Many individuals have taken steps to secure and plan for their retirement – taking advantage of savings plans and investment strategies. Most people purchase health insurance to protect against medical emergencies. We make plans to provide for loved ones in the case of an unforeseen death or disabling event through life and disability insurance. But, have you ever considered the possibility that you or somebody you love might require long term care?
Long term care insurance is a valuable planning tool for individuals and families. Long term care insurance provides protection to assist in covering some or all of the costs for nursing home, home care and other related long term care services and expenses. Insurance for long term care is not necessarily for everyone. Certain individuals should not acquire long term care insurance. The following information should you decide if long term care insurance would be right for you.
Insurance for Long Term Care: To Buy or Not to Buy?
Generally, Americans are living longer, better lives than any other time in history. This has been accomplished through advancements in the field of medicine, a better understanding of diet and exercise, and healthier lifestyle choices. With these advancements can come increases in the cost of medical care. The annual average cost of nursing home care for a semi-private room in the United States is currently $70,455 or $193 per day.1 In addition, the cost of home care can be significant. The current average hourly cost of home health care in the United States is $19 per hour.2
The cost of receiving long term care will vary greatly based on where you receive care. For example, the average cost of nursing home care in New York is $114,975 a year, whereas the same nursing home care in California would have an average cost of $77,745.3
There is no way to know if you will require care, or to what extent care may be needed. However, it is possible to identify the financial risk long term care can have on an individual and their family. Like other risks, if appropriate, individuals can purchase insurance to eliminate or reduce the risk of needing long term care services.
When considering long term care insurance only you can decide whether or not it is right for you and your particular situation. But, prior to making this decision, make sure you know the facts. Provided below is information to assist you in determining if you should take the next step to learn more about the benefits and options available through a long term care insurance policy.
Is Insurance for Long Term Care Appropriate for You?
Utilizing insurance for long term care can be complex. It is important for you to be aware of all the different issues involved. As complex as long term care insurance can be there are only two instances that most people give consideration to: affordability and appropriateness.
Affordability
Deciding whether or not you can afford long term care insurance is never easy. The general rule of thumb when it comes to purchasing long term care insurance is that if the premium for the policy exceeds 7% of your income you will probably not be able to afford the coverage. Many of us will not want to face the likelihood that long term care assistance will ever be needed by ourselves or by someone we love. In fact, we may even dismiss long term care insurance as being unnecessary, or, even too expensive, especially when long term care might not be needed for sometime or may seem unpleasant.
But, as noted earlier, the likelihood and financial risk of requiring long term care in the future are real. Despite the fact that affordability is a legitimate concern, it can at times simply be a matter of establishing priorities.
Appropriateness
The appropriateness of long term care insurance planning refers to choosing a long term care insurance policy that will provide coverage that is appropriate for you. Prior to making this determination, you should identify your goals and what it is you expect from a long term care insurance policy.
Defining the goals
There are two primary goals most people have when purchasing long term care insurance: protecting assets and/or protecting choices.
Protecting Assets
Long term care insurance can assist in protecting assets from two different points of view. The first is to preserve existing assets. This is done by utilizing a long term care insurance policy to pay for some or all of your long term care expenses. By using insurance for long term care individuals will not need to spend down existing personal assets. By doing this individuals will preserve assets for their spouse and/or family members. The second scenario where long term care insurance can protect assets is when an individual purchases a long term care insurance partnership policy. Long term care insurance partnership policies are available in most states, and offer a great degree of asset protection when attempting to become eligible for Medicaid.
Protecting Choices
Protecting your assets may not be the only thing you want to protect. In cases where there is not a concern to protect assets, it could make sense to assume the risk personally. However, long term care insurance can also assist people in protecting choices. Most long term care insurance policies provide a care coordinator when an individual becomes eligible to receive benefits. The care coordinator will work with your family to develop a plan of care, and coordinate needed long term care services. If having choices and maintaining independence is important to you, long term care insurance is still a good idea even though asset protection may not be your primary goal.
Reaching the Goals
You and your family’s personal long term care goals are unique. An appropriate long term care insurance policy should, with a realistic level of certainty, provide you with sufficient coverage. With careful planning and understanding you can achieve your objectives.
The Right Service Mix
Long term care services are categorized by what setting they are provided in: Facility Care or Home Care. Facility Care is provided in one of the following settings: nursing home, assisted living/residential health care facility, etc.), while Home Care includes personal care services, home health care, adult day care, etc. Certain long term care insurance policies will only cover one type of care, while most will cover both. Thinking long term care will only take place in a nursing home setting is unrealistic. This is why it is important to consider a long term care insurance policy that will cover both Facility and Home Care. Again, it is difficult to predict the future when selecting a policy, that is why it makes sense to plan for any situation.
A majority of people will want to receive long term care at home. The ability to remain at home is dependent upon an individual’s need for assistance versus the availability of caregivers. Caregivers will fall into two categories: formal caregivers (paid professionals) or informal caregivers (unpaid family and friends). Combined caregivers must be able to cover all the hours the long term care recipient will require assistance. The less the availability of caregivers, the greater the need for formal care will be and the more expensive home based care will cost. In certain situations, there could be a time when home care exceeds the cost of nursing home care. Individuals who have a smaller informal support system and/or have limited liquid assets may have trouble paying for the formal care required to stay at home. The same individuals with a larger informal support system may be able to manage the care required for the care recipient to remain at home. Although a necessary informal support system may be in place, there may still be other items to consider. For example, will that informal support system always be there and available?
Assessing Potential Informal Support
The following could have a significant impact on your future and your loved ones:
- Think about who your potential informal caregivers might be. They could be friends or family members. How much responsibility could they realistically take on to provide you with the care you would need?
- What tasks would you like them to do for you?
- Consider how comfortable you would feel to have to rely on them.
- Determine whether or not your spouse or children would have the time and/or physical ability that would be necessary when care is needed.
Plan for All Possibilities
The assumption that long term care will only occur in a nursing home is as unlikely as making the assumption that you will only need home care. It is critical to remember that nobody can foresee what will occur in the future, and it is a wise decision to plan for any scenario.
Keeping Pace with Inflation
Like many things we buy, the cost of long term care will increase as time goes on. When purchasing long term care insurance you should consider a policy based on what the cost of services will be when the coverage might be needed, and not based on what those services cost today. One way to do this is by including inflation protection that would allow the policy to help keep pace with the rising costs of health care services. By including this option your policy benefits will increase over time. When considering which inflation protection option to choose you should consider how far into the future your need for long term care may occur and what the average increases of the costs of health care services are in the area you intend to receive care. The younger you are when purchasing long term care insurance, the more important inflation protection becomes.
Know Your Care Options
One of the most common misconceptions about long term care is that health insurance will pay for these expenses. However, as far long term care is concerned, generally it is not considered medical care. As a result, health insurance plans will not pay for it.
Long Term Care is the Largest Unfunded Liability in the United States3
In some cases people may confuse disability insurance with long term care insurance. Disability insurance is designed to replace lost income if a qualifying disability were to occur while actively employed. Most disability insurance policies do not provide coverage beyond age 65. Disability insurance was not designed to provide coverage for the high cost of long term care.
Medicare will sometimes cover skilled care provided you’ve been hospitalized for a minimum of three days. It typically does not provide protection for home care or personal services. Medicare was not established to fund lengthy long term care needs. It shouldn’t be relied on as a source to pay for long term care.
Now It’s Time for You to Decide
By now, you have additional information regarding the importance of insurance for long term care and how it works. But only you can determine whether it is right for you. If you are interested in taking the next step, you can complete our long term care insurance quote request or contact a long term care insurance professional at (877) 402-2235.
1 Genworth 2011 Cost of Care Survey. April 2011. Genworth Financial.
2 Genworth 2011 Cost of Care Survey. April 2011. Genworth Financial.
3 Genworth 2011 Cost of Care Survey. April 2011. Genworth Financial.
4 Molly Butler Hart, “A Market Dawns for Long term Care Coverage,” IA Magazine.com, Apr. 2002, p.1.
