Long-term Care Insurance: Buy Cautiously

Evelyn is 47 and recently divorced, with a son in high school. As she looks toward the future and her retirement, she is considering adding long-term care insurance to her portfolio, but she’s not sure if it’s a wise investment. She doesn’t want her son burdened with caring for her, but the premiums are much higher now that she’s divorced, and her current retirement investments are doing well. It’s quite possible she’ll have enough money to fund her own care by the time she needs it—if she needs it. Her family has no history of stroke or diseases such as Alzheimer’s or Parkinson’s. Unsure of what to do, she’s made an appointment with her financial advisor to discuss her options.

Long-term care insurance helps with the costs of long-term care that are usually not covered by health insurance, Medicare, or Medicaid. When someone is unable to perform the activities of daily living on their own—bathing, dressing, eating, continence, toileting, and transferring—often due to injury, illness, disability, or impairment, long-term care insurance will help pay for assistance to perform those tasks.

Sixty-nine percent (69%) of Americans will use some form of long-term care for an average of three years—and the costs of long-term care can be staggering. The average cost of skilled nursing care in Washington State is $323.00 per day. That’s $9,800.00 per month and over $117,600.00 per year. After only one year in a nursing home, most Americans will have no savings left. Long-term care insurance can protect against the risks that come with this kind of long-term care, but you need to consider both the benefits and drawbacks of purchasing a policy and remember that not all policies are the same.

There are several benefits to long-term care insurance. Policies help to preserve your savings and assets for your heirs and make it less likely that you will need to borrow money to pay for long-term care. Long-term care insurance makes long-term care affordable, so that you don’t have to rely on family or friends to take care of you. With long-term care insurance, you may have more ability to choose where you receive care, such as at home for longer or in an assisted living facility, and the services you receive, such as home-delivered meals or adult daycare services.

As great as these benefits are, however, long-term care insurance is not a panacea. When long-term care insurance first appeared on the market about 30 years ago, insurance carriers expected policyholders to drop the insurance as they aged. When this didn’t happen, carriers were faced with a much higher number of claims than they’d anticipated. What started out as an industry with over 100 carriers has now dropped to about a dozen, and those left have significantly raised premium rates to offset the claims—and may continue to do so in the future. Carriers have also made it difficult to file a claim. Before paying out benefits, long-term care insurance policies generally require a physician to certify that the policyholder is unable to perform at least two of the activities of daily living. Some carriers have even more stringent requirements.

If you’re thinking of purchasing long-term care insurance, there are some things to consider before you buy a policy.

Premiums for long-term care insurance vary by age, gender, marital status, and other factors. The older you are before you purchase a policy, the more you will pay. Also, single women typically will pay more than men or married couples. Other factors include whether your policy adjusts for inflation (your premium will be higher if it does), and what your elimination period is (the number of days you pay for care before your policy kicks in). The standard elimination period is 90 days, but you can increase that in order to lower your premium.

If you think that long-term care insurance would benefit you, be sure to do your research. Every person’s situation is unique. Talk with a financial advisor and other experts before purchasing a policy. Learn the differences in policies, read the fine print, and know what you want out of a policy. If a policy doesn’t offer the services you want, do not purchase it.

Navigating the waters of long-term care in the second half of life can bring feelings of uncertainty and confusion with it, but it doesn’t have to be a complete mystery. Talk to those who can professionally guide you through all that it entails, choose what is best for you, and sail confidently into your future.

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