Long-term care insurance is a viable alternative for many individuals and an integral part of planning for the future.
As baby boomers get closer to retirement age, there has been a shift in public policy, with more focus on assuring the solvency of such programs as Medicare and Social Security that provide life security to Americans. In so doing, both Democratic and Republican lawmakers have signaled that it is critical for Americans to assume personal responsibility for planning their long-term care and security.
Long-term care (LTC) is best defined as ongoing nursing, social, and rehabilitative personal care, or services provided in a nursing home, one’s own home, or an alternative site, such as an assisted-living facility. Many people underestimate the costs of LTC and don’t plan adequately for their future. Planning for LTC is crucial to retirement security plans because without it, individuals may be faced with insurmountable long-term care costs that can quickly deplete their life savings. A long-term care insurance policy pays you a daily benefit to cover the cost of long term care. Long term care is ongoing care for people with chronic disabilities. It includes custodial care – assistance with activities of daily life like eating, bathing and getting dressed – in a nursing home, an assisted living facility or in the patient’s own home.
It is a common misconception that either Medicare or major – medical insurance will cover LTC expenses. Medicaid covers LTC only after a person “spends down” his or her assets to qualify for assistance. Families are at risk of forfeiting hard-earned assets to pay for a loved one’s long-term care needs. The average cost of a year in a nursing home today is almost $71,000 while the average nursing stay is 2.4 years. Government studies indicate that 60% of Americans who reach 65 will eventually need some type of long term care. Long-term care insurance is essential if you are concerned about protecting your assets and maintaining your financial independence throughout your life.
Did you know?
By 2020 one out of six Americans will be over 65, that is 20 million more senior citizens than today. (1)
- The number of individuals 85 and older (which is currently 3.5 million) will double to 7 million by 2020, and will double again to 14 million by 2040. (1)
- 52% of all women and 33% of all men who are now 65 will spend their last years in a nursing home. (2)
- Home health care costs $25.32 per hour on average. (3)
- A day in a nursing home costs $194 per day or $70,912 on average in the US. (3)
- A private one-bedroom unit in an assisted living facility has an average annual cost of $32,294. Connecticut (Bridgeport area) has the highest annual cost of $57,556, while North Dakota and Arkansa were the lowest at about $21,000. (3)
- The average stay in a nursing home is 2.4 years. (4)
- 73% of Americans incorrectly think that Medicare is the primary funding source for long term health care. (5)
- 60% of Americans who reach age 65 will need long-term care at some point in their lives. (6)
1 Aging in the United States, published by the Bureau of the Census
2 New England Journal of Medicine
3 Genworth Financial Research survey February 2006
4 Metlife 2005 Survey
5 Gallup Organization Inc. Public Attitudes on Long Term Care: The EBRI Poll. August, 1993; 15.
6 Centers for Medicare & Medicare Services (CMS)
How much coverage do you need?
Policy daily benefits can provide up to $300 a day. How much you need depends on what costs are in your area for assisted living facilities, nursing home and home health care as well as how much you could pay for from other resources, like savings and investments.
What to look for in long-term care insurance?
Good Benefit Triggers
Benefit triggers are what cause benefits to start being paid. Your policy benefits should be triggered if you need assistance to perform at least two of the activities of daily living (ADLs), which include bathing, dressing, eating, toileting, continence, transferring (moving from a bed to a chair) and taking medication. Another trigger should be “cognitive impairment,” which means coverage applies if you are mentally impaired (with Alzheimer’s disease for example) even if you’re physically able to take care of yourself.
Home Health Care Coverage
You will want to make sure your policy pays benefits for care at home as well as in an institution such as an assisted living care facility or a nursing home.
This feature ensures that you will be able to continue your coverage without undergoing additional medical exams.
An inflation rider will increase the benefit amount by either a simple or compound inflation rate each year the policy is in effect. This can be a costly feature, but it is protection against the rising cost of long term care. It provides that the policy is much more likely to pay an adequate benefit in the future.