Long Term Care Insurance for Retirement Planning in the US. The Ultimate Guide

You are more likely to require long-term care after the age of 65 based on a survey carried out by The U.S. Department of Health and Human Services. At least one in every five members of this age group will require care for more than five years. Care may be provided from the comfort of your home or in an assisted-living facility.

The federal and state governments provide Medicare and Medicaid programs for seniors within this age bracket. However, in most cases, funds from these programs are hardly ever enough to cater for all the expenses that come with long term care. This is why people opt for long term care insurance policies.

 

Why Medicare may not be adequate for long term care?

Medicare is a federal government program designed to provide health coverage to seniors with disabilities who are aged 65 years and above. Medicaid, on the other hand, is a program offered by the state government in collaboration with the federal government to certain qualified individuals including low-income families, qualifying expectant women and children, as well as individuals who are under the Supplemental Security Income (SSI) program.

The Medicare program is designed to cater to several types of medical care costs. However, it does not cover costs that come with residential care or skilled care in an assisted-living facility. The rental cost for a skilled nursing facility averagely ranges between $6,000 a month and $20 an hour which may be too expensive for retired seniors. Medicare may, under special circumstances, cover long-term care for instance, if one needs rehabilitative services for a maximum period of 100 days. Medicaid does cover long term care only for those that are eligible based on the low-income and other state requirements.

For this reason, as people plan for retirement, they should also consider planning for long term care expenses. To this effect, there are several options that one can consider such as investments, real estate, and long-term care insurance.

 

What is long term care insurance?

To understand what long-term care insurance is, we first need to define the term ‘long term care’. Long term care refers to the services and support accorded to individuals with disabilities, chronic illnesses, or those that are incapacitated for any other reasons over a long period, towards meeting their health and personal needs. Long-term care can be provided in one’s residence, in an assisted living facility, or in the community for instance, in an adult day care center.

A long term care insurance (LTCI) policy is an arrangement between an individual and insurance provider whereby the individual pays regular premiums as agreed and while the insurance covers eligible costs related to long term care at a future date. This thus sets the difference between medical insurance and long term care insurance. This means that long term care is not necessarily medical care. Long-term care expenses are usually incurred from being supported by normal daily living tasks.

Examples of long term care expenses include: 

  • Activities of daily living (ADL) such as bathing, dressing, eating, transfer, incontinence care.
  • Home health care
  • House cleaning and maintenance
  • Money management
  • Communication
  • Help with medication
  • Residential care rental expense
  • Assisted-living facility expenses
  • Emergency medical alert systems and emergencies

The LTCI can be purchased at any age. However, the age at which you purchase the insurance will determine the premium amount you will pay regularly as well as the insurance benefit you will receive when the policy matures. A long term care insurance spares your retirement savings from being exhausted on care expenses. This way, you are sure to leave an inheritance to your kin when you pass on.

 

Who needs long term care insurance?

A significant percentage of Americans are likely to need long-term care after the age of 65. While people between ages 50 and 60 would more likely be interested, people should consider purchasing long-term care insurance much earlier.

Ideally, you need long term insurance if: 

  • You intend not to be a burden to your kin should you need long term care
  • You want to be independent in your old age
  • When your assets, investments, and income disqualify you from Medicaid eligibility
  • You can afford insurance premiums and you genuinely need the cover either for its direct benefits or for tax benefits
  • You are either suffering from chronic illness or have been involved in an accident that left you disabled.
  • You live alone without a partner, family members, or relatives in your golden years
  • You are old and incapacitated

 

What determines the likelihood of needing long-term care?

While it may be difficult to determine the type of long term care one will require and for how long, some factors will most likely increase the chances of needing long term care. These include:

  • Age. The older one gets, the more likely they will need long term care. People who have turned 65 years and above have a 70 % chance of needing long term care services. Again, research has shown that 20 % of people above the age of 65 years may need long term care for five years and above.
  • Gender. Studies have shown that women live longer than men by a difference of around five years and so are likely to be alone later in life. This means that their chances of needing long-term care are higher than that of men.
  • Marital status. Single people are more likely to seek care services as compared to married couples.
  • Lifestyle. Poor diet, lack of exercise, and habits like alcoholism and smoking will likely increase the risk of needing long term care later in life if not addressed.
  • Disability. Research shows that 8 % of people between ages 40 and 50 years have a disability that is likely to require long term care. At the same time, 69 % of people above the age of 90 have some disability of sorts. This means that as people age, they are likely to get a certain type of disability which then increases their risk of needing long-term care.
  • Family health history. If your family has a history of an illness or disability, this increases your likelihood of needing long term care sooner or later because your likelihood of being diagnosed with the illness is high.

 

What is the right time to consider purchasing long term care insurance?

A common misconception about long term care is that it is meant for those who are approaching retirement. It is never too early to start planning for long-term care. This is because much as long term care has been associated with old age, you never know when you will need long term care, for how long, and how much you will have to part with to cater for long term care.

Experts advise that the right time to consider buying a long term care insurance is when you can pay for the premiums comfortably without straining your current budget and still continue with your other savings plans uninterrupted.

The truth is that younger buyers between ages 40 and 50 generally have an easier time obtaining insurance since they have a lower risk of being disqualified on grounds of health. Secondly, they will most likely pay lower premiums. The downturn, however, is that they will be paying premiums for more than 20 years before they can claim benefits.

The highest percentage at 76.4 % of people who purchase insurance falls within the 50 to 69 years age bracket according to American Association for Long-Term Care Insurance (AALTCI), in California. Within this age group, 22 % of applicants in their 50s and 30 % of applicants in their 60s are not able to purchase long term care insurance for one reason or another.

Ultimately, the best time to purchase insurance depends on you. You could be having a pre-existing condition which means that your application for insurance may get declined or you may end up paying high premiums with a considerable waiting period before your benefits mature. In this case, starting early could help ease the burden. Again if you do not mind paying your premiums at least for 20 years and more, purchasing an insurance policy in your 40s will not be a bad idea after all. Just be sure your premiums remain level as you approach old age as most companies tend to increase their premiums after a certain age.

 

Why should long term care be part of your retirement planning?

  • It gives you the peace of mind that you will be well taken care of without burdening your family, friends, and children emotionally and financially with caregiving responsibilities.
  • Early planning gives you ample time to weigh your options to choose the right insurance provider and negotiate a befitting policy. If you so wish, you can plan for home-based care early enough, which is what many people opt for in their old age.
  • You also have time to learn the nitty gritty’s about the contract you intend to sign, including, the services you will receive, the exceptions, the cost, and many other details before you can commit to paying the premiums.
  • Early enough means that you have the mental capacity to handle the important decisions of your life and that your desires are communicated to your family and care providers well in advance.
  • You will have taken good care of your assets and investments to prevent them from being exhausted on long term care expenses.

 

How much does long term care insurance policy cost?

Most insurers offer long term care policies to individuals from the age of 18 to around age 85. The annual average cost of living in a nursing home has been estimated at $20 per hour and home care at $90,000 annually at home. Adult daycares and assisted living facilities are not cheap either. This cost depends on several factors including:

  • State of residence. For instance, it will cost you much less living in an assisted living facility in Texas compared to New York.
  • Service provides The cost of long term care also varies by service providers. Service providers are in levels. The higher-end providers will obviously charge more expensively compared to the others.
  • Type of service received. The cost will differ from an adult daycare, private nursing home, home-based care, to an assisted living facility. Home-based care services typically include assistance with ADLs, health-related care by professional care providers, personal non-healthcare, and many others. Generally, home-based care tends to be the cheaper option but not in all cases, and nursing the most expensive option. However, nursing homes provide all-round services including meals and accommodation, medication and other health-related assistance, personal care, as well as rehabilitation and physical therapy.
  • How much informal care are you receiving? Informal care is the unpaid long-term care provided by children, friends, or family members. This care accounts for up to 20 % of long-term care costs which can significantly reduce the cost of long-term care for a senior.
  • Gender. The long term care needs for men are different from those of women. Secondly, more women are likely to require paid long term care and for a longer period compared to men.
  • How much of your care cost is paid off by Medicare or Medicaid. Much as Medicare and Medicaid do not cover long-term care in its entirety, a good portion of this cost, mostly no more than 10 %, is likely to be covered by Medicare if you’re lucky enough which further eases the financial burden associated with long term care. If you are lucky enough to qualify for Medicaid, up to 33% of your long term care costs will be covered.

For these reasons, early and informed planning for long term care is recommended.

 

Types of long-term care facilities

There are several types of long care available for an individual to choose from. These are:

  • Home-based care. This is care given at one’s place of residence. It can be personal or health-related care. Home-based care may include personal or medical care, assistance with ADLs, housekeeping, meals, transfers, and shopping. A good example of a home-based care provider is PACE (Program of All-Inclusive Care for the Elderly) which is available in each state. Some insurance policies will cover home modification costs for instance installing grab bars, safety rails, and ramps.
  • Adult daycare. This type of care is best for adults with some level of independence as it includes some physical activity and other forms of interaction like games, music, and exercise for socialization purposes. Seniors will typically report to the daycare and head back to their residences every day.
  • Nursing home care. These facilities offer 24-hours skilled nursing care to occupants. They are ideal for people who need professional medical care for instance those who are suffering from chronic conditions or those recovering from illness or injury. Usually, residents are those who are incapacitated and cannot care for themselves. Other services offered in nursing homes include end-of-life care including ADL services, rehabilitation, emergency care, and medication monitoring. Find out from your insurer if they cover accommodation only or other personal and medical services.
  • Senior housing. Senior housing facilities are available in many communities and have been modified to accommodate the needs of their occupants. The advantage of staying in a senior housing facility is that you remain in your community and keep your friends and family close. Also, services like transportation, yard maintenance, security, and sometimes meals and housekeeping are taken care of by the administration. However, these facilities only admit individuals who are 62 years and above whose requirements, both physical and medical, do not demand high-level care.
  • Assisted living. An assisted living facility carters for people who require different levels of care. As the name suggests, individuals here receive assistance with activities of daily living like bathing, feeding, and dressing but are allowed some independence. Other services offered in these facilities include meals, medication monitoring, housekeeping, medical services, and emergency care, as well as social activities. Accommodation can be a single room, an apartment, or others depending on the facility.
  • Continuing-care retirement community (CCRC). These are full communities consisting of three or four levels of care including assisted living, independent living, 24-hour skilled nursing care, and rehabilitation services among others. Depending on their needs, residents can be transferred from one level of care to another without a hassle.

 

Factors to consider when choosing long term care

Give the different types of long term care facilities, other factors you need to bear in mind to help you choose the right facility before purchasing a long term insurance policy include:

  • The specific services you would want to receive for instance you may want some independence or assistance with daily living activities, meals, housekeeping, and medication monitoring.
  • Distance from home, friends, and family as they can help with long term care and offer emotional support during this time.
  • Cost of the services. It is important to distinguish between regular costs accruing on a monthly basis as well as extra costs.
  • Personal preference in terms of the type of facility/accommodation and the services you want to receive. You may, for instance, prefer a community setting where you share dining and other social amenities with your mates. Others prefer a single room with services available indoors.
  • Are institutional rules and regulations favorable? Do you have some freedom perhaps to have friends and family come over to visit you or to be attended to by your personal doctor?
  • Which social and recreational activities are available? Are you free to exercise your religious or cultural beliefs?
  • What transportation options do you have?
  • How is the safety and security of the facility? Does it accommodate your mobility and other personal needs?  How well will you be handled when you become a resident?  Find out by visiting the facility in the company of a friend or family member to get their honest opinion.
  • Has your doctor recommended it especially in cases where you are suffering from chronic illness and will require special care?
  • How much will your insurance cover and for how long? Does your insurance have inflation protection to shield your benefits from inflation? A good insurance provider will offer an inflation guard to increase your benefits by around 5% to the annual compound to cater for inflation costs.
  • Does your insurance offer customized or fixed cover? If customized, will it cover mental illnesses like Alzheimer’s and Parkinson’s diseases and other personal services?

 

What will long term care insurance not cover?

Most insurances will not cover

  • Costs related to alcoholism and drug addiction
  • Cost of treatment in a government facility
  • Unpaid long term care provided by friends and family members
  • Hospital care/treatment costs
  • Services covered and reimbursable by Medicare and Medicaid unless they are the secondary insurance

 

Are there alternatives to long term insurance policy?

Aside from a long term care insurance policy, individuals can opt for the following long term care funding alternatives.

 

Critical illness insurance

Also known as catastrophic illness insurance, this policy offers additional cover for medical emergencies such as stroke, heart attack, and cancer. Usually, people purchase critical illness insurance on top of a standard insurance policy. These policies will typically pay out a lump sum to cater for costs not covered by or in excess of the allocation of the traditional medical policies as well as non-medical costs associated with such situations. This insurance is likely not to cover chronic illness.

 

Disability insurance

Disability insurance provides income in situations where an employee cannot carry out his duties due to a disability. There are two types of disability insurance; long term and short term disability insurance. While social security provides disability insurance, individuals can opt for private disability insurance policies if they do not qualify. Ideally, an individual should be disabled for a certain period before qualifying to receive disability benefits. The price of this insurance will depend on the elimination period.

 

Long term care life insurance policies

A few life insurance policies can cover long term care as a part of the package. Others will offer accelerated death benefits to cater to long term care expenses. This amount is usually deducted from the final benefits that your beneficiaries will receive when you pass on. However, your life insurance policy will expressly state what is covered.

 

Health savings account (HSA)

This is a savings account that receives a tax advantage as long as the individual qualifies under the high-deductible health plans (HDHPs). This account caters to medical expenses that go beyond or are not covered by the HDHP allocated limits for instance dental care and prescription medication. Contributions are made by an individual’s employer and the account has an annual predefined maximum limit for contributions.

 

Flexible Savings Account (FSA)

A flexible savings account is a type of savings account in which an employee contributes a part of their income to pay for predefined care expenses. Contributions are tax-free and should be withdrawn at the end of the agreed-upon period with an allowance of two and a half months after maturity.

 

Social security disability income

This is applicable to individuals who qualify as disabled by the standards of The Social Security Administration, who are under the age of 65. To qualify, one will not be in a position to work for a year and above and the condition is likely to result in the death of the individual.

 

Annuities

Individuals who opt to go the annuities route often do not qualify for long term care insurance policies. In this case, you can agree with your insurer to pay them an upfront payment so that they can cater to your long term care costs at a later future date. You will then receive a one-off also known as an immediate annuity or a series of payments also known as deferred long-term care annuities.

There are two types:

  • Annuity with long term care rider
  • Deferred annuity
  • Trusts

With trusts, one opts to transfer assets to another person’s control. Charitable remainder trusts and Medicaid disability trusts are two good examples of trusts that can be used to cater to long term care under a trustee’s control.

 

Conclusion

Seniors are likely to need long-term care after the age of 65therefore planning adequately for this period of life is recommended as it not only gives one peace of mind but also allows you to live a quality life when the time comes. As you have seen, there are several options that you can explore to cater to long term care. Only, be sure that whatever choice you make meets your personal needs.

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