If you are wealthy, you can afford help at home or care in an assisted living facility or nursing home. If you’re poor, you can turn to Medicaid to find nursing homes or home care workers. But if you’re middle class, you have a delicate decision to make: whether to buy long-term care insurance. This decision is more complex than other types of insurance because it is very difficult to accurately predict your finances or your health in the coming decades.
What is the difference between long-term care insurance and health insurance?
Long-term care insurance is intended for people who may develop permanent cognitive problems such as Alzheimer’s disease or need help with basic daily tasks such as bathing or dressing. It can help pay for personal assistants, adult day care, or institutional placement in an assisted living facility or nursing home. Medicare does not cover these costs for those with chronic illnesses.
How does it work?
Policies generally pay a fixed rate per day, week or month – for example, up to $1,400 per week for home care aides. Before purchasing a policy, find out what services it covers and how much it pays out for each type of care, such as: B. for a nursing home, an assisted living facility, a home care service or an adult day care facility. Some policies pay family members who provide care; Ask who is considered a family member and whether insurance will cover the training.
You should check whether and by how much benefits will be increased to take inflation into account. Ask about the maximum amount the policy will pay out and whether the benefits can be shared by a domestic partner or spouse.
How much does it cost?
According to a survey by the American Association for Long-Term Care Insurance, in 2023, a 60-year-old man purchasing a $165,000 policy would typically pay about $2,585 per year for a policy that growing at 3 percent per year adjusted for inflation, a nonprofit that tracks insurance premiums. A woman of the same age would pay $4,450 for the same policy because women tend to live longer and are more likely to take advantage of it. The higher the inflation adjustment, the more expensive the policy becomes.
If a company has paid out more than expected, it is more likely to increase interest rates. Companies need approval from your state’s regulators. So you’ll want to find out whether the insurer is asking the state insurance department to raise rates for the next few years – and if so, by how much – since companies can’t raise premiums without approval. For contacts for your state’s insurance department, see the National Association of Insurance Commissioners directory.
Should I buy it?
The cost probably isn’t worth it if you don’t own a home or don’t have much money saved and don’t receive a significant pension beyond Social Security. If this applies to you, you’ll likely be eligible for Medicaid once you’ve spent what you have. However, insurance may be worth it if the value of all your savings and possessions, excluding your primary residence, is at least $75,000, according to a consumer guide from the Association of Insurance Commissioners.
Even if you have savings and valuable items that you can sell, you should think about whether you can afford the premiums. While insurers can’t cancel a policy after they’ve sold it to you, they can – and often do – increase the premium rate every year. The insurance commissioners group says you should probably only consider insurance if it’s less than 7 percent of your current income and you can still afford it without pain even if the premium were increased by 25 percent.
Many insurers sell hybrid policies that combine life insurance and long-term care insurance. These are popular because if you don’t claim the care benefit, the policy will pay out to the beneficiary after your death. But compared to long-term care insurance, hybrid insurance is “even more expensive and the coverage isn’t great,” said Howard Bedlin, director of government relations and advocacy at the National Council on Aging.
When should I take out a policy?
If you wait too long, you may develop medical conditions that make you too risky for any insurer. If you buy too early, you may be diverting money that would be better invested in your retirement account, your children’s college tuition, or other financial priorities. Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says the “sweet spot” is when you’re between 55 and 65 years old. People who are younger often have different financial priorities, he said, making premiums more painful.
When can I take advantage of the benefits?
Make sure you understand the circumstances under which you can receive benefits. This is known as a “trigger.” Policies often require proof that you need assistance with at least two of the six “activities of daily living”: bathing, dressing, eating, getting up and moving, continence, and the ability to get to the accommodation and use the toilet. You can also claim on your policy if you have been diagnosed with dementia or another type of cognitive impairment. Insurance companies typically send a representative to perform an evaluation or require an evaluation from your doctor.
For many policies, payment only begins after you have been paid for a set period of time, e.g. B. 20 or 100 days, paid out of your own pocket. This is called the “elimination period.”
Jordan Rau is a senior reporter at KFF Health News, a company formerly known as the Kaiser Family Foundation.