When planning for long-term care, the financial landscape can be pretty daunting. Affording in-home assistance or care in a nursing home might seem straightforward if you’re affluent. On the other hand, if you’re low-income, Medicaid can be your lifeline for nursing home care or home health aides. However, a more complex decision for the middle class often looms – whether to invest in long-term care insurance. Unlike other types of insurance, this decision is intricate because predicting your financial situation and health several decades into the future is exceptionally challenging.

So, what does long-term care insurance cover, and how does it differ from medical insurance?

Long-term care insurance is designed for individuals who may face permanent cognitive issues like Alzheimer’s disease or require assistance with essential daily activities such as dressing and bathing. It can help cover the costs of personal aides, adult day care, or residency in assisted living facilities or nursing homes. Notably, Medicare does not extend its coverage to expenses associated with chronic illnesses.

But how does this insurance work exactly?

Long-term care insurance policies typically provide a predetermined daily, weekly, or monthly benefit, such as up to $1,400 weekly for home care aides. Before purchasing a policy, it’s crucial to understand the services it encompasses and the amount it disburses for various types of care, including nursing homes, assisted living facilities, home personal care services, or adult day care. Some policies even extend coverage to family members providing care, so it’s advisable to inquire about the eligibility criteria and whether the policy covers their training.

Here are some additional factors to consider:

  1. Inflation Adjustment: Check if the policy benefits are adjusted to account for inflation, and if so, by what percentage.
  2. Maximum Benefit Amount: Determine the policy’s maximum payout limit and whether benefits can be shared with a domestic partner or spouse.

The pressing question is, how much does long-term care insurance cost?

In 2023, a 60-year-old man purchasing a $165,000 policy with a 3% annual inflation adjustment would typically pay around $2,585 annually, as the American Association for Long-Term Care Insurance reported. For a woman of the same age, the cost would be higher at approximately $4,450 due to women’s longer life expectancy and higher utilization of long-term care. Remember that the inflation adjustment level you choose will impact the policy’s cost.

It’s essential to note that insurance companies may raise rates if they find themselves paying out more than expected. They require approval from your state’s regulators to do so. Therefore, it’s wise to investigate whether the insurer has sought permission from the state insurance department to increase premiums in the upcoming years.

Now, should you buy long-term care insurance?

The answer depends on various factors, including homeownership status, savings, and potential pension income. If you lack substantial assets and have no significant pension beyond Social Security, Medicaid may become an option once you’ve depleted your resources. However, long-term care insurance might be worth considering if your combined savings and assets (excluding your primary home) amount to at least $75,000.

Remember that even with savings and valuable assets, the premiums may not be comfortably afforded. While insurers cannot cancel a policy once it’s issued, they can increase the annual premium rate. According to the Insurance Commissioners’ Association, it’s advisable to consider long-term care coverage only if the premium amounts to less than 7% of your current income and if you could still manage it even if the premium were raised by 25%.

Lastly, when is the right time to purchase a policy?

Finding the ideal timing can be crucial. It may result in developing medical conditions that make you uninsurable. On the other hand, buying a policy too early may divert funds that could be better invested elsewhere. Many experts think the best time for purchasing long-term care insurance is typically between 55 and 65, as individuals younger than that often have competing financial priorities that can make the premiums less affordable.

Remember to familiarize yourself with the policy’s “trigger” – the circumstances under which you can access benefits. Most policies require proof of assistance with at least two of the six “activities of daily living,” including bathing, dressing, eating, mobility, continence, and using the toilet. Additionally, a diagnosis of dementia or cognitive impairment may qualify you for benefits. Insurance companies often send representatives for evaluations or require a doctor’s assessment.

Remember that many policies have an “elimination period,” during which they won’t start paying benefits until you’ve incurred expenses for a specified duration, such as 20 or 100 days.

In summary, understanding what long-term care insurance covers and deciding to purchase it requires careful consideration of your financial situation, future needs, and potential risks. Your choice should align with your unique circumstances and long-term goals.