged 65 or older need long-term care, with one in two over age 85 requiring care. At least half of the population who are 85+ will need help with activities of daily living. Such care is provided when someone can no longer independently carry out essential everyday activities like eating, bathing, dressing, etc. Most people think of long-term care as something needed by older people, but accident or illness can strike someone of any age. When it does, they too may find themselves in need of assistance.

Traditionally, women in our families have provided this care when needed. However, today’s smaller families may be scattered across the country, and many women are now working outside the home. What’s more, caring for a loved one full-time can overwhelm even the most devoted family member. As a result, more caregivers than ever are turning to outside resources to help with the care of  a family member.

Many people automatically think of nursing homes when they think of long-term care, but there are other options available as well, some provided in your own home or others in the community. This web page explains some of these long-term care arrangements, what they cost and how to shop for a long-term care insurance policy to help cover such expenses.

Long-term care is so expensive that many people risk losing their life savings within a year of having such care. A year in a nursing home can cost from $40,000 to $80,000, depending on the area of the country. Even a temporary stay in a nursing home can derail years of careful financial planning.

Insurance experts estimate that about one-third of all long-term care services are paid for by individuals out of their own savings or investments. The funds may come from pension plans, employee stock ownership plans, single premium annuities, the cash value of life insurance or savings.

Most long-term care insurance policies pay benefits when long-term care is prescribed by a physician as necessary or medically necessary or when someone can no longer take care of basic needs. For example, a person who is disoriented or is unable to get dressed and eat without help on a consistent basis might qualify for long-term care insurance benefits. Usually, policies cover all levels of care in state-licensed nursing homes. Many policies also cover assisted living and home health care.

Home health care services typically covered by long-term care insurance include nursing care, therapy, personal care and homemaking. Generally, home health care agencies and providers must be state-licensed or certified.

Most policies contain a waiting period, during which no benefits are paid. After you have satisfied the waiting period, your policy pays up to a maximum dollar amount for each day you receive approved care in a nursing home or at home. For example, a policy may cover $120 a day in a nursing home. If the total cost of a day in the nursing home is $160, you would have to pay the difference. A policy may not cover all expenses.

Many policies now offer an inflation adjustment feature that increases your per-day benefit to cover higher costs. For example, the daily benefit amount might increase each year at a compounded or simple rate of 5%.

Premiums for long-term care insurance can vary widely, depending upon your age and the level of benefits you buy. Policies that cover a substantial portion of the daily cost of a nursing home or a policy with an inflation adjustment feature will tend to be more expensive.

The older you are when you first buy a long-term care policy, the higher the premiums probably will be, because the chances of your needing long-term care increase with age. A policy purchased in your early 50s may be relatively inexpensive, compared to one purchased at age 70. In general, premiums remain fixed each year, unless they are increased for a class of policyholders at once.

There are limitations on all long-term care policies. Preexisting conditions are sometimes excluded from coverage. Ask if there is a waiting period for such conditions. Some companies may exclude coverage of preexisting conditions for six months.

There may be other exclusions or limitations to your policy. Before you purchase a policy, be sure you understand exactly what is and is not covered. Keep in mind that Alzheimer’s disease is a leading cause of nursing home admissions, so make sure the policy does not exclude the disease. Other specific exclusions often include treatment of alcoholism or drug addiction, an act of war or a self-inflicted injury, such as a suicide attempt.