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It’s a fact of life: One day you may need long-term care. That means you may need help at home with basic daily activities such as bathing, dressing and eating; community services such as day care and transportation for adults; or continuing care in a nursing home, assisted living facility or other facility.
Long-term Care Insurance Options And Costs
One option to pay for those services is long-term care (LTC) insurance. But before signing up for a policy, there is a lot to learn. The market has changed a lot in recent years.
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About 70 percent of Americans who reach age 65 will need long-term care in their remaining years, according to research from the Urban Institute and the US Department of Health and Human Services. Although some people will receive free care from family members and others, about half will need paid help. About 24 percent will need more than two years of paid care, and 15 percent will spend two more years in a nursing home.
Care costs vary widely, depending on how long you need it, where you live and how severe your needs are. The methods of paying for services differ as well.
Traditional Medicare, the public health insurance plan for people over age 65, does not provide long-term care beyond professional care immediately after hospitalization for an injury or illness. Some Medicare Advantage plans, from private insurance, offer copayments for services such as meals and transportation to medical appointments, but they are limited.
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Long Term Care Insurance Explained
But the largest source of funding is Medicaid, a joint federal-state program that covers low-income Americans. Although income limits vary by state, you usually can’t get Medicaid unless you use most of your savings and assets other than your primary home and car.
That prospect has many people thinking about how they can plan for long-term care expenses in a way that will protect their retirement savings and allow them to get the type of care they want. And that’s where long-term care insurance comes in though it’s not the only solution.
“Everyone needs a long-term care plan,” says Ryan Graham, senior financial advisor at Altfest Personal Wealth Management in New York City. “That doesn’t mean everyone needs long-term care insurance.”
Traditional long-term care policies work like auto or home insurance policies: You pay premiums, usually as long as the policy is in effect, and make claims if you need covered services.
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You can choose a few or many services to help you pay for services inside or outside your home. Standard policies state the amount you can receive daily or monthly, up to a lifetime maximum or a certain number of years. A different amount may be allowed for care in your home, nursing home or elsewhere. You pay extra for benefits that grow over the years to protect you from inflation.
You can also choose from policies with different waiting periods between when you start needing services and when benefits start. The standard waiting period is 90 days, but you can pay more to get benefits after 30 days or pay less to accept a 180-day delay. Likewise, you pay more for a policy that pays $200 a day, lasts for five years and grows the benefit at 3 percent compounded annually than you would for one that pays $100 a day for two years without inflation protection.
Policies may limit the conditions that they cover. For example, it is not uncommon to refuse care for alcoholism, drug addiction or war injuries. And while a pre-existing condition, such as heart disease or a previous cancer diagnosis, may not prevent you from getting a policy, the policy may not cover care related to the condition for a certain period of time after it takes effect.
However, in general, you are entitled to benefits once you can no longer carry out a certain number of what are known as activities of daily living – such as bathing, dressing, eating, using the toilet, getting in and out of beds and chairs, and. control incontinence – or have cognitive problems. At that time, the fee is usually waived while you receive benefits.
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But if you stop paying the fee before the need arises, you usually lose your way. And if you never use the service, the insurance company keeps and invests your money to pay other people’s claims and makes a profit.
Early LTC policies, sold in the 1990s and early 2000s, often offered generous benefits, such as life annuities and benefits that grew at compound rates of 5 percent per year. But insurers overestimated how much they would pay in claims and overestimated how much they would earn in investments. The result: They ran into financial trouble and, with the permission of state regulators, raised fees for existing customers. Many companies stopped selling traditional long-term care insurance. Only a few companies sell policies today, generally with mediocre benefits at high prices.
Historically, 70 to 80 percent of people with traditional policies have seen premium increases, says Jesse Slome, executive director of the American Association of Long-Term Care Insurance (AALTCI). Companies selling newer policies have rebranded them to avoid repeating that history, he adds.
People who already own traditional policies should know that if they are faced with increased premiums, they have options. One possibility is to pay the increase and keep the benefits you signed up for — an often attractive option for people who can afford the price hikes and have older generous policies, says Jodi Cirignano, managing director and property consultant. Peapack Private Wealth Management in New Jersey.
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Another option is to accept reduced benefits at your original rate of pay. Throwing out a policy and looking for new coverage when you’re older and in poor health will cost you more,—experts warn. As long as you continue to pay, the insurer cannot legally drop you.
Most long-term care policies sold today combine long-term care payments with other benefits, usually life insurance or, less often, an annuity. These are known as hybrid or combined benefit policies.
Most life insurance hybrids work like this: They pay a single lump sum or fixed amount divided into several annual payments. In return, you’ll get long-term care coverage and features like those found in traditional policies, as well as a certain amount of life insurance that will go to your heirs if you never use long-term care benefits. Life insurance premiums are reduced or eliminated if you use long-term care benefits. The policy may also allow you to recover your full premium within the first few years if you decide you no longer want premiums. Payments are usually not continuous, so they cannot increase.
Diversification policies “address a concern that bothers a lot of people … which is that I could pay into this thing for years and never need it,” says Christine Benz, director of personal finance at a Chicago financial institution. service company Morningstar. One way or another, you make a profit.
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But that guarantee costs you, as hybrid policies are more expensive than traditional policies. And life insurance premiums tend to be normal,
Unlike health, home or auto insurance, “this is a one-time policy,” AALTCI’s Slome says. So, before you make a choice – including buying a policy outright – consider:
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I think we can all agree with the COVID-19 pandemic; more and more people are choosing to have home aides instead of sending their loved ones to nursing homes.
1. Traditional LTC insurance works similar to health insurance. This type of service is intended to ensure that your property is not affected by the cost of receiving the long-term care needed. This also includes home care.
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2. Hybrid Life Insurance LTC is an increasingly popular option that combines the traditional death benefits of life insurance with the benefits of LTC. This option ensures that