Senior Living Essentials: Understanding Long-Term Care Insurance

Have you ever heard the term “long-term care insurance?”  Some people will tell you they have never heard of it.  Does it have something to do with my home insurance?  Others may tell you they have heard of it but thought that it was only for older people. Long-term care (LTC) insurance is something you want to plan for early so that it is there when you need it.

As you age, you might need help at home with activities of daily living such as bathing, dressing and eating; community services like adult day care and transportation; or ongoing care in a healthcare center or assisted living.

 

Here’s What You Need to know

About 14% of Americans will need more than two years of paid care. The average cost will be $120,900, the Department of Health and Human Services (HHS) says.

These costs can vary greatly, depending on how long you require care, where you live and how intense your needs are. The ways to pay for services also varies.

Traditional Medicare, the public health insurance program for people 65 and older and disabled individuals who are younger, doesn’t cover long-term care beyond some skilled care right after hospitalization for an injury or illness. Some Medicare Advantage plans from private insurers offer limited supplemental coverage for services like meal delivery and rides to medical appointments.

Veterans may access long-term care through the U.S. Department of Veterans Affairs.

Some may qualify for help through Medicaid, the joint federal and state program that covers low-income Americans. Although income limits vary by state, you typically can’t get Medicaid unless you have exhausted most of your savings and other assets beyond your primary home and vehicle.

One option to pay for such services is long-term care (LTC) insurance. But before you sign up for a policy, you need to do your research. The market has undergone major changes in recent years.

Many of these policies have gotten more expensive for both new and existing policyholders, and the options have changed. More people are choosing policies that combine long-term care with other benefits.

 

Who Pays for Long-Term Care?

Confusion about who pays is common: Nearly half of adults age 65 and older incorrectly think Medicare would pay if they needed a long stay in a nursing home. Nearly 90% of adults said paying for one year of long-term care would be impossible or very difficult for them or their families. The gap between potential needs and ready money is where long-term care insurance comes in.

 

 

What is Traditional Long-Term Care Insurance?

Data the National Association of Insurance Commissioners (NAIC) collected from insurers shows that in 2022 traditional long-term care policies covered about 6.1 million Americans. The number includes people who bought the policies decades ago.

These traditional LTC policies work much like policies for auto or home insurance: You pay premiums, usually for as long as the policy is in effect and make claims if you ever need the covered services. Because the premiums are ongoing, they can rise over time.

If you stop paying the premiums before the need arises, you usually lose the coverage. And if you never use the coverage, the insurance company keeps and invests your money to pay for other people’s claims and earn profits. “It’s use it or lose it.”

 

What is a Hybrid Policy?

The majority of long-term care policies sold since 2010 combine coverage for long-term care with another benefit, usually life insurance. These are known as hybrid or linked-benefit policies. Combination policies covered nearly 900,000 Americans in 2022.

While in some cases, you’ll pay an ongoing monthly premium for such policies. You pay one lump sum, or a fixed amount broken into several annual payments, eliminating the risk of rising premiums. In return, you get long-term care coverage, along with some amount of life insurance that will go to your heirs if you never use the long-term care benefits. The life insurance payout is reduced or eliminated if you do use long-term care benefits. Hybrid policies are more expensive than traditional.

 

How Does Long-Term Care Insurance Work?

LTC policies may limit what conditions they cover. For example, denying care for alcoholism, drug addiction or war injuries is common.

A preexisting condition, such as heart disease or a past cancer diagnosis, may not stop you from getting a policy. But the policy may not cover care related to that condition for some period after it goes into effect.

Generally, you are eligible for benefits once you can no longer perform a set number of activities of daily living — such as bathing, dressing, eating, toileting, getting in and out of bed and chairs, and managing incontinence — or become cognitively impaired.

One more issue: a waiting period that starts when you first need or use care. Benefits most commonly start after 90 days, but you might pay higher or lower premiums to adjust the waiting, or elimination, period.

Once coverage kicks in, it’s typically capped at a certain amount daily or monthly, up to a lifetime maximum or a certain number of years. Different amounts may be allowed for care in your home, an assisted living community or a healthcare center, often called skilled nursing. You pay more for higher benefit levels.  Once you are getting benefits, premiums typically are waived.

 

What to Know if You Have a Policy

People who already own traditional policies should know that if they face a premium increase, they have options. One possibility is to pay the increase and keep the benefits you signed up for — an often-attractive choice for people who can afford the price hike and have generous older policies.

Another option is to accept reduced benefits at your old premium rate. Dropping a policy and seeking out new coverage when you are older and less healthy will almost certainly cost you more. As long as you keep paying, insurers can’t legally drop you.

 

 

To Buy or Not to Buy: making choices

Unlike health, home or auto insurance, “this is a policy you buy only once,” Before you make a choice, including whether to buy a policy at all, consider the following:

Your budget. If you already have trouble paying bills or other important needs, adding an LTC insurance premium isn’t a good choice, according to a guide from the National Association of Insurance Commissioners. A good rule of thumb: premiums shouldn’t take more than 7% of your income.

Your assets. If you are looking at long-term care insurance as a way to protect your assets for heirs or yourself, it’s most likely to pay off if you have at least $75,000, not counting your primary home. If you have less than $30,000, you may pay more than that in premiums, the group says.

Your overall financial condition. Some people will look at their assets and spending and decide they can cover long-term care without insurance. Some may plan to sell a second home, downsize from a family residence or get a reverse mortgage to cover such expenses. Others may set up a longevity fund to cover not only long-term care but also all the costs that come from living longer than average. One advantage is total flexibility in how you spend your care dollars.

The full range of insurance options. Talk with agents authorized to sell policies from multiple companies and with financial advisers who can put your options into the context of your overall financial plan. It’s important to have some sort of third party who doesn’t have a vested interest in any one insurance company helping you navigate the process. Because states regulate insurance, your options can vary greatly depending on where you live.

Your age and health. The older you are when you buy long-term care insurance, the more it will cost. Health problems also will make it more expensive or, in some cases, impossible to get coverage. If you already have memory loss or trouble with activities of daily living, you are unlikely to qualify.

Some insurers require a physical exam or medical-record review. Others conduct only health interviews via telephone. Traditional policies have more stringent health requirements than hybrid ones. While experts used to suggest shopping for long-term care insurance by your early 60s, many now suggest starting in your 50s or even your late 40s.

The longer you wait to purchase a long-term care policy, the more it will cost you. For a 55-year-old man, the annual premium with an inflation rider that boosts benefits by 3% each year is an estimated $2,075 a year. The cost to the man who waits until 65 will jump about 51% to $3,135 a year.

If a woman buys a long-term care policy with that 3% annual inflation adjustment at 65 rather than at 55, her premiums will increase around 43% to $5,265 a year.

The cost of your long-term care policy is based on:

• How old you are when you buy the policy
• The maximum amount that a policy will pay per day
• The maximum number of days (years) that a policy will pay
• The maximum amount per day times the number of days determines the lifetime maximum amount that the policy will pay
• Any optional benefits you choose, such as benefits that increase with inflation

Many long-term care insurance policies have limits on how long or how much they will pay. Some policies will pay the costs of your long-term care for two to five years, while other insurance companies offer policies that will pay your long-term care costs for as long as you live—no matter how much it costs. But there are very few that have no such limits. It is a good idea to request information on the company’s premium rate history.

 

 

Navigate Your Long-Term Care Insurance with Confidence

Whether you are living at home or you are ready to consider a move to a senior living community, know what your long-term care insurance policy will do for you. The Ohio Masonic Communities will be glad to discuss your long-term care insurance, so you understand what your coverage provides and when it’s applicable for you to begin receiving the benefits.

 

 

If you or a loved one  is considering moving to a senior living community, consider taking a tour of one of The Ohio Masonic Communities campuses. With three senior living communities across the state of Ohio – Browning Masonic Community in Waterville, Ohio, Springfield Masonic Community in Springfield, Ohio, and Western Reserve Masonic Community in Medina, Ohio – each offers premier living options all pet-friendly with exceptional experiences so older adults can live their best lives. If you are interested in learning more about one of our communities, give us a call at 1-877-881-1623 or schedule a visit.