The number of seniors in the United States now outweighs the population of younger generations, and with life expectancy higher than at any other point in American history, we must consider how older adults will be supported during their retirement years. Long-term care costs are also on the rise as older adults require increasing levels of care as they age. Long Term Care Insurance (LTCI) is helping many families bridge the financial gap, but what is it and what are its benefits?
Long Term Care Insurance, Defined
Long Term Care Insurance, commonly referred to as LTCI, is insurance coverage that is designed to help pay for the cost of nursing homes, in-home assistance, and other medical and healthcare bills. These policies are created and earmarked specifically for those older adults without a medical ailment, but still require assistance in the course of completing basic daily activities such as eating, drinking, walking, dressing, and bathing.
The average LTCI policy offers payments when an older adult loses the ability to perform two or more of the daily activities mentioned above. Most policies do not cover the full expense of hands on assistance around the home or in a nursing home. LTCI policies often have a set amount per day that is paid out in assistance, with a cap on the yearly benefits available.
For example, if you spend $150 each day on a full-time caregiver, an LTCI policy might pay as much as $100 each day in support until a cap of $165,000 (as an example) is met. Once that cap is met, the full daily cost is the responsibility of you and your family members.
Pros & Cons of LTCI
Every decision comes down to a comparison of pros and cons. As you contemplate purchasing a long-term care insurance policy for yourself or a parent, keep the following pros and cons in mind:
- Pros: LTCI allows your parent to obtain financial support to help cover the cost of long-term care, rather than using retirement funds and family assets paying for medical or hands on assistance. LTCI helps reduce the financial burden on you, as the adult child of an older adult, to pay for their care out of pocket. Additionally, it removes the psychological stress that comes from worrying about how to cover long-term care costs.
- Cons: Premium hikes are common, especially as an individual continues to age and the insurance provider has to pay out benefits over a longer period of time. The cost of care may, in some cases, be easier to cover out of pocket than by spending more money on an LTCI policy.
Helpful Information about Long Term Care Insurance
Still interested in an LTCI policy? You'll want to keep the following information in mind when comparing policies from different providers. First and foremost, understand that while there is no perfect age at which you should purchase an LTCI policy, the sooner you start the better. You'll pay lower premiums each month when you buy a policy at 50, compared to that same policy at 55. Why is that?
There are health factors that play into the insurability of your older parent and the cost of monthly premiums. Certain health conditions may prevent a policy from being purchased, but those factors vary from one provider to the next. This is why it is so important to purchase these policies at a younger age, when your parents are still healthy. Additionally, many providers offer a 15% (on average) discount for married couples seeking LTCI policies.
Keep in mind that the government isn't here to cover the cost of an individual’s long-term care when an individual has assets or cash available. Medicaid is designed to provide assistance to low-income Americans only, and Medicare only provides 100 days of assistance for specific conditions. Medicare is not a long-term care solution.
As you work to select a Long Term Care Insurance plan, take the time to compare costs and coverage levels, and determine how much assistance you may need. Contemplating these factors ahead of time will save both you money.