Like health insurance and life insurance, long-term care insurance is an important thing for every person to consider. As with any insurance policy, the idea behind long-term care is that you will pay a premium now with the goal of avoiding larger and less predictable expenses later on in life. Whether you are trying to secure a financially stable future for yourself and your immediate family, or are thinking about moving a parent or grandparent into a senior care facility in the next few years, speaking with your insurance provider about available long-term care insurance policies is smart thinking.
Why Is Long-Term Care Insurance Necessary?
If you are wondering whether or not long-term care insurance is truly necessary, stop wondering: it is. One need look no further than the current costs of long-term senior care to see how paying for those services without insurance can lead to financial ruin. According to Genworth, the 2015 median for annual assisted living facility expenses is $43,200. The median cost for nursing homes is double that; $80,300 for a semi-private room and $91,250 for a fully private room.
The expenses of long-term care become even more serious when you consider that most health care subsidy programs or health insurance policies don't cover them. Medicare and standard medical insurance very rarely cover long-term care. Medicaid, meanwhile, does sometimes cover long-term care, but usually only for low-income Americans. In other words, if and when you need long-term care, you and your family are the ones who are going to foot the bill.
Different Types of Long-Term Care Policies
In a 2013 Guide to Long-Term Care Insurance, the United States Department of Agriculture and AHIP (America's Health Insurance Plans) outlined three primary types of insurance plans for long-term care. These include Reimbursement and Per Diem policies, as well as special life insurance policies that include coverage for long-term care.
Reimbursement Policies: For these insurance plans, you negotiate with your insurance company to set up a daily or monthly benefit amount. People with these insurance policies are then reimbursed for "the long-term care expenses [they] incur, up to this amount." For example, if you were living in an assisted living facility and had a $4,000 monthly benefit amount, but only incurred $3,000 of expenses in a month, you would be reimbursed that $3,000. On the other hand, if you were living in a nursing home where the monthly expenses average about $6,000, you would be reimbursed your total monthly benefit amount ($4,000) and would need to pay the rest of the expenses out of pocket.
Per Diem: This type of insurance plan is precisely what it appears. You receive a flat-rate benefit every day you are in long-term care, regardless of whether your actual expenses are higher or lower than that daily amount. For instance, using the above scenarios, your daily expenses at the assisted living facility would be about $130 while your daily expenses at the nursing home would be roughly $200. If your per diem rate were $150, you would receive that money whether your expenses were $130 or $200. You would then either pocket the extra money or pay the remaining expenses out of pocket.
Life Insurance: According to AHIP, some life insurance policies have clauses outlining "accelerated or living benefits." These benefits allow you to receive payouts from your life insurance policy to cover some or all of your long-term care expenses. There are pros and cons to this type of policy. On one hand, a life insurance policy with these extra benefits can be a godsend if you have exhausted your savings, don't have long-term care insurance, and are in dire need of long-term care. On the other hand, you are tapping into the death benefit from your life insurance policy, which means that there won't be as much money for your family (or any other beneficiaries) after your death. As a result, it is advised that you only use this option as a last resort. With that said, it's still a good idea to check your life insurance policy to see if you have access to accelerated or living benefits.
Why You Should Think about Long-Term Care Insurance Right Now
As you can see, there is a chance that your long-term care insurance policy won't cover the entirety of your long-term care expenses when it comes time to pay them. Still, having even just 75% of your nursing home expenses could help you and your family considerably in terms of finances. Bottom line, if you can afford to pay the premium, there is absolutely no reason not to have long-term care insurance in place as you grow older.
So how soon should you speak to your insurance provider about adding long-term care policy? The sooner, the better. As a general rule, the premiums for long-term care insurance policies will increase as you get older.
Furthermore, several factors could make you ineligible to buy long-term care insurance. For instance, if you already utilize long-term care services, then an insurance company isn't going to sell you a long-term care policy. Similarly, individuals with a history of strokes, metastatic cancer, progressive neurological diseases, Alzheimer's, or AIDS, insurance companies may not be willing to bet on you. Individuals who already received assistance with activities of daily living may also be ineligible to apply for long-term care insurance.
Bottom line, it's important to research long-term care insurance and secure a policy for yourself before your health declines to a point where you won't be able to secure a policy. The same holds true for elderly loved ones. If you think a parent or grandparent will soon need to hire an in-home caregiver or move into a senior living community, then don't delay inquiring about long-term care insurance. You simply never know where and when the cutoff point is for purchasing this type of insurance, so making timely arrangements will always be the smartest choice.