It can be hard to imagine a time when we’re not self-sufficient. However, needing some level of assistance as we age is a real probability. In fact, over half of adults over 65 will require some measure of long term care, ranging from just a few months to five years or more.
The probable need for long term care is something everyone should at least consider in their retirement plan. While Medicare will cover all or a portion of costs associated with a short period of rehabilitation in a skilled nursing facility under certain conditions, it is not intended to pay for most long term care needs, including personal in-home care. That’s where long term care insurance can help fill the gap. Essentially, long term care insurance is designed to help you pay costs associated with personal care services at home, or with assisted living facilities or nursing home care. Because it is insurance, it is best to decide on purchasing it before you are in your 60s or are physically or cognitively compromised. In fact, qualifying standards are high, and a significant percentage of older applicants are rejected outright.
Each long term care policy is different, and it’s important to read the fine print. In general, there will be a daily or monthly dollar cap as well as an overall cap on your pool of benefits. Benefits are typically considered comprehensive, meaning they cover a range of services from home-based personal care and adult day care, to residential facilities. A policy may even cover general home services like meal preparation or housekeeping.
Some potential advantages of long term care insurance are:
Protecting your estate. If you plan to leave assets to your children or other beneficiaries, a long term care policy can help protect them from being depleted. It can also help supplement your available assets if your retirement savings are insufficient to defray the cost of long term care.
Giving you and your family peace of mind. There are many unknowns to what the future may bring. Having a policy in place can help reassure you and your loved ones that there will be resources in place should the need arise.
There are flexible coverage options. Long term care insurance is not a “one size fits all” product. You can opt for more modest coverage or tailor options as your needs and budget dictate.
There are also possible downsides to long term care insurance, including:
Cost. It can be significant, typically thousands of dollars a year, and your continued coverage will depend on keeping up with premium payments. Similar to health or disability insurance, most policies will not allow you to cash out or transfer your investment if you never require long term care assistance.
Premium rates may rise. What you’ll be paying twenty years from now will likely be far higher than what you budgeted for initially.
The industry is changing. Because of the rising costs of long term care and the percentage of individuals needing it as they age, insurance companies typically don’t see it as a particularly profitable product. You may be faced with a loss of your policy if your insurance company decides to discontinue it.
Qualifying may be a barrier. In addition to requiring your full medical and medication history, companies also may put you through a cognitive assessment. About a third of all individuals over 50 are declined, with the percentage rising with age.
As with every major care and cost decision, the question of whether you need long term care insurance is not a simple “yes” or “no.” You’ll need to take a hard look at your existing resources, potential need, and alternative funding sources to determine whether it fits into your estate and retirement plan.