The cost of health care is a major concern in most American households. The whole idea of getting insurance is to protect yourself against a major liability that you cannot afford. Although long term care insurance is rather new in the scene compared to its counterparts such as life insurance, disability insurance and even car insurance, it is time people started reviewing its benefits. According to a new estimate released by Fidelity Investments, a couple going for retirement in 2014 can expect to pay a whopping $220,000 to $240,000 for health-care costs during retirement. Furthermore, this figure doesn’t cover long-term care.
The cost of long-term care, on the other hand, can vary depending on other factors such as location and type of care. For example, on average, a single room at a nursing home with typical stay of close to four years will cost around $88,000 per year. However, a health care practitioner will charge a lesser fee for a part-time in-home care. Regardless, it is sensible for everyone to plan ahead for these unpredictable costs by considering a long term care plan. That is where the long-term care insurance (LTCI) comes in. And, just like any insurance plan, it’s cheapest to buy LTCI when the insured event is further in the future. In other words, you need to buy it as early as possible.
Traditionally, individuals who didn’t posses enough resources to self-insure and had a net worth of between $250,000 and $2 million, were the best candidates for LTCI. These are people who could afford premiums for the LTCI plan and assets to protect their respective families. Today, this approach warrants re-evaluation because the cost of long-term care has gone high and people live longer. Here are some of the major reasons why you should consider LTCI.
To avoid burdening your family
It is inconsiderate to create an emotional or physical burden on your family members due to your health-care needs when you can avoid it. In fact, it is the emotional feeling that has driven most high-net-worth individuals into purchasing long term care insurance. Regardless of the net worth it’s prudent to consider LTCI. The Long term care insurance benefits significantly reduce the family “burden”. The LTCI benefits provide a wide range of options; families that have invested in LTCI tend to start seeking outside professional help sooner, reducing potential family conflicts. And, it is an easier way of creating opportunities for one to remain home with reliable professional in-home care.
For most aging grandparents, staying in the comfort of their own homes is a priority. Whether you will need help getting around or other medical and personal needs, LTCI will come in handy in allowing you stay at your home for as long as you want to. According to statistics released by the American Association of Long-Term Care Insurance, more than 50% of LTCI benefits in 2011 were paid for professional in-home care. This is because most people prefer staying in the comfort of their own homes for as long as possible. The LTCI benefits can make this possible by allowing you to receive professional in –home care sooner than anticipated.
To provide liquidity
Although some business owners have a huge net worth, they have minimal cash flow and liquidity. For example, farmers who have large land value assets may end up returning most of their cash flow back to the farm’s operations. Other small business owners may have high value assets or wealth in no-income producing assets, or assets that are unable to sell due to tax consequences or the illiquid status of the market. In such circumstances, having a long term care insurance will be very beneficial to reduce out-of-pocket expenses on health care and protect other cash reserves for the business owner’s day-to-day living or business costs.
To protect family finances
People work so hard in their lifetime to acquire assets. They build a significant net worth and spend a lot of money protecting assets against estate costs, family issues and taxes. They plan on how they will retire peacefully, happily and leave an inheritance for their loved ones. Unfortunately, some of these individuals fail to plan for the cost of their long-term care. Interestingly, while some people simply don’t know where to start, others just hope that their family members will take responsibility when the need arises. It is unfortunate for some people to think that the premiums are too cost prohibitive, yet the policies pay a large portion of the care that they receive for those who get benefits from their long-term care insurance policies. Long term care insurance is actually cheaper than the cost of home health care.
This creates a financial conflict. People need the LTCI benefits, but are still not sure whether the premiums are worth, especially when cash is tight. Fortunately, for high net worth individuals, the premiums are less likely to cause serious burden in their cash flow. Moreover, if the premiums are partially tax-deductable, the LTCI policies will likely be very cost-effective to them.
For example, a couple with a net worth of around $1.5 million could spend a significant amount of their life savings if they ever find themselves covering the costs of a severe illness in their family. For instance, with one spouse living at home and the other in a long-term care institution for a condition such as Alzheimer’s, the couple could easily end up depleting their entire life savings in a few years. Hence, for this reason alone, people should consider long-term care insurance as a cheaper way of protecting their family assets.
To get peace of mind
People buy LTCI for emotional reasons. Although numbers and dollars are important, peace of mind is critical. For example, with a net worth of around $3 million, it is possible for someone to decide to self-insure, but that doesn’t mean it is the right solution or that such a person wants to self-insure. In fact, some of the affluent people in the society built their wealth by planning wisely and understanding potential risks beforehand.
They do understand the importance of numbers, but also depend on various emotional clues and advice in order to make wise decisions. That is why it is important to consider long-term care insurance as one of those clues in making the right life choices. Every family member should consider and evaluate all the benefits of LTCI keenly and determine whether LTCI is a smart approach of achieving peace of mind.
To avoid depending on children or grandchildren
Having loved ones who care for you is a blessing, but most people find it uncomfortable to rely on their children to take care of all their needs. For instance, if your spouse and children are unable or unwilling to give you the care you would prefer, the long term care insurance plan will allow you get professional care. With LTCI you don’t have to put financial, emotional or physical pressure on your loved ones.
To avoid spending your savings on a nursing home
It is useless to spend your life working so hard only to spend your last dollar on a nursing home. In addition, the LTCI plan will help you protect your assets from being liquidated in your final years. In other words, the long term care insurance allows you to enjoy your savings for the luxuries of life and give to your grandchildren. It is sad for aging parents and grandparents to be compelled to liquidate their assets or spend their life savings on a nursing home.
Long term care is not covered by other insurance plans
There is a common misconception that long term care is covered by other insurance plans such as Medicare, Medicaid or health insurance. The truth is, none of these will cover for long term care expenses because long term care is not considered medical care. For example, Medicare will only cover for skilled care, which is less than 100 days and if you are in the hospital for at least 3 days.
In fact, Medicare covers for short-term recoveries. Hence, only the first 20 days will be covered fully by the policy. And, only when combined with medically necessary care, will Medicare cover for other activities such as bathing and dressing that are normally regarded as activities of daily living (ADLs). In situations where it covers for wheelchairs or other equipment that are considered to be medically necessary durable medical equipment, patients are supposed to pay 20% of the entire cost. For example, Medicare can cover for a wheelchair, but not an electric scooter for a patient because the policy is very specific about the medically necessary equipment it covers. Medicare will also cover hospice care when the life expectancy of the patient is less than six months.
Medicaid, on the other hand, will cover for long term care costs for individuals who meet the state’s poverty guidelines only. Therefore, your home and personal care will not be covered, if you don’t purchase a long term care insurance plan. These Medicaid programs vary by state. And, if you or your loved one qualifies, it will cover long-term medical care costs in a nursing institution or at home, but not custodial care.
How much does LTCI cost?
The setback facing LTCI is that the numbers of people buying into the policy are still small. In other words, a pretty small percentage of the money spent on long term care across the nation comes from the long term care policy. Hence, without a large ground for insurance companies to spread the risk, the premiums remain significantly high. In average, prices range between $3,000 and $8,000 per year depending on other factors such as your age, the waiting period before the benefits kick in and the number of years you choose for coverage.
In essence, until more people join the policy, the premiums will still remain relatively high. In the meantime, the cost of LTCI will leave most American homes financially crippled. However, it is interesting to see people developing a hang-up over LTCI, but stick to purchasing home insurance and car insurance. Moreover, the odds of needing long term care in a nursing home are higher than totaling your car or even losing your home to fire. Some people are also wrong to think that Medicare will cover for long term care in a nursing home or the state will simply pick up the tab one day. Unfortunately, other pressures of life such as saving for your kids’ college, paying a mortgage and planning for retirement, dissuade most people from considering LTCI as a viable plan for the future.
Finding the right LTCI policy
Obviously, before starting your search for the best LTCI policy, you need to evaluate your financial status and determine your specific needs. You need to know what you want beforehand from the long term care insurance policy before you start looking for a plan that will satisfy your specific needs. In fact, the type of policy you choose will have a huge impact on the kind of long term care you will receive in terms of benefits and the future of your family members.
It’s important to choose the right insurance company for the LTCI or any other insurance policy. You need to make sure the insurance company is financially solid, has an excellent reputation and is an established business that can guarantee you security for your investment. Use a company that issues grades for insurance companies such as Standard during your search in order to pick a highly rated insurance company.
Remember, LTCI is a relatively new product in the insurance scene and companies are not sure about the future in terms of what it will cost them to cover for long term care. Therefore, you should choose a reputable company that is likely to issue a higher payout than it initially anticipated. In addition, you can find insurance company ratings online, and thus there is no need of choosing a company with low ratings.