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Long-Term Care Insurance- An Overview

Purchasing LTC insurance can help pay for care later in life. LTC includes services not covered by health insurance. That may include support with daily activities, like showering and dressing. LTC insurance helps cover costs when you have a chronic condition, disability, or disorder like Alzheimer’s. Most insurance compensates for care in places like:

  • Your home
  • A nursing facility
  • An assisted living facility
  • Adult daycare

Long-term care (LTC) costs should be considered in any long-term financial strategy, especially after age 50. You can’t buy insurance when you need it. Debilitating conditions exclude you from LTC insurance, and most carriers reject applicants over 75. The mid-50s to mid-60s is when most people obtain LTC insurance. Why buy LTC insurance? Nearly 70% of 65-year-olds will need LTC services or support by 2020. Women need care for 3.7 years and men for 2.2 years. LTC isn’t covered by regular insurance. Medicare covers brief nursing home stays or limited home health care for skilled nursing or rehab, excluding custodial care, including monitoring and daily tasks. Most states require that you pay for LTC if you’re without insurance. The federal and state low-income health insurance program, Medicaid, might help, but only after most of your savings are gone. Tip Washington state will begin offering long-term care insurance in 2025, funded by a 2022 payroll tax. Washington workers can opt out of the program if they obtain private long-term care insurance before November 1, 2021. For additional information, visit WA Cares Fund. Two reasons people obtain long-term care insurance 1. Protect savings. Long-term care bills can swiftly erode retirement savings. A semi-private nursing home room’s median cost is $93,072 per year. 2. More care options. More money means better treatment. If you rely on Medicaid, you’ll be limited to care homes that accept the program. Many states don’t cover Medicaid assisted living. Low income and low savings may make long-term care insurance unaffordable. Spending no more than 5% of your salary on long-term care coverage is recommended. Popularity of LTC insurance Since 2000, fewer insurance providers have sold LTC insurance. In 2014, more than 100 insurers sold policies in 2004; today, only a dozen do. The unpredictable expense of future claims and low-interest rates since the 2008 recession caused a market exodus. Low-interest rates damage insurers because they invest in customer premiums to make money. HOW LTC INSURANCE WORKS You must fill out an application and answer health questions. The insurer may request medical documents and phone or in-person interviews. You choose the coverage amount. Policies usually cap daily and lifetime payouts. After approval and policy issuance, you pay premiums. Most long-term care policies cover you if you can’t accomplish two out of six “activities of daily living” or if you have dementia or another cognitive disability. Daily living activities include:

  • Bathing
  • Incontinence care.
  • Dressing.
  • Eating.
  • Toileting.
  • Moving (getting in or out of a bed or a chair).

When you need care and file a claim, the insurance company may send a nurse for evaluation. The insurer must approve your care plan before approving a claim. Most policies require you to pay for long-term care out of pocket for 30, 60, or 90 days before the insurer reimburses you. The policy pays out after you’re eligible for benefits and receive paid care. Most policies have a daily cap and a lifetime maximum. When both spouses acquire policies, several firms offer shared care. You can draw from your spouse’s benefits pool if you exceed your policy’s limit. LTC insurance cost Rates depend on factors like:

  • Your age and health: The older and sicker you are, the more you’ll pay.
  • Gender: Women pay more since they live longer and make more long-term care insurance claims.
  • Family status: Married people pay cheaper premiums than single people.
  • Insurer: Insurance companies’ prices for the same coverage differ. Compare quotations from different carriers.
  • Coverage: Higher daily and lifetime limits, cost-of-living adjustments to hedge against inflation, shorter elimination periods, and fewer restrictions on covered treatment may cost more.

A single 55-year-old male in good health getting new coverage should expect to spend $1,700 yearly for a policy with an initial pool of benefits of $164,000. At age 85, those benefits will total $386,500. A 55-year-old woman pays $2,675 a year for the same policy. A 55-year-old couple obtaining that much insurance pays $3,050 a year in premiums. Prices might change over your lifetime after you acquire insurance. Many policyholders saw rate hikes as insurance firms petitioned state regulators to raise premiums in recent years due to the rise in claims costs. Regulators allowed rate hikes to ensure insurance companies could pay claims. Long-term care insurance tax benefits Long-term care insurance has tax benefits if you itemize, especially as you age. Federal and some state tax regulations allow you to deduct part or all LTC insurance premiums. Age increases premium deduction limitations. Long-term care insurance premiums are tax-deductible, and such tax-qualified policies must meet federal standards. Buying LTC insurance You can purchase it directly from an insurance company or through an agent. You might also get it from your employer; some offer group pricing through their brokers. In this case, you may have to answer health questions, but qualifying may be easier than buying it yourself. Compare costs because you may discover lower prices elsewhere despite a group discount at work. ‘Partnership’ state plans Most states “partner” with long-term care insurance providers to encourage planning. Insurers agree to issue insurance that fulfills particular quality standards, such as adjusting benefits for inflation. By purchasing a “partnership policy,” you can preserve more of your assets if you exhaust your long-term care coverage and need Medicaid. Usually, a single person must spend down assets to $2,000 to qualify for Medicaid. You can be eligible for Medicaid sooner with a partnering long-term care plan. You can keep a Medicaid dollar for every long-term care insurance dollar paid out in most states.
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