The longer you live, the more likely it is that you will need long-term care (LTC). Failing to plan for the cost of that care could put your retirement nest egg at risk. Counting on Medicare or your basic health insurance for help is not a viable option as neither will likely cover LTC. Purchasing a separate long-term care insurance policy is one way to plan for the high cost of LTC; however, should you buy in LTC insurance? Let’s see what you may need to know about long-term care insurance.
The High Cost of Long-Term Care
When you reach retirement age, you will already stand a 50 percent chance of needing LTC at some point down the road. With every passing year, those odds increase. At an average yearly cost of over $120,000 in California (as of 2022), and an average length of stay of three years, a LTC bill could easily run close to half a million dollars. Moreover, Medicare only covers LTC expenses under very limited circumstances and basic health insurance policies won’t cover LTC expenses at all. Therefore, unless you can afford to pay for those expenses out of pocket, you need a plan.
Understanding Long-Term Care Insurance
As the name implies, long-term care insurance is health insurance that is specifically designed to cover the costs involved in long-term care. Although it sounds straightforward enough, LTC insurance can be very complicated – and costly. In fact, people frequently purchase a LTC policy without truly understanding what the policy covers, when coverage begins, and/or how long coverage lasts.
Incorporating a LTC insurance policy into your overall estate plan may, indeed, be a good idea; however, you need to make sure you are clear about the benefits offered by that policy before you commit to purchasing it. To begin with, you need to be clear on what the policy covers. For example, a 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 day care centers
- Services in other community facilities
You also need to know what the policy does not cover. For example, most LTC policies will not cover:
- 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
The next thing you need to know is when your policy will kick in and start covering your LTC expenses. Most LTC insurance imposes a waiting period before benefits will start. For example, your policy might require you to be in a LTC facility for 100 days before benefits begin. Of equal importance are any policy limits. This may refer to a maximum benefit amount and/or a maximum number of days that are covered.
Finally, you also need to know how your LTC policy fits into your overall financial and tax planning endeavors. Specifically, you need to know if your plan is federally tax-qualified or not. A tax-qualified policy, or a qualified policy, offers certain federal income tax advantages. If you itemize your income tax deductions you may be able to deduct part, or all, of the premium you pay for a qualified policy. You can deduct total medical expenses, including your long-term care insurance premium, that are greater than 7.5 percent (as of 2022) of your adjusted gross income.
Contact the Sacramento Elder Law Attorneys
Please download our FREE estate planning checklist. If you have additional questions or concerns about long-term care planning, contact us at theNorthern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.
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