Long-term Care Insurance: Good or Bad?

As the baby boomers head into their 60s and 70s, many of them might ask themselves — what will become of them in the future? Will they be able to maintain both their mental and physical abilities? One would hope so. But the truth is that many boomers will be in need of some type of long-term care (LTC). If you or a loved one is among them, here are some questions for you to consider, along with some answers about how to help with your planning for the years ahead.

Is it Necessary?

LTC insurance policies help pay for the costs of long-term nursing care, or assistance with the activities of daily living (ADLs), for example, eating or bathing. Many of these policies will cover care that is provided in the home, an assisted living facility or a nursing home, however, some LTC policies may restrict your coverage to licensed facilities. If you do not have this type of coverage, you most likely will be required to pay these expenses out of your own pocket.

Medicare or health insurance policies will generally cover such expenses only if they are temporary, meaning, during a period over which your health is continuing to improve, such as recovering from surgery or a stroke. Once you’ve reached a plateau in your recovery and are unlikely to achieve further improvements, health insurance or Medicare coverage will usually cease. That’s when LTC insurance may be beneficial. But you will need to weigh the value of LTC insurance benefits over the cost of premiums, which can cost thousands of dollars annually.

Buy Now or Later?

The younger you are when you first purchase a policy, the lower the premiums typically will be. Also, the likelihood of being declined for a policy increases as you age. Having certain pre-existing health conditions, such as Parkinson’s disease, can also make it more difficult, or even impossible, for you to obtain an LTC policy. Even if you can still obtain such coverage, it will be at a greater expense.

Therefore, purchasing a policy earlier in life, may be the ideal choice for you. However, you should also note that you will potentially be paying policy premiums over a much longer period. You can often reduce your premium costs by selecting a shorter benefit period, or a longer elimination period.

Do You Understand the Particulars?

It helps to understand the particulars and terminology when you are considering purchasing a LTC policy.

Benefit trigger – this is the criterion the insurer uses to determine when the need for LTC begins. Examples of this include cognitive impairment or the inability to perform several ADLs yourself.

Elimination period – is the period of time between the start of the benefit trigger and the time that the policy starts to pay benefits. This can run from 30 days to several months. The longer the elimination period, the less costly the premiums.

Benefit period – is the period of time during which the policy will pay for care. This period can run from a year or two to an unlimited period of time.

Inflation protection – this increases the total dollar value of your benefit for each year of the policy. This will become more important if it’s likely that you will not begin to receive your benefits for a decade or more.

Exclusions – are conditions which are not covered by a policy. For example, some policies will not cover treatment for certain addictions or self-inflicted injuries.

Many policies are classified as either reimbursement or indemnity.

Reimbursement policy – (the most common type), you’re reimbursed for the costs which you incur up to a predetermined daily or weekly limit. The policy may also stipulate that care be provided in a licensed facility.

Indemnity policy – you receive a predetermined amount of money for payment of your expenses, even if your total bill is less than the amount allowed in the policy. For example, if the caregiver bills you for $150, but your policy is for $200, you would receive the entire $200. As you might expect, indemnity policies do tend to be more expensive.

Consult Your Financial Advisor

The decision to purchase LTC insurance can be a windfall or a bust. That’s why you will need to consult with your financial advisor. They can help you figure out the amount of coverage you or your loved ones may need.

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