In the financial world, it’s generally true that the greater the risk a person takes, the greater the reward will be if the investment makes money. It can be said that the opposite is true with insurance: the greater the risk you take by not buying insurance, the lower your reward will be when the unexpected happens.
This rings true with all types of insurance, including one of the least talked about: long-term care insurance. It’s not until we have a parent or someone we know go into a nursing home that we start considering this type of coverage.
Let’s take a look at long-term care costs and long-term care insurance and see if the reward is worth the risk of not having coverage.
Types of long-term care
Long-term care refers to assisted living where an individual needs the assistance of a caregiver for routine activities of daily living, such as eating, dressing, bathing, toileting, moving about, and taking oral medications at the correct time, in addition to the need for licensed medical care.
Long-term care facilities are often part of skilled nursing facilities, making them ideal for people needing hands-on care and supervision 24/7, but don’t need the specialized care of skilled nursing.
Long-term care is often necessary for patients having:
- Dementia, Alzheimer’s disease, and other cognitive disorders
- Parkinson’s disease and other neurological disorders
- Chronic conditions that limit mobility and the ability to live independently
Long-term care doesn’t provide the same level of medical care as skilled nursing, but if medical practitioners are needed, they’re accessible. Because a long-term care facility is more of a permanent residence than a skilled nursing facility, LTC isn’t usually covered by Medicare or private health insurance.
Cost of long-term care
You can easily be frightened when it comes to LTC costs and the possibility that you may require long-term care. According to the U.S. Department of Health and Human Services Administration on Aging, most people over 65 will eventually need help with daily living tasks, such as eating, dressing, or bathing. Men will need this assistance for an average of 2.2 years, and women will need it for 3.7 years.
That doesn’t seem like an exceptionally long time, but consider the cost:
- Over one-third of us will spend time in a nursing home, where according to Genworth’s 2018 Cost of Care Survey, the median annual cost of a private room is more than $100,000.
- Four out of 10 people will choose to receive paid care at home, and the median annual cost of a home health aide is over $50,000.
- According to a study by Vanguard Research and Mercer Health Benefits, half of people over 65 will incur long-term care costs, and 15% will incur costs exceeding $250,000.
Because Medicare and private health insurance typically don’t cover these “custodial” expenses, Medicaid, the government health program for the indigent, will eventually end up paying for about half of nursing home and custodial care costs. This is after people ages 65 to 74 end up spending their entire retirement savings, which has a median value of $126,000.
Imagine spending the equivalent of your annual income just on health care.
It may sound like a bad dream, but it could become a reality. Consider that, according to Genworth Financial, the average monthly cost of long-term care services in 2018 ranged from $4,000 for assisted living to more than $8,000 for a private room in a nursing home. That’s $48,000 to $96,000 annually.
That’s the cost of care today. Imagine what it will be if you need nursing home care in 10, 20 or 30 years from now. Few people can bear that cost on their own.
What’s more, health insurance won’t help, and neither will Medicare. The same goes for long-term disability insurance or Social Security.
But there is a way to prepare for the possible expense of long-term care.
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Long-term care insurance helps cover the cost of a nursing home, assisted living facility or home health aide if you become unable to care for yourself. It pays for the necessary care facilities.
Without this type of coverage, the cost of long-term care can quickly erode your retirement savings or your home equity. You may have to pay for care using debt, or your family may have to shoulder part of the cost.
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Buying long-term care insurance is similar to buying life insurance and disability insurance both in price and process. There is an application to fill out and health questions to answer. The insurer may ask to see medical records. You choose the amount of coverage you want. Policies usually cap the amount paid out per day and total benefits paid during your lifetime.
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Once you are issued a policy, LTC insurance is guaranteed for as long as you pay the premiums, regardless of your age or health condition.
Typically, you qualify for LTC benefits if you are unable to perform several of the activities of daily living (ADL), which include bathing, dressing, eating, walking and using the bathroom.
Long term care insurance policies will pay benefits in one of two ways:
- Expense-incurred policies reimburse policyholders for long-term care expenses they incur, up to the maximum benefit amount. The person receiving care will submit claims based on what they have spent.
- Indemnity policies pay a set dollar amount regardless of the cost of the service you receive. You will begin receiving insurance payments once you receive long-term care, after the waiting period.
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According to the American Association for Long-Term Care Insurance (AALTCI), the average annual premium for LTC insurance in 2019 was:
- $2,050 for a 55-year old male
- $2,700 for a 55-year old female
- $3,050 for a couple that are both age 55
These rates were for a policy with an initial pool of benefits of $164,000, which compounded annually at 3% to total $386,500 at age 85.
In addition to your age, health and gender, premium rates will be based on how long the policy will pay benefits. The longer the benefit period, the more you will pay in premium. Most people who need long-term care require it for about two years, though about 14% need it for five years.
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Another factor is the policy’s elimination period, also known as a waiting period. This is the amount of time between when you require benefits and when the first payment is made. The shorter the waiting period, the more your policies will cost.
Long-term care insurance policies also offer optional features, known as riders, that can enhance your coverage. One example is a cost-of-living adjustment rider, which increases the available benefit to take inflation into account.
Keep in mind that what you pay today may not be your premium amount of years from now.
Unlike other types of insurance where your premium stays the same for the life of the policy, LTC policy premiums can be raised after you have purchased the policy.
Insurance companies cannot single out just one or a few policies for increases, but they can raise the rates of all policies within a specific rate class with approval from state regulators.
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According to the AALTCI, about 76% of LTC insurance buyers are between the ages of 50 and 69.
Still, one of the challenges of knowing exactly when to buy long-term care insurance. Commit too early and you could needlessly spend thousands of dollars on the early years of a policy. About half of 65-year-olds today will eventually require long-term care, according to the U.S. Department of Health & Human Services.
LTC insurance typically isn’t necessary at a young age. Only 4.5% of long-term care claims started in 2018 were for people under the age of 70. Over two-thirds of claims began for insureds who were at least 81 years old.
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At the same time, you don’t want to wait too long to buy LTC coverage. The older you are, the more expensive the policy will be. In addition, the chances of being denied coverage increase the older you get.
According to AALTCI, only 16% of applicants under the age of 50 were denied a policy in 2019. That percentage increased to:
- 21% for applicants in their 50s
- 24% for those between 60 and 64
- 32.5% for people 65 to 69
- 44% for applicants age 70 to 74
- 51.5% for those 75 and over
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Buying long-term care insurance in your 50s is often advantageous because it’s the peak earning years for many people. If they’re on pace for retirement savings and other expenses, such as raising children or paying certain debts, are in the past, these individuals likely have the funds for LTC insurance.
People may also want to buy earlier if they have a family history that required nursing home care in their 60s.
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On the other hand, people in good health with strong family histories may want to wait. If you buy a policy in your 50s but don’t use it until you reach age 90, you’ll be paying out premiums for 30 years or more.
The bottom line is that there really is no ideal age to buy long-term care insurance. Every person’s situation and needs differ.
Related:
- Is long-term care insurance really worth the cost?
- Here’s how much different types of long-term care insurance cost
This article
originally appeared on MeetBreeze.comand was
syndicated by MediaFeed.org.
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Cost of long-term care insurance
Now that you know what might lie ahead for you as far as needing long-term care and having seen how exorbitant the costs are, you might be asking yourself how you’ll pay for LTC. Financial planners advise that everyone evaluating their retirement planning should have a plan in place to deal with long-term care expenses.
1. Long-term care insurance
According to the American Association for Long-term Care Insurance, the average annual premium for a 55-year-old couple was $3,050 in 2019. Premiums increase as you get older, and those with chronic medical conditions might not qualify for coverage.
LTC policies typically cover a portion of LTC costs for a period of time stipulated in the policy, such as three years. In the past, excessive premium increases forced many people to cancel their policies once they became unaffordable. Many advisors and insurance agents now say LTC insurance is more accurately priced, although premiums are always subject to increase and could rise 50% to 100%.
2. Hybrid long-term care insurance
Annuities or life insurance with a long-term care benefit are outselling traditional long-term care insurance by a rate of about 4-to-1. With these financial products, money not used for long-term care can be left to heirs. These products often require you to commit a large sum upfront, such as $100,000 in a lump sum or paid in installments over 5 to 10 years. Some products now have “lifetime pay” options with annual payments that average about $7,000.
Depending on whom you ask, short-term health plans are either a much-needed alternative to the high prices of the federal health insurance marketplace, or junk plans posing as real health insurance.
Either way, the price of short-term health plans — about half as much as a the cheapest plans sold on Healthcare.gov, according to Agile Health Insurance — makes them an attractive option for people looking for low-cost health coverage. But that price comes with many limitations. Shoppers need to do their homework before selecting a short-term plan. Here are a few questions you should ask if considering one.
Carles Rodrigo Monzo
It might be better to first address what short-term health plans don’t cover. Former President Barack Obama’s health law required health insurance plans to cover 10 essential health benefits, including trips to the emergency room, pre- and post-natal care and prescription drugs.
Short term health plans aren’t required to cover all 10 benefits. They provide coverage for doctor visits, emergency room visits, lab tests and other services, but with limits. And they can deny or limit coverage based on health history. If you have a pre-existing condition like diabetes, it may affect your ability to buy coverage.
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Because Obamacare plans cover more, you may want to check plans out on Healthcare.gov first. Federal open enrollment for 2019 runs through Dec. 15, though some state health insurance marketplaces are open longer (you can see rules for your state in this guide to health insurance open enrollment). While the sticker price for marketplace plans may be higher, many people qualify for subsidies that make Obamacare plans cheaper.
Note: If you miss the Dec. 15 deadline, you’ll have to qualify for a special enrollment period to sign up for Obamacare.
Need help finding health care? Here’s a step-by-step guide to shopping for health insurance during open enrollment 2019.
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You may also be able to qualify for government-provided health care. Medicaid is a federal- and state-run program that covers many low-income people, though eligibilty varies by state. Check our guide to see the rules where you live.
Medicare is primarily for older Americans. You automatically qualify when you turn 65. Medicare also covers younger Americans with certain disabilities.
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Short-term health plans are best-suited for healthy people with few health expenses. If you need treatment for a chronic condition or expect to get pregnant, you may want to consider a more comprehensive option.
Remember: Short-term plans generally don’t cover pre-existing conditions. If you have a health condition before buying a plan, chances are, treatment for it won’t get covered.
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We mentioned that short-term plans have lower premiums. But like standard health insurance, short-term plans often come without-of-pocket costs: Deductibles, coinsurance and copayments.
When budgeting your health costs, take these additional costs into account. Check for each plans’ out-of-pocket maximum. In normal health insurance, this represents the most you can expect to pay in a given year. But short-term health plans also have a coverage period maximum.
Let’s say your short-term plan’s out-of-pocket maximum is $5,000. If you break your leg, the plan will pay for any costs above $5,000 — until you hit the coverage period maximum, in which case you’re on your own again.
For many plans, the maximum is as high as $1 million, but a catastrophic illness like a cancer diagnosis could easily push your costs above that.
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Aside from coverage maximums, short-term plans come with a host of exclusions and limits. Policies should list these exclusions, and you should comb the fine print carefully.
Common exclusions include pregnancy, mental health treatment and injuries from “hazardous activities” like rock climbing or bungee jumping.
Individual services, like hospital stays, may also have dollar limits. For example, if the plan has a $2,000 limit on hospital stays, any amount more than that is your responsibility.
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Some states have placed limits on how long short-term plans last. California, Hawaii, Massachusetts, New Jersey, New York and Oregon ban them altogether.
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Contrary to their name, short-term plans can last up to a year and the same plan can be renewed up to three years (depending on state law). Prior to 2018, short-term plans only lasted three months. Given their limitations, it may be better not to rely on them long-term, but instead as a way to fill the gaps when you can’t get comprehensive coverage.
This article originally appeared on Policygenius and was syndicated by MediaFeed.org.
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Other ways to pay for long-term care
1. Home equity
People that permanently move into a long-term care facility may be able to sell their homes to help fund the cost of care. If one member of a couple remains in the home, a reverse mortgage may be an option. These loans allow people to tap into their home equity, but they must be repaid if the owners die, sell, or move out of the home.
2. Contingency reserve
For someone with substantial savings and investments, some of those assets could be earmarked for long-term care. They could earn interest and produce income until there was a need for LTC and then be sold to pay for a nursing home or home health care.
3. Spending down to Medicaid
Individuals without much money in savings and who face catastrophic long-term care costs that will wipe out their savings could end up depending on Medicaid. An elder law attorney can help to protect at least some assets for spouses. The National Academy of Elder Law Attorneys can help you with a referral.
Should I get long-term care insurance?
Should you buy long-term care insurance? Only you can answer that because of your unique financial situation, but by looking at the odds that you’ll need long-term care and how much it will cost if you do — it appears to be a prudent choice if you can afford it. Check with your financial advisor or a licensed agent specializing in LTC to see if it makes sense for you, either now or in the future.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Individuals are encouraged to seek advice from their own tax or legal counsel.
Related:
- These are the best & worst states for access to cancer care
- Is long-term care insurance really worth the cost?
This article originally appeared on MeetBreeze.com and was syndicated by MediaFeed.org.
Buying life insurance is a big decision. After all, you’re planning for your loved ones’ financial wellbeing for the next few decades. You have enough to think about without having to wonder if someone’s trying to sell you something you don’t need.
When you’re shopping for life insurance, you want the best deal for the best coverage. But is that always what you’re getting? Maybe not, if you’re not able to see all of the options available to you to compare policies. You may be overpaying or being sold on expensive add-ons that aren’t right for your situation.
To make sure you’re getting the right life insurance policy at the right price, watch out for these five tactics that some brokers and agents may use.
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Problem: When you’re presented with a “special” rate that appears to be discounted, it’s only natural to assume you’re saving some cash and making the right choice. But check the fine print associated with the offer. Sometimes, an advertised discount is actually applied to a life insurance policy that’s more expensive in the first place. If you were to review all of your options, you might end up with a better deal if you get a “non-discounted” rate from a different company that’s attached to a less expensive policy. (Here’s a breakdown of the average cost of life insurance.)
Solution: The only way to guarantee you get the best possible rate and policy is to choose an independent broker who works with multiple carriers and does not have a vested interest when it comes to pushing a particular company. You should also make sure you’re seeing available options up front and are able to compare policies and rates for yourself.
Here’s a complete list of things you need to know about life insurance.
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Problem: As you move through the life insurance shopping process, you will soon learn about health classifications and how they impact your premiums (learn more about them here). While it might seem like a no-brainer that the best classification will get you the best rate, companies charge different amounts for the same rating. Another quirk of the life insurance shopping process is that companies rate health conditions differently; there is no such thing as uniform pricing for every type of lifestyle factor or medical issue.
Solution: There’s a sage piece of advice that often pops up in the business world: Never say yes to the first offer. In the world of insurance, you don’t have to go it alone. A reliable insurance broker will shop a policy around to multiple carriers to confirm that you are getting the best health rating and rate. One caveat to keep in mind: you’re only able to confirm the final health rating and rate after you’ve gone through the underwriting process, which typically consists of a medical exam and/or providing your medical records and prescription history.
Here’s a guide to finding life insurance if you’re unhealthy.
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Problem: When you are shopping for the right policy you might encounter the term “accidental death insurance” which is often advertised as a perfectly suitable alternative to life insurance. In reality, there are important distinctions between the two types of coverage that are worth paying attention to. Accidental death and dismemberment insurance will cover you if you die in an accident or lose a limb or digit in an accident, but it doesn’t cover death by, for instance, illness or heart attack. Life insurance is far more robust and will provide you with a wider scope of coverage.
Solution: Resist the temptation to purchase accidental death insurance, even if you think it’s more cost-effective. Don’t delay shopping around for life insurance, even if you think you’re too young to worry about it now. The longer you wait, the more it will cost you.
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Problem: Term life insurance, like the name suggests, is meant to cover you for a set term or length of time and permanent life insurance provides lifelong coverage along with a cash value that acts similarly to an investment vehicle. Even though it’s permanent, it also costs 6 to 10 times more than term life, which needs to be considered when you look at the big picture. (Here are the answers to other questions you may have about life insurance.)
A term life policy may get you more coverage for less money. Moreover, for the vast majority of people who continue to build wealth, pay off debt, and have fewer dependents, they won’t need insurance for their entire life so it becomes an unnecessary expense.
Solution: Work with an independent broker who takes your financial needs into account and only recommends coverage that’s suitable for your specific situation.
It’s also generally not recommended to use your insurance coverage as an investment tool. To hit your long-term financial goals, you should speak to a tax or financial advisor who can help you determine the best areas to invest in.
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Problem: Return of premium and other riders often add unnecessary expenses without the benefits to make it worthwhile.
Premium life insurance is more expensive than a basic term life policy. Also, adding riders like disability, critical illness, or long-term care protection is less cost-effective than buying full standalone policies instead. If you are looking at a lower death benefit or term length with more riders or a higher death benefit or term length with fewer riders, the latter is more beneficial.
Solution: Opt for standard term life coverage if you don’t have room in your budget for the added monthly expense of riders. Consider getting individual policies instead of tacking on riders to your insurance plan since it’s usually a better value overall.
Ready to get started? Here’s how to get life insurance in eight simple steps.
This article originally appeared on Policygenius and was syndicated by MediaFeed.org.
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