Everyone wants to enjoy excellent health, hobbies, family, and travel until they die. But according to the National Association of Insurance Commissioners, about 70% of people who reach age 65 won’t have perfect health forever. They will need some form of long-term care (LTC) in their lifetime.
And getting that care doesn’t come cheap. Costs range from $21,000 annually for daytime care at a drop-in community facility to over $90,000 annually for a private room in a nursing home.
And much to many people’s surprise, Medicare only covers a small portion of long-term costs, and the coverage is very limited.
This is where LTC insurance policies come into play. LTC policies are designed to cover expenses that aren’t covered by Medicare and that you can’t cover with your savings, Social Security, pension, or other retirement income.
Plan for Long Term Care Now
It’s never too early to start planning for LTC, says Kevin Baker, an insurance agent and owner of Phoenix-based Benefit Care Advisors of America. If you wait too long to obtain coverage, you may not be able to get it.“Long-term care plans come with a lot of medical questions during the underwriting process. They’ll want to see your physician records and know your health history, medications, and more to determine if you’re insurable,” says Baker. “If you have diabetes or other chronic illnesses, you may find it difficult to get insured.” Plus, rates increase as you age.
You can shop for LTC policies on your own, but a licensed, independent agent can offer you a variety of options from various providers, so you’re not locked into one company.
How to Shop for a Policy
Here’s what to look for when shopping for a policy:1. Insurance company rating.
You want the insurance company you choose to be around when you need the benefits. Look for companies that have a long history of being in business and a top rating from AM Best.2. Daily benefit amount.
Your ultimate objective is to find a plan that pays the greatest benefit for the lowest cost. Start by comparing the daily benefit amount. “The industry average is $130/day,” says Baker. “The higher your daily benefit amount, the higher your premium will be, but it also means a larger pool of money when you need it.”3. Policy duration.
While you can purchase plans that range from two to six years in length, the industry standard is to purchase a four-year policy. For instance, if you purchase a two-year plan at a rate of $130/day, you’d have $93,600 as your pool of money. If you purchase four years, it would be $187,200.Important: You cannot add on to the policy later, so buy what you think you might need now.
4. Elimination period.
Similar to a deductible, the elimination period of a LTC plan can be 30, 60, 90 days, or more. The industry standard is 90 days. This means that once you start needing care, you must pay for the first X days yourself. Your LTC reimbursement begins after that.5. Inflation protection rider.
Though optional, this coverage may be worth it. The cost of medical care will be higher in 10-20 years than it is today, which is why purchasing inflation protection can make sense, especially for younger policyholders.“At a younger age, we suggest including inflation protection because it makes sense, and the price is right,” says Baker. “But from about age 72 and above, it pushes the premium over the limit of what most people are comfortable with.”
What to Expect After Applying
Once your application goes to the underwriter, it’ll take roughly four to six weeks to process. If approved, you’ll fall into one of two categories: standard or preferred.The latter comes with a lower premium to reward healthy, non-smoking individuals. While costs differ based on a multitude of factors — including age, gender, and health — most policies will cost between $3,000- $5,000 annually.
In the event you need to begin a claim, your premiums are waived during that time frame.
“We encourage clients to find something they can comfortably afford that will give them peace of mind down the road,” says Baker. “Remember, long term care is not designed to cover the whole cost of an event, but rather to cover part of the costs.”
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