Over the last century, the average life expectancy of an American has almost doubled. While living longer is certainly something we can all be thankful for, we can also expect to have to live with the effects of the natural aging process for much longer than our ancestors did as well. Consequently, we all stand a much better chance of needing long-term care (LTC) at some point before the end of our lives.
If you (or a spouse) do end up in LTC, how will you pay for the high cost of that care? Long-term care insurance is one option; however, you need to be certain you understand the ins and outs of an LTC policy before purchasing one.
Why Would I Need LTC Insurance?
When you enter your retirement years you will already stand a 50-50 chance of one day needing LTC. With each passing year, those odds increase. The cost of that care could deplete your retirement nest egg rapidly if you are forced to pay out of pocket. In California, the average cost of a year in LTC is over $120,000 and the average length of stay is over two years. While Medicare will cover most of your health care expenses during your retirement years, it will not pay for LTC, nor will most basic health insurance policies. For over half of all seniors in LTC facilities, Medicaid is the only option if they did not purchase long-term care insurance. Qualifying for Medi-Cal, however, can present its own set of problems if you did not engage in Medi-Cal planning well ahead of time. Is it worth it then, to purchase long-term care insurance?
Is Long-Term Care Insurance Worth the Cost?
As the name implies, LTC insurance is health insurance that specifically covers expenses related to care in a long-term care facility, or other similar expenses. The cost of an LTC policy will vary widely, depending on a number of factors, including:
- Your age at the time of purchase
- Your general health at the time of purchase
- The state you live in
- The benefits included in the policy
When evaluating an LTC policy, the first thing you need to be clear on is what the policy actually covers and what it does not cover. For example, an LTC insurance policy may cover any, or all, of the following:
- Nursing home care
- Home health care
- Respite care
- Hospice care
- Personal care in your home
- Services in assisted living facilities
- Services in adult daycare centers
- Services in other community facilities
Your LTC policy will likely not cover the following:
- A mental or nervous disorder or disease, other than Alzheimer’s disease or other dementia.
- Alcohol or drug addiction.
- Illness or injury caused by an act of war.
- Treatment in a government facility or that the government has already paid for.
- Attempted suicide or intentionally self-inflicted injuries.
- Care or services outside of the United States
Along with understanding what the policy does, and does not cover, you need to be sure you understand things such as:
- How long is the “waiting period” before the policy will start providing benefits?
- How long will the policy payout benefits?
- Is there a maximum benefit amount?
- What type of documentation is required before the policy will cover expenses?
- Does the policy have an automatic termination age/date or will it remain in effect until your death?