5 Things You Should Know about Long Term Care Insurance

  • Last updated Jun 15, 2019 at 4:25PM | Published on Dec 7, 2015
  • Richard Reich
Long term care

As more and more baby boomers ease into retirement age and beyond, long term care continues to be one of the fastest growing healthcare categories. However, because so many people enter their senior years unprepared for the financial burdens that await them, it might not be growing fast enough.

So many of us prefer not to think about the unpleasant business of requiring long term care ourselves, and this can lead us to put off making simple preparations like looking into long term care insurance. Here are 5 things everyone should know about long term care, and how to protect yourself in your later years:

1. Who Needs Long Term Care?

We tend to think that it is only the elderly who require long term care, but that isn’t always the case. True, your chances of requiring some sort of home or inpatient care shoot up to about 70 percent by the time you reach 65 and above, but a surprising amount of young people also end up requiring ongoing medical care as well. In fact, due to accidents or chronic illness, around 40 percent of patients currently receiving some form of long term care are under the age 65.

2. How Much does it Cost?

In short, if you don’t have coverage, or some sort of solid financial safety net, long term care can quickly drain your bank account down to zero. The national average for adult in-home daily health care sits around $18,000 per year, and when you start looking into assisted living facilities, that number jumps dramatically. From light assisted living to private room nursing home care, you’re looking at annual fees ranging from $43,000 to $91,000 and, in some cases, well above $100,000.

3. What about Medicare?

Medicare can be a great resource for people who are over the age of 65 and/or disabled. However, Medicare does not cover the costs of custodial care, or room and board in a nursing home or other long term care facility. This leads some seniors to try to also apply for Medicaid, which can help, but it can require you to spend down your assets. Medicaid assistance is based on financial need, and individuals who apply for Medicaid typically cannot hold more than around $2,000 in liquid assets, depending on the state. This means that applicants often have to spend themselves into financial need in order meet their state’s Medicaid requirements, which can be tricky if you were planning on leaving some of your assets to your spouse or family.

4. What Are My Insurance Options?

Basically there are two major options for long term care coverage. The first option is a traditional insurance policy. This is pretty standard. Traditional long-term care plans will cover your inpatient or outpatient care for a fixed period of time, up to a set dollar amount, and require you to pay an annual premium, which may or may not change over time depending on the policy.

Basically there are two major options for long term care coverage. The first option is a traditional insurance policy. This is pretty standard. Traditional long-term care plans will cover your inpatient or outpatient care for a fixed period of time, up to a set dollar amount, and require you to pay an annual premium, which may or may not change over time depending on the policy.

Either way, there is no one-size-fits-all solution, so before you choose a policy, talk to an insurance professional and decide what is best for your specific circumstances and lifestyle.

5. When is the Right Time to Shop for a Policy?

Because your health at retirement age can be unpredictable, timing is extremely important when it comes to purchasing long term care insurance. Many people wait too long to start thinking about their potential care needs and end up paying much higher premiums because they don’t look into insurance until after they start experiencing health issues. The best time to buy long term care insurance is typically around your mid to late 50s and early 60s, while you’re still healthy and able to qualify easily.

Again, if you have any questions about long term care insurance, do some research and talk to your provider before settling on a plan. But whatever you do, don’t make the mistake of waiting until it’s too late. The earlier you start thinking about important life planning issues like long term care, the better off you and your family will be in the long run.

Can I Use Life Insurance to Pay for Long-Term Care?

The answer is yes, but only under certain circumstances. If you have life insurance, there are several ways in which you can use your policy to pay for long-term care. To learn more about how to use life insurance to pay for long-term care, keep reading and see which option works best for you.

Life/Long-Term Care Insurance

Insurance companies have just recently started offering combination life/long-term care insurance policies. Many people struggle with the idea of buying long-term care insurance because the chances of using those benefits are uncertain. However, combination policies give the holder the option of using their benefits either as a death benefit or to pay for long-term care. The policy will usually stipulate what percentage of the death benefit can be used for long-term care expenses. Jump over to the American Association for Long-Term Care Insurance for more information on combination insurance policies.

Accelerated Death Benefits

An Accelerated Death Benefit or ADB allows you, when terminally ill, to access a portion of the death benefit of your life insurance policy while you’re still alive. You can use that extra income from your ADB on your life insurance to pay for long-term care or medical bills. Your insurance provider may charge you a premium to receive an ADB, although many companies will allow you to add the rider to your policy at no additional cost. The amount you receive from your ADB will be subtracted from your death benefit, leaving less money for your heirs.

In many cases, you will receive monthly benefits to help with your long-term care expenses. Usually the overall ADB payout is limited to a specific percentage of your death benefit. Additionally, the extra income from your ADB might prevent you from qualifying for government benefits. Go to the American Council of Life Insurers for an FAQ on ADBs and how they will affect your life insurance policy.

Viatical Settlements

Viatical settlements are reserved for those that are terminally ill. If someone is diagnosed with a terminal illness with less than two years to live, an investor will offer to buy their life insurance policy at a reduced value. The previous owner of the policy can use this money to pay for treatment and living expenses. The new owner of the policy will receive the death benefit once the previous owner has died. However, the investor runs the risk of the previous owner outliving their new life expectancy, which means that they might have to wait years to cash in on the life insurance policy. Investors will usually only invest in cases with the worst medical conditions to make sure that they will get a timely return on their investment. To find out more information on how to use viatical settlements on life insurance to pay for long-term care, head over to Paying for Senior Care’s guidelines on viatical settlements.

Life Settlement

A life settlement is very similar to a viatical settlement except that life settlements are reserved for seniors with deteriorating health conditions rather than the terminally ill. A senior with a life insurance policy may have several years left to live, but his premiums are getting more expensive and he can’t access the money from his policy. In order to use his life insurance to pay for long-term care and living expenses, he might apply for a life settlement. In that case, an investor will offer to pay him for his policy at a reduced value. The senior can use that money to live out the remainder of his years. While, the investor can cash in on the policy once the beneficiary is deceased, making a profit on the policy. For more information, take a look at the Life Insurance Settlement Association’s advice for policyholders looking to obtain a life settlement.

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