Anyone who has had to take over care of a declining family member knows that helping someone who is unable to perform basic daily activities can be both exhausting and expensive. According to the website medicare.gov, “this year, about nine million men and women over the age of 65 will need long-term care. By 2020, 12 million older Americans will need long-term care.”
Medicare.gov goes on to point out that the majority of these older Americans will be cared for by family members, but many individuals are concerned about the strain that would put on their families. One alternative available for those worried about burdening their families is Long Term Care Insurance (LTC). While there are many benefits to purchasing an LTC policy, there are also several pitfalls to be careful of. Here is what you need to know about Long Term Care Insurance:
What Is It?
This insurance covers any type of care that is necessary when the policy-holder can no longer perform daily activities. This care can include in-home care, nursing home facilities, adult day care, hospice care, assisted living, and Alzheimer’s facilities.
Most of those who require the type of long term care that this insurance pays for do not have a “traditional” illness. Moreover, they are simply no longer able to go about their regular daily activities, including dressing, bathing, eating, and walking, among others. Generally, you become eligible for benefits when you are expected to require care for at least 90 days and/or are unable to perform two or more daily activities.
How It Works
Unlike health insurance, where the insurance company directly pays the care-giver, LTC insurance generally requires that the policy-holder pay out-of-pocket for the care, and then submit proof of service in order to be reimbursed. In addition, there is usually an elimination period — that is, a period of time where you will have to pay for care before you can submit a claim. These elimination periods can span anywhere from 20 to 120 days — and the longer your elimination period, the lower your premiums.
The Costs Involved
The cost of LTC insurance can vary widely from insurer to insurer, and from one policy to the next. As with any insurance, you can pay less in premiums if you choose to purchase less coverage. For example, if you only purchase a policy that covers three years of long term care — which is about the average length of stay in a nursing home — you will pay a great deal less than if you insure for any and every possible contingency.
Often, individuals are encouraged to purchase LTC Insurance when they are relatively young—in their 40s or 50s—and “lock in” the lower premium rates. Unfortunately, as Kathy Kristof reported on CBSNews.com, the promise of locked in rates is not necessarily true. While the insurance company cannot raise your individual rate, they can raise the rate of blocks of policy-holders. This means that you will often end up paying more as you age and become more likely to file a claim.
The Bottom Line
Ultimately, if you plan to purchase LTC insurance, it pays to also have a healthy emergency fund — both so you can “self-insure” and avoid paying expensive premiums now, and so that you have the money on hand to pay for care prior to receiving your benefits as reimbursements if you ever need to use the insurance.