Key Answers to Questions about Long-Term Care Insurance
Long-term care insurance is designed to help defray the cost of a nursing home or other ongoing care not covered by Medicare. The cost of this type of care can be thousands of dollars a month, and can deplete a lifetime of savings in a short period of time.
But is long-term care insurance really necessary for most people? And is it a good buy? Here are some answers to the most pressing questions about this product.
Does everyone need long-term care insurance?
No. Medicaid can pay for long-term care for people with limited financial assets. If you have significant assets that you want to pass on to heirs, long-term care insurance is something to consider.
How likely am I to need long-term care?
About 35 percent of people who reach age 65 will use nursing home care at some point, according to a 2005 study. Only about 5 percent of those who reach age 65 will spend more than five years in nursing facilities.
What benefits will I receive?
Benefits can vary widely, depending on the premium you are willing to pay. Generally, benefits are paid on a daily or monthly basis for a specific length of time, up to a maximum benefit amount. A lifetime policy is the most extensive and most costly. Many people opt for three to five years of covered care expenses.
With a "pooled benefits" policy, spouses can share coverage; if one spouse doesn't use the full benefit, the other can use it, up to the maximum allowed under the policy.
At what age should I buy the insurance?
There's no universal answer, although the typical buyer is age 55 or older. Some experts recommend switching from life insurance to long-term care insurance after the children have graduated from college and you have no more dependents at home. Buying at a younger age results in a lower premium, but you'll be paying it for a longer time. One benefit to buying at a younger age is that you're less likely to have a preexisting condition that might limit your coverage or raise your premium.
What will my policy cover?
Services are generally provided whenever a person requires assistance in the "activities of daily living,"" such as dressing, bathing and eating. Be sure that your policy specifically covers cognitive impairment due to senile dementia or Alzheimer's disease as well as other illnesses. Most policies cover nursing homes, assisted living facilities and home-care services such as physical therapy and home health aides, but read the policy carefully to determine exactly which services are covered and which are excluded.
What other factors affect the cost of a policy?
Most plans include an "elimination period," which is the number of days the policy owner pays for care before the insurance kicks in. Think of it as an insurance deductible. A policy with a 90-day elimination period will cost less than a comparable policy with a 30-day period, but you'll be responsible for the cost of your first 90 days of care.
A policy with inflation protection also costs more but can be a wise investment, particularly for younger buyers.
Should I get a policy linked to my life insurance policy?
Known as linked or combo policies, some long-term care policies are linked to life insurance. If you need care at some point, the policy will pay a monthly benefit that will offset your life insurance benefit. If you never need long-term care, your heirs will receive a death benefit. Some such policies may require a significant up-front contribution.
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