The Values of Long Term Care Insurance
Long-term Care Insurance (LCI) is a form of insurance that covers what Health Insurance or Medicare (or in some cases, Medicaid,) won’t when you’re aging and/or have increased needs in term of daily care. Those who take advantage of their LCI, usually aren’t sick in the traditional sense – or even old for that matter – but instead are experiencing trouble performing at least two of the six activities of daily life. (Bathing, personal hygiene and grooming, dressing, toilet hygiene, functional mobility – such as getting in and out of bed, an self-feeding.) Relying on LCI to live comfortably can be something that you’ll need when you’re much older – or – something that you could need sooner if your health or well-being take an unexpected turn for the worse.
While it’s tempting to subscribe to the “It won’t happen to me” school of ideology – especially because LCI can be expensive – this is one of those life lessons that is so much more difficult to endure should you have to learn it the hard way. A home health aide can cost in the range of $21 per hour*. Let’s just say that at some point in your life – young or old – you need someone to come to your house for 4 hours a day to help you take care of you. At that rate, you’re looking at spending a little less than $2500 per month on in-home assistance. In 2016, the average annual cost for a private room in a nursing home was $92,378**. These are numbers that can quickly become unsustainable without the protection of insurance.
So…here are three key thoughts for you to consider as you ponder the possibilities of adding Long-Term Care Insurance to your retirement strategy.
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1
Sign Up While You’re Young
As with all insurance, the younger and healthier that you are, the lower your premiums will be and the chances that you’ve already had a disqualifying health event are low. According to the American Association for Long Term Care Insurance, the percentage rate for insurance denials of applicants under the age of 50 is at 7.3%.*** Conversely, the denial percentage rate for an applicant aged 70-79 is 44.8%. So sooner is better.
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2
Do the Research
Lots of LCI policies have very distinctive fine print. Standard exclusions include illness due to drug or alcohol abuse or self-inflicted injures. That said, some policies exclude Alzheimer’s Disease, Heart Disease, or Diabetes. It’s important to have a clear idea of exactly what is and is not covered before you sign up.
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3
Be A Savvy Shopper
Joint policies that cover two cohabitating adults (this definition can even include siblings) is a way to reduce the cost of the premium. Moreover, there are other choices that you can make to make monthly premiums more affordable.
You can reduce the term that the care policy is good for. Typically terms are for 3-5 years. You might be able to reduce the term to – let’s say – 2 years in exchange for a discount to your premium.
Another idea is to choose a longer elimination period. An elimination period is an amount of time that you need to wait before coverage kicks in. (During that time, all expenses are out of pocket.) If you opt to make your elimination period longer – them your premium may drop.
You can also be conservative with coverage. Either by deciding to only cover one (younger, healthier) spouse under the assumption that the younger will personally take care of the older individual before needing long-term care for themselves. But – that’s a big bet. Another approach to cut down the cost is to reduce the amount of daily coverage that will be allotted you. Instead of buying $250 worth of coverage a day, consider purchasing $150 worth of coverage. This approach will reduce your options when the big moment comes, but it will still leave you in a far better place than if you were to forego LCI all together. (nota bene: DO opt in for inflation protection. Who knows what $150 will be worth in 20/30 years from now.)
*http://www.npr.org/2012/04/27/151303609/the-cost-of-elder-care
** http://www.elderlawanswers.com/nursing-home-care-costs-are-only-slightly-higher-in-2016-15615*** http://www.aaltci.org/long-term-care-insurance/learning-center/are-you-even-insurable.php
This material is for general, educational use and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact Annette, or your insurance agent. Guarantees are based on the claims paying ability of the issuing company.