Did you know that 52% of people over the age of 65 will need long term care at some point?
If you plan to pay out of pocket for these expenses, average out of pocket spending could be as high as $140,000. To tackle these expenses without facing a financial crisis, it’s important to have a plan. For some families, long term care insurance is part of that plan.
What is Long Term Care Insurance
Long term care insurance is a policy that provides individuals with financial assistance in paying for professional services if they fall ill, experience a disability or otherwise need support with activities of daily living and medical care. While benefits can vary, most policies provide a set daily amount of coverage once a person is unable to perform two out of six activities of daily living independently. Some policies also include inflation riders so that the daily allowance increases over time to better keep pace with statewide and national cost of living standards.
Long term care policies typically cover:
- In Home Care
- In Home Health Not Covered Under Medicare or Private Insurance
- Home Modifications
- Nursing Home Care
- Assisted Living Facilities
- Adult Daycare
Purchasing long term care insurance can provide a family with peace of mind if a loved one is unable to safely remain at home without support or needs a higher level of care. However, these policies are often costly. Typical long term care insurance costs often exceed $2,000 per year. There are some savings for couples when both purchase policies as well as for individuals who purchase their policies at age 50. However, statistically, 89% of long term care claims are filed after age 70, so some families find that it makes more sense financially to wait until the age of 60 to purchase a policy even with the higher premiums.
Alternatives to Long Term Care Coverage
Long term care insurance premiums have steadily increased over the years, and the number of agencies providing long term care coverage has declined. For these reasons, many families are looking for alternatives to provide coverage for their own or a loved one’s current or future care needs.
Convalescent insurance offers short term coverage in the amount of $50 to $300 per day for a time span of up to one year. Families who choose this option might use it to supplement Medicare coverage for home health or rehabilitation after a hospital discharge. The premiums for a short term care policy are typically lower, and most policies offer immediate coverage upon approval. So, this option is ideal for patients who have been declined for long term care coverage, seniors over the age of 80 and families who are faced with a tighter budget but still want some financial protection.
Critical Care Coverage
Critical care or critical illness coverage offers a one-time cash payment typically ranging from $10,000 to $1,000,000 after a person receives a qualifying diagnosis such as cancer, stroke or heart attack. These policies also sometimes provide daily or monthly benefits for rehabilitation services or continuing care. The downside of this coverage option is that it will not apply to a previous diagnosis. A person must be free from the health condition for which they’ll receive coverage at the time that the policy is purchased. Coverage is also often only for a specific list of diagnoses or health conditions and typically does not include Alzheimer’s or other forms of dementia.
Hybrid Life and Long Term Care Policies
Polices that combine life insurance with long term care coverage are also becoming increasingly popular. This type of policy allows people to access the death benefit that their beneficiaries would be paid out for home care, short term rehabilitation, assisted living or nursing home care. Essentially, it makes it easier financially to meet their care needs while alive. The biggest benefit of this policy is that if funds aren’t used for long term care needs, then the death benefit is paid out after the covered person passes away. However, medical underwriting for these policies is strict, and the premiums often have to be paid in one lump sum, up front. This can make them a difficult option for many families to afford and in that way, a less attractive option than long term care insurance.
Health Savings Accounts
For those who plan far enough in advance for their long term care needs, it’s sometimes possible to take advantage of health savings accounts (HSA) through an employer. In 2019, the HSA contribution limits are $3,500 for an individual and $7,000 for a family plan. Money in an HSA rolls over from year to year. A withdraw is tax-free as long as funds are used for a qualifying medical expense. Long term care does count as a qualifying expense.
Self-insuring is essential saving enough to cover the future cost for home care, home health or other long term care needs. For most families, this involves planning ahead. Some seniors might use savings, while others might dip into the equity in their home. A reverse mortgage is one way to do this. In some cases, adult children and other family members chip in to make care more affordable. A portion of an investment fund might also be set aside to pay for future long term care needs.
If a family plans to use personal savings to pay for long term care, it is important to gather a basic estimate of what that care will cost. This can be challenging, but tools are offered that can help a person to calculate costs and make future estimates. Comparing options is also helpful such as analyzing the difference in cost between an assisted living facility or in home care. With in home care, many families find that managing costs is easier because they have more control over which services are provided and how many hours of care they request. Agencies like Salus Homecare of San Diego also offer a range of services so transitioning from home care to home health and palliative care or hospice care is easier as needs change or new challenges present.
Perhaps the most important takeaway from this information is that it’s important to have a plan. This is true no matter if your goal is to age in place or transition to a facility at some point in life. Whether that plan includes some form of insurance or a roadmap toward achieving a personal savings balance, take time to consider what your future needs might be and how to protect yourself financially should the day come when you need a higher level of care.