Who Should Buy Long-Term Care Insurance?

Who Needs to Buy Long-Term Care Insurance?

One of the greatest possible budget busters of retirement is being slammed with excessive costs for a nursing home stay. That is why buying insurance to cover a majority of the expenses of in-home treatment, assisted living, or a private space in a nursing home is a smart financial decision. The trick is to get the most bang for your buck when it comes to insurance premiums. 

So, what’s the catch? 

Long-term care insurance can be ridiculously expensive. According to top-rated insurance providers cost of care report, the average median daily rate for a private bed in a nursing home in was $280 per day or $102,200 a year. This figure, on average, increases up to 2 percent each year. A year in an assisted living home in your own bed costs $48,612. Those are substantial amounts that will easily deplete a retirement fund. According to Fidelity Investments, the total 401(k) balance is $105,200. 

What’s the Sweet Spot? 

What is the best time to buy a long-term care insurance policy that holds premiums down while saving you money over the course of the policy’s life? When you are in your 40s or 50s, you would be able to find a policy with a lower premium. However, it’s possible that you’ll be paying premiums for more than two decades before making a claim.

According to the American Association for Long-Term Care Insurance, individuals above the age of 70 make more than 95 percent of the long-term care insurance claims. While almost 7 out of 10 claims are made after the age of 81. 

For instance, let’s say you wait until you’re 70 to purchase a long-term care insurance policy. You pay $250 per day for a private room in a nursing home for up to two years. A long-term care expense calculator estimates your monthly premium would more than double (about 130 percent of the bill for those paying at age 50).

If a man alone purchased a policy at the age of 50, the plan to collect $182,500 in covered benefits on a claim at the age of 79 will be $56,278, based on a monthly premium of $161.72. Side note: 79 years of age is the estimated age for making a claim, according to the long-term care insurance association. Waiting before you’re 70 years old will cost you $370.88 a month. 

When a woman is single, she spends more for long-term insurance coverage at any point of her life. This could be as little as $43 more per month at 50 and as much as $145 more at 70. Couples of the same class, regardless of gender, have rates that are less than double those of a man alone.

A single man, between the ages of 70 and 79, pays on average $16,000 less for their premium; typically, around $40,055. By waiting until they are 70, everyone raises their odds of being turned down for benefits due to ill health. 

According to financial advisors, the safest age to browse for a long-term care insurance policy is between 60 and 65. That is if you are in good health and qualify for benefits. Anyone may be refused benefits due to deteriorating health or medical examination findings that show a high risk of potential health complications.

Be mindful that the cost of long-term care insurance will escalate over time. However, in order to increase the rate, an insurer must seek permission from state authorities, which does not happen with homeowner’s insurance. For nearly a decade, long-term care providers have implemented substantial premium hikes, and the number of insurers providing this form of policy has diminished.

Should You Insure Yourself?

What if you applied the money you would have spent on insurance into long-term treatment instead? According to an investing simulation run, if you spent $161.72 a month from the age of 50 to the age of 79 and got a 7% return, the investment will rise to $174,880. 

Self-financing your care is dangerous. Even if that amount was enough to offset the current cost of a two-year stay in a private room in a nursing home. Or maybe you’re thinking it could act as a retirement account if you are never in need of long-term treatment. It is recommended to not take that risk. 

One issue is that you would not be able to save the money every month. Even if you did, you might not get the 7% return you wanted. Another possible scenario being the market might collapse right as you need the money. The nursing home isn’t going to wait for the economy to recover until you pay your monthly bill.

Who Should Buy Long-Term Care Insurance?

One way to protect against the high cost of long-term care is to buy long-term care insurance. This form of insurance is not ideal for all, so weigh the choices carefully. Long-term treatment, whether it be given in a nursing home or at home, can be accounted for in four forms:

  • It’s an out-of-pocket expense. You will pay for your long-term care needs with funds you’ve invested if you have enough money. 
  • Medicare is a government-run health insurance program. Short-term nursing home visits are protected by Medicare following an accident or condition that necessitates hospitalization. Each disease is protected by Medicare for up to 100 days of “professional nursing treatment.” 
  • Medicaid is a government-run health-care initiative Medicaid can provide nursing home treatment if you have insufficient money. A nursing home patient can only have $2,000 in “countable” funds to be considered for Medicaid coverage (it may be higher in some states).
  • LTC insurance is a form of long-term health insurance. You pay annual rates to purchase long-term care insurance, which accounts for the long-term care expenses whether you are transferred to a nursing home or need home care (depending on the policy). 

Your financial condition plays a role in deciding if you require long-term care insurance. Long-term care insurance rates differ greatly based on the age when you buy the policy, the payout term, and the benefit amount. They can also be quite expensive. As a result, if you have the financial means to self-insure your long-term care needs and still have funds left over, you do not need to obtain a long-term care insurance policy. That said, for those who are unable to afford annual long-term care payments, you may be eligible to apply for Medicaid.

Another factor to consider is your family’s medical background. The bulk of nursing home stays are brief and protected by Medicare. Dementia is a common cause for seeking long-term treatment. It might make better sense to purchase insurance if you know you have a family history of Alzheimer’s disease, for example. Of course, we can never be sure what the future holds. We don’t know if or when we will need long-term care insurance. Similar to the fact we don’t know if we will ever need life insurance. 

Long-term care insurance is something to consider if:

  • Even in retirement, you have the financial means to cover the fees
  • You want to cover your estate for your heirs
  • Or because you don’t have enough funds to self-insure

Reasons to Purchase Long-Term Care Insurance

You deserve to be able to receive high-quality treatment fast. What do you do if you need help but don’t have long-term care insurance? You can ask for money from relatives and friends, pay for it yourself, or apply for Medicaid. To apply for long-term care coverage, you must need support with two of the six tasks of daily life. Bathing and dressing are examples of these practices. When you grow older and need support with these things, often people look to their partners or other loved ones first.

If you don’t have health care and need medical attention, it’s likely that you would deplete your savings to pay for it if family and friends are no longer an option. If you need long-term treatment and have spent all of your savings, federal aid services will pay the cost of your care in a licensed nursing home. Most of the reasons consumers purchase this form of policy is that they can get care quicker and use the funds from the insurance provider to pay for it.

You might have a lengthy and expensive claim. The Executive Director of the American Association for Long-Term Care Policies shared the story of a mother who spent only $12,000 in premiums over a few years but earned $1.2 million in long-term care benefits over the course of 15 years. 

Even though her payments were taken care of by long-term care insurance, her and her family wished that a long-term care requirement had never existed in the first place. No one would ever hope to need long-term care insurance once it’s purchased. However, if long-term care is required, policyholders will sure be happy they have it.

You desire the right to make your own choices. When you have long-term care benefits, you will have the financial means to pay for high-quality care and the freedom to choose how and where you get it. Many without sufficient financial capital or who have not acquired long-term care plans actually have less opportunities. 

Is this to say why everybody can buy long-term care insurance? No. As with any financial decision, you must educate yourself. Take into consideration both the advantages and disadvantages, then make the best decision for you.

Make a Decision by the Age of 65

Most financial advisors advocate buying long-term care policies by the time you turn 65. This is also when most people become eligible for Medicare. This isn’t because Medicare doesn’t cover long-term treatment, such as a stint in a nursing home. 

The timing is all about increasing the chances of getting adequate Medicare benefits. You will want to ensure that medical examinations discover potential issues that may make applying for long-term care policies more complicated. Contemplate the following when determining whether or not you need long-term care insurance. Then decide whether you have sufficient funds to pay for long-term treatment out of pocket. 

Consider the following questions as you examine your family history. Regarding your overall health and wellness. Are there any inherited disorders in your family? Take a look at the potential for long-term treatment as well. Have any other members of your family needed assisted living or nursing care? 

If it looks like the risk of having long-term treatment in the future are high, the next move is to compare policies. Also, consider whether long-term care insurance works within your budget and if paying premiums is realistic for you.

Typically, the majority of policyholder’s are married couples. With combined assets and resources, assess whether you can afford to pay out of pocket. Also, whether you have the ability to sell your home to pay for long-term care. If either of these circumstances apply, insurance is not required. However, if you want to avoid the risk and don’t want to be surprised by potential expenses, your should buy insurance. 

Shopping for Long-Term Care Insurance 

It is recommended that you start researching long-term care insurance coverage as soon as you believe there’s a potential need in the future. There is no way to forecast the future. If you delay this process until you’re far into retirement and have medical conditions, you might be turned down for coverage. Also, the costs could be too high to make it a wise or viable option. 

If you are under the age of 50, there is only an 11 percent chance you’ll likely be refused coverage. However, if you are in your 70s, that figure leaps to 45 percent. In terms of price, a package for a single 55-year-old individual could cost between $1,700 and $5,000 per year. The cost varies greatly depending on the policy’s specifics.

Understand that if you buy long-term care policies in your 50s or 60s, you’re making a long-term investment. You will continue to pay fees for up to 20 years before the insurance provider pays for services. If you’re fortunate, the insurance will never pay out, so you’ll have the peace of mind that your savings will not be exhausted due to medical problems later in life. 

Alternatives to conventional long-term care insurance include receiving care abroad or participating in a Continuing Care Community program. Despite the options, those in retirement will find that conventional long-term care insurance provides a great deal of peace of mind.

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