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5 Keys to Understanding Long-Term Care Insurance

Understanding Long-Term Care Insurance

Before the COVID-19 pandemic people were living longer than ever before, and when the pandemic finally ends we can expect the numbers to resume inching upwards.

With longer life spans comes a rising need for long-term medical care. In fact, the Administration for Community Living reports that those who are age 65 have a 70% chance of needing some type of long-term care services during their lifetime.

Unfortunately, long-term care does not come cheap. For example, the Genworth Cost of Care Tool shows that a 65-year-old living in Jefferson City, MO, could expect to pay $48,620 a year for services or a home health aide. The same person could expect to pay $70,263 a year for a private room at a nursing home facility.

So is nonforfeiture benefit long-term care insurance the solution to these expensive costs? Let’s take a closer look so that we can better understand this type of insurance. 

Key #1 – What Exactly is Long-Term Care Insurance?

Long-term care insurance is a policy that helps cover care costs when a person has a medical condition or disability that prevents them from taking care of themselves. These costs are not covered under standard health and life insurance policies. 

The care policy generally pays for care up to a daily limit which continues until the policy’s lifetime maximum is met. 

A key factor to understand is that, under most policies, benefits do not begin to be paid out until after a specific “elimination period” which is typically 30, 60, or 90 days. In other words, you will have to pay for care out-of-pocket for a specific period of time before you start to see your benefits. 

One more thing: some companies offer a shared care option that allows spouses to share the amount of coverage provided by their two policies. This could be beneficial if one spouse develops a serious medical condition and the other remains healthy. 

Key #2 – How Does Long-Term Care Insurance Work?

For insurance purposes, there are six basic activities of daily living – eating, dressing, bathing, toileting, transferring (getting in or out of a bed or chair), and caring for incontinence. 

Most long-term care policies kick in when a person is no longer able to do at least two of these six things on their own. 

The policy then covers the care a person receives in their home or at a nursing home, assisted living facility, or adult daycare center. 

Key #3 – When Should I Apply For Long-Term Care Insurance?

Most people who apply for a long-term care policy do so in their mid-50s to mid-60s. Those applying for the insurance must not currently have a debilitating condition – so there is always the risk that the insurance coverage will not be needed. 

If this is a concern of yours, there are combination policies that offer both life insurance and long-term care benefits so that if you don’t need the long-term care benefit you can convert it to a death benefit. 

Key #4 – What Is the Cost of Long-Term Care Insurance and How Do I Buy It?

Long-term care insurance is not cheap. This is due to the fact that long-term care is extremely expensive. 

Investopedia reports that premiums average approximately $2,700 a year, which works out to around $225 a month. This is a cost that, unfortunately, many are not able to afford. 

Combine this high price with the chance that the coverage ultimately may not be needed, and that is why many people are choosing to go a different route with their insurance coverage. 

Yet, for those at high risk of developing a debilitating condition, a long-term care policy can help preserve savings and prevent a financial catastrophe, thus preventing more hardship in the future. 

Here is a hypothetical example of what can be possible with a long-term care policy, such as AMAC long-term care insurance or other similar coverages:

A single 60-year-old male in good health may be able to get coverage for around $1,700. For that yearly amount, he would receive an initial benefit of around $164,000. Under most policies, his benefits would then grow at an average of 3% per year to a grand total of over $386,000 when he turns 85.

As for women, they can expect to pay more than men for the same coverage. This is due to the fact that women tend to live longer and are thus more likely to need long-term care at some point.

Remember, the example above this is just an estimate and uses approximate values. The actual AMAC long-term care insurance cost or the price of another policy may vary.

Factors that can influence the cost of a long-term care insurance plan include age and health, marital status, gender, amount of coverage, and the insurance company offering the policy.

As for how to buy care insurance, there is another issue that has arisen in recent years – the number of companies offering this type of policy has declined significantly. There is an estimate that the number of companies offering this type of policy is now a little over 10.

The reasons for the decline include surging care costs and low interest rates that make it difficult for companies to make money on these types of policies.

One thing to keep in mind if you do find a policy you like is that premium amounts can be changed. That means the amount you agreed to when you signed the policy may be increased if medical costs continue to spiral upward. This has happened several times in recent years, as companies struggle to deal with claims that were higher than they originally projected they would be.

While premiums may change, there is an opportunity that is referred to as nonforfeiture benefit long-term care insurance. This can ensure you will not lose all of your benefits even if you find yourself unable to stay up to date on your premium payments.

The nonforfeiture benefit must be offered with long-term care insurance policies and that benefit makes certain that you will retain at least some benefits if your policy lapses.

Currently, there are two main options with this benefit: a reduced paid-up benefit that provides reduced daily benefit amounts if your policy lapses, and a shortened benefit period which delivers the same benefit amounts under the original policy but for a shorter period of time.

Key #5 – Are There Other Advantages to a Long-Term Care Insurance Policy?

If you itemize your tax deductions, long-term care insurance may offer you some tax advantages. For example, you may be able to count your insurance premiums as medical expenses (these expenses are tax-deductible beyond a certain threshold). Please be aware that this benefit is only available with long-term care insurance plans that are identified as tax-qualified. Not all plans meet this qualification.

The Bottom Line

Aging and long-term care in Ellensburg, VA, and in other small towns and large cities across the country are serious concerns for many. Is a long-term care insurance policy a great way to gain peace of mind and prepare for the future? Possibly.

In the end, though, only you can decide if a long-term care insurance plan is the right thing for you. The plans can provide some much-needed relief during what is often a difficult time in life by covering everything from homemaker services, including homemaker services for veterans, to nursing homestays.

However, these plans are not inexpensive and there is always the chance that their benefits will not be needed. You should carefully weigh the cost of a plan versus the potential benefits and always take into consideration your current financial situation to determine whether a long-term care insurance plan makes sense for you.

Featured Image: Megapixl

About the author: A professional financial news writer with extensive experience writing a variety of content, including: informational articles on a wide range of subjects, and sales and marketing content that includes landing pages, sales letters, web pages, emails, press releases, and more. I have also ghost-written numerous books. I started my career as a newspaper reporter and editor.

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