Insurance
Why Plan for Long-Term Care?
Planning for long-term care is essential because a significant portion of the population will need it. According to recent studies, about 49 percent of men and 64 percent of women reaching age 65 will need significant long-term care during their remaining years. This care can include help with basic daily activities such as bathing, dressing, and eating, as well as community services like adult day care and transportation, or ongoing care in a nursing home or assisted living residence.
Types of Long-Term Care Insurance
There are several types of long-term care insurance policies available. Traditional long-term care insurance, also known as standalone long-term care insurance, exclusively covers long-term care expenses in your home or a facility. Hybrid long-term care insurance combines long-term care with life insurance or an annuity, providing coverage for extended care along with a death benefit if the long-term care is not needed. Another option is life insurance with a long-term care rider, which allows you to use some of the life insurance policy’s death benefit to pay for long-term care needs while you’re still alive.
Factors Affecting Premiums
The premiums for long-term care insurance are influenced by several key factors. Age is the single largest element, with younger individuals paying lower premiums. The daily benefit amount, which is the maximum amount the plan will pay for one day of care, also affects the premium. Benefit limits, which can range from one year to lifetime coverage, impact the cost as well. Inflation protection, which ensures the daily benefits increase over time to keep pace with rising care costs, is another important consideration. The elimination period, or the period during which you pay out of pocket before the plan begins to pay, also influences the premium.
Eligibility and Application Process
To buy a long-term care insurance policy, you need to fill out an application and answer health questions. The insurer may request medical records and conduct an interview. You are eligible for benefits when you cannot perform at least two out of six activities of daily living (ADLs) on your own or if you suffer from dementia or other cognitive impairment. The ADLs include bathing, caring for incontinence, dressing, eating, toileting, and transferring.
Choosing the Right Policy
Choosing the right long-term care insurance policy depends on several factors, including your health, financial situation, and personal preferences. Consider how much life insurance and long-term care insurance you need. Think about how you want to pay your premiums, whether annually or in a lump sum, and whether you want the option to lock in your premium to avoid future increases. If your health is not ideal, you may want to look into policies with more relaxed underwriting guidelines.
Tax Benefits and Additional Considerations
Long-term care insurance policies can offer tax benefits. Premiums paid for long-term care insurance can sometimes be deducted from your state and federal taxes. Life insurance benefits are almost always paid out tax-free. Additionally, some policies are part of state partnership programs, which can provide additional benefits and protect your assets if you need to apply for Medicaid.