Illness can dramatically impact a person’s ability to achieve a specific financi
ID: 2724849 • Letter: I
Question
Illness can dramatically impact a person’s ability to achieve a specific financial goal. An aging society and health treatments and pharmaceuticals that extend lifespans increase the likelihood that many people will enter long-term care facilities for an extended period of time. Consider the cost of long-term care insurance. Is there a cost-benefit to purchasing long-term care insurance? Would your assets be completely protected by this insurance option? Are there specific considerations for individuals or couples? Note to document references in APA format.
Explanation / Answer
Long-term care is a type of skilled care or personal care service that you might need if you are unable to care for yourself because of an illness, disability, or cognitive impairment like Alzheimer's disease.
Long-term care is different from traditional medical care, which tries to treat or cure illnesses. Long-term care may help you maintain your lifestyle but usually won't improve your medical condition. It helps with routine daily activities, such as eating, getting around, and bathing. It can also help if you need supervision, protection, or reminders to take medicines or perform other activities.
Long-term care services can be provided at your own home or in a hospice, adult day care center, nursing home, or assisted living facility.
There are two types of long-term care services:
The Cost & Benefits of Long-Term Care
Long-term care can be expensive. The cost is based on the amount and type of care you need, where you receive it, and what type of medical professional provides it. You can reasonably expect to pay a minimum of $3,000 a month for a care in an assisted living center and more than $6,000 a month for care in a nursing home.
A long-term care insurance policy typically pays from $50 to $250 per day for nursing home care. To find out how much coverage you might need, call local nursing homes, home health care agencies, and adult day care centers in your area and ask about their cost for daily care. Keep in mind that the cost for care will likely go up as you get older.
Unlike premiums for life insurance that are based on how long you may live, long term care insurance premiums are based on any illness or disease you may have that could require long term care but may not shorten your lifespan. For example, having a heart attack might not impact your long term care premiums, but having a degenerative and debilitating condition might.
your assets completely protected by this insurance option:
Long-term care insurance helps provide skilled care or personal care and may help you to preserve your assets against the high cost of an extended long-term care need. Long-term care insurance usually makes sense if you have more assets than a house, car, or a small amount of cash that you want to save
It might be difficult for you to buy a long-term care if you use most of your to pay for utilities, food, or medicine.
To qualify for Medicaid, you might have to pay for your care out of pocket until you spend down your assets to meet the eligibility requirements.
To decide whether long-term care insurance is right for you, consider your personal risk factors, assets, income, and available alternatives.
Private long-term care insurance can be an important tool to protect against the risk of needing costly personal assistance in old age. But two respected financial economists Jeff Brown and Amy Finkelstein conclude it is very expensive relative to the benefits it provides and may not be appropriate for many buyers. At the same time, a new consumer brief from the Society of Actuaries suggests how much wealth you should have for coverage to make sense.
Private LTC insurance is very expensive relative to its benefits. For instance, Jeff and Amy found that 65-year-old buyers of a typical policy would get back only 68 cents for every dollar they pay in premiums. By comparison, the same buyer of a life annuity would get 75 cents to 85 cents. It is also important to note that long-term care insurance is a much better deal for women, who get back 87 cents for every dollar in premium they pay, than for men–who get only 45 cents.
The deal is even worse when Jeff and Amy include people who let their coverage lapse before they ever get benefits. In that case, a typical buyer at age 65 would get only 50 cents back on the dollar, with men getting less than 33 cents and women about 64 cents.
For several years, Jeff and Amy have also looked at how Medicaid , which provides long-term care benefits for those with very low incomes and few assets, affects people’s decision to buy insurance. They found that for many potential buyers, private insurance provides coverage they would have received from Medicaid anyway. Jeff and Amy estimate that Medicaid would cover three-quarters of long-term care benefits for a typical woman buyer of private insurance.
Ways to Buy Long-Term Care Insurance
You can buy an individual policy, or you can buy a group policy through an employer or through membership in an association. Some companies also offer life insurance policies or annuities with long-term care insurance as a rider.
Individual Policies
Most long-term care insurance policies are individual policies. Individual policies can be very different from one company to the next. Each company may offer policies with different benefits. Be sure to shop around to get the coverage that best fits your needs.
Group Policies
Your employer might offer a group long-term care insurance plan or offer individual policies at a group discount. Employers that offer plans don't have to pay premiums, but some do. An employer's group policy might be similar to what you could buy with an individual policy. An advantage of a group policy is that you usually don't have to meet any medical requirements or there may be a relaxed screening process. Many employers also offer plans to retirees, spouses, parents, and parents-in-law. Relatives usually go through medical screening and must pay the premium.
Generally, insurance companies must let you keep your coverage after you leave or until they cancel the group plan. In most cases, you will be able to continue your coverage or convert it to another long-term care insurance policy. Your premiums and benefits may change.
Federal and State Government Policies
Federal and U.S. Postal Service employees and retirees, active and retired service members, and their qualified relatives are eligible to apply for long-term care insurance through the Federal Long-Term Care Insurance Program. You must pay the premiums for this plan, but it's typically lower than the premiums for an individual policy.
If you or a family member is a state or public employee or retiree, you might be able to buy long-term care insurance under a state government program. The Teacher Retirement System, Employees Retirement System, and several university systems offer group plans for their employees, retires, and some family members. Ask your employer whether it offers a group plan.
Association Policies
Many associations also offer long-term care insurance to their members. Like other group policies, association policies usually give their members a choice of benefit options. In most cases, policies sold through associations must let members keep or convert their coverage after leaving the association. Most association policies will require you to go through the underwriting process. Be careful about joining an association just to buy an insurance policy. Make sure you know your rights if the association decides to stop offering the policy.
Specific considerations for individuals or couples:
Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer's facilities. If home care coverage is purchased, long-term care insurance can pay for home care, often from the first day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day (up to the policy benefit maximum).
Other benefits of long-term care insurance: