Purchasing long-term care insurance now can protect retirement savings later.
Even though we all hope for robust health as we age, around 7 in 10 people turning 65 today will need long-term care over their lifetime, according to the U.S. Department of Health & Human Services. For many, long-term care costs could quickly wipe out retirement savings.
The national annual median cost for an assisted living facility at about $51,000 a year, and the median cost for a private room in a nursing home is $105,000, according to the 2020 Genworth Cost of Care Survey. The median cost for home health aide services is around $55,000.
Purchasing long-term care insurance can help ensure that your retirement savings won’t be drained to pay for long-term care. Long-term care insurance typically covers long-term expenses for certain types of in-home care and support or care in a nursing home or other facility.
Below are six things to know before purchasing long-term care insurance.
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1. Medicare won’t pay for long-term care
Many people falsely assume that Medicare, the government health insurance program for people age 65 and over, will pay long-term care costs like nursing home or assisted living facility expenses, in-home skilled nursing or help with bathing, dressing and toileting. However, Medicare generally pays for those kinds of services for only a limited number of days with a doctor’s order after a hospital stay.
Medicaid, a state-administered program, provides government assistance to pay for nursing home or other long-term care expenses. To be eligible, however, you must meet financial requirements that may require spending down your assets to qualify.
Receiving Medicaid for nursing home care could affect your beneficiaries as well. That’s because after a Medicaid recipient dies, Medicaid may demand reimbursement of money paid for that person’s nursing home care from his or her estate through a process called estate recovery.
2. Long-term care insurance can be pricey
The annual premium in 2019 for a long-term care insurance policy with an initial pool of benefits of $164,000 (value reaching $386,000 at age 85) was $1,925 for a 60-year-old man and $3,000 for a woman the same age, according to the American Association for Long-Term Care Insurance (AALTCI), a national organization and resource for consumers and insurance professionals. Average annual combined cost for the same policy for the couple was $3,400.
3. The benefit period isn’t finite
Most buyers purchase long-term care insurance for a two-year, three-year or four-year benefit period. However, benefits won’t necessarily end after that period. The long-term care benefit period is “simply a multiplier” based on the number of days, according to LTC Tree, a long-term care insurance resource.
For example, if you buy a policy with a two-year benefit period that pays $100 a day, your long-term care benefit is the number of days (730) x $100. So, if you don’t use the full $100 benefit each day, your benefit could last longer than two years.
4. Getting approved is harder as you age
As people age, they often have more health issues that could make approval for long-term care insurance more difficult. More than half (51%) of long-term care insurance applications for people ages 75 and older were denied in 2019, according to AALTCI.
Applicants 49 and younger had the lowest rate (16%) of denial, and the rate of denied applications climbed to 21% for age 50 to 59 and 24% for ages 60 to 64. For ages 65 to 69, the percentage of denied applications jumped to 33% and close to half (44%) for ages 70 to 74.
“It’s clearly to your benefit to start the process at younger ages, certainly while in your 50s,” says the AALTCI.
Find out: 5 Medicare Myths About Long-Term Care
5. Certain pre-existing conditions could rule you out
While common health issues such as high blood pressure or a previous cancer diagnosis probably won’t raise red flags with long-term care insurers, certain pre-existing conditions can make it impossible to qualify for long-term care insurance, according to the AALTCI.
Pre-existing conditions that lead to an application’s denial include currently using a wheelchair, multi-pronged cane, walker, crutches or oxygen or needing assistance with activities of daily living such as bathing, dressing, feeding, toileting or transferring from a bed to a chair. Your application could also be denied if you currently need a home health aide, adult day care, assisted living or nursing home care.
There are also many diseases or conditions that can cause an application to be denied, including Alzheimer’s Disease or dementia, kidney failure, liver cirrhosis, mid to advanced multiple sclerosis, ALS, Parkinson’s Disease and several others, according to the AALTCI.
6. Don’t overlook “hybrid” insurance policies
Traditional long-term care insurance premiums can increase over time, but when you purchase a “hybrid” long-term care insurance policy – a policy combining life insurance with long-term care insurance – the premium can be locked in and will never increase. Another advantage of a hybrid long-term care insurance policy is that you can pay the hybrid policy off with a large lump sum or over a number of years.
One more huge benefit: If you never need long-term care the life insurance payout, which is often an amount similar to the amount paid for the policy, is tax-free to beneficiaries.
Published by Debt.com, LLC