Almost 70% of people age 65 or over will need some sort of long-term care, according to the National Clearinghouse for Long Term Care Information.1 That means planning for medical expenses as you get older needs to be an important part of your retirement plan. One potential solution: long-term care insurance.
Long-term care insurance helps pay for nonmedical needs—such as nursing homes or assistance with bathing, dressing, or eating—that health insurance and Medicare generally don’t cover.
When a family member is first diagnosed with a serious or degenerative illness, relatives often step in to help. But caregiving can become incredibly stressful, and it can stretch out over years.
“We often intend to find a facility for someone to live in or to bring in caregivers, but all of that must be paid for out of pocket,” says Deb Newman, past chair of the board of directors of the Life and Health Insurance Foundation for Education. “If you don’t have a plan for long-term care, the family becomes the plan.”
Here are a few basics about long-term care insurance that every adult should know:
Who should consider it: Newman says the best time to start thinking about long-term care insurance is when you’re in your mid-40s through your 60s. Buying a policy while you’re relatively young allows you to start at a lower premium and expand the coverage as needed.
“Some policies have future purchase options, which allow you to start with a base plan while you’re younger,” explains Newman. “Then you can review it every five years or so and determine if you might want to add benefits such as inflation protection or more coverage.”
Because your premiums are determined by your health at the time you buy the policy, it’s wise to make the purchase while you’re healthy. If you wait until you need the coverage, you may not qualify for it, or have to pay very high rates.
How long-term care insurance works: If you became unable to care for yourself, your long-term care policy would start paying a portion of your care after an elimination period of 30, 60 or 90 days. Premiums depend on the extent of coverage your policy pays for, as well as the elimination period. Make sure to research long-term care costs in your area before you buy.
Some other factors to consider:
- Maximums: Many policies have a ceiling on how much they’ll pay per day, as well as a lifetime maximum.
- Type of care: Not all policies cover home care. If you prefer this option, make sure you buy a policy that expressly covers it.
- Rising costs: Some plans offer inflation protection; others will automatically increase your coverage without you having to be underwritten again.
- Family history: “Look at how long people in your family have lived to help determine how much coverage you expect to need,” says Newman.
Financial benefits: Thirty states and the District of Columbia offer state tax incentives to residents who purchase long-term care policies. And almost all states participate in the long-term care partnership program, which allows people who’ve purchased long-term care insurance to qualify for Medicaid while preserving some of their assets rather than spending them down.2
But perhaps the best reason to purchase long-term care insurance is the peace of mind you’ll get from knowing that your health care costs—and your care—won’t be a burden on your family.