« »

Sunday, January 3, 2016

Long-term care insurance: A smart investment or a long-term liability?

By Joel Zimmerman
 

What is long-term care? 

An insurance policy keeps you guarded against risk when you get sick or suffer an injury, but what about the financial threat posed by the possibility of a chronic illness? When a disease or a disability impairs your ability to care for your own self, you are compelled to receive medical care for an extended time period. Whether you opt for an assisted living home, a nursing home, or an in-home caregiver, you are likely to need financial help to support the cost of care. The increasing costs of long-term care can easily wipe out your lifelong savings if you don’t have a plan in place.

Long-term care is different from medical assistance because it aims to assist you in leading a normal life rather than rectifying your medical condition. It helps you with the accomplishment of the activities of daily living and includes hospice care, day care, and in-home care. A physical disability, cognitive impairment, or a prolonged illness often needs stand by assistance, skilled care or professional therapy in a nursing home. Personal care includes assistance with activities such as eating, bathing, dressing, continence, and toiling.

How much can long-term care cost?

The cost of long-term care depends on the level of service you need and the duration for which you need the service. While you may never need long-term care in your entire life, you also need to know the fact that more than 20% of the elderly American population experiences some form of physical or mental impairment which eventually requires long-term care. A single year in a nursing home can cost you more than $50,000 while skilled help costs can come up to $12,000 in year. If you are required to pay these costs out of your own pocket, it will surely consume a massive chunk of your retirement reserves. The costs of an assisted living facility may roughly sum up to $36,000 dollars per year while home health care can cost you up to $20 per hour.


How does long-term care insurance help?

Medicaid, Medicare supplement insurance and personal resources come handy when paying for long-term care. Long-term care insurance is one more way to pay for all your long-term care needs. The concept of long-term care insurance is relatively new and is generally available through employers. Individuals who are self-employed can also avail the benefits of long-term care insurance coverage through private companies. There are different means and resources to support the cost of long-term care. By investing in long-term care insurance, you qualify for tax benefits. If you don’t want to lose your assets and possessions to the costs of long-term care, it makes sense to invest in long-term care insurance and stay protected for the rest of your life.

Who should invest in long-term care insurance?

You should consider investing in an insurance policy only if you have a reliable source of steady income. If you do not have many assets and cannot afford to pay the premium, you should not buy an insurance policy. If you don’t qualify for a Medicaid and are financially sound to pay the premiums without any problems, you should certainly invest in long-term care insurance.

How much does a long-term care insurance policy cost?

Long-term care insurance policies are a significant investment as premiums vary from person to person. There are many factors that affect your coverage like your age, your medical condition, and the duration for which you have been paying premiums. If your policy provides a big benefit over a long time period, your policy is likely to cost high. Policies that come with non-forfeiture benefits can add up to 40% to your existing premium. Inflation adjustments can increase the actual premium cost by 100%. As costs vary significantly for every unique situation, it only makes sense to consult a licensed insurance agent.

Is long-term care insurance worth the cost?

People have realized the consequences of not having an insurance policy in place, particularly when they are faced with the cost of long-term care. Long-term care insurance acts as a safety net that protects your assets from being depleted due to the cumulative costs of nursing facilities and skilled medical assistance. Long-term care insurance provides protection and should not be mistaken for a profitable investment. There are various factors that you need to consider when purchasing a policy and these include:
  • At least a year of health care coverage at home or at a nursing facility
  • Coverage for cognitive impairments like dementia, Alzheimer’s disease, and Parkinson’s disease in case the policy holder develops a mental incapacity at a later stage.
  • Inflation Protection
  • Non-forfeiture Benefits
  • Tax Benefits
Be a careful consumer when purchasing long-term care insurance as there are several policies in the market with numerous limitations and different terms. If you find it difficult to compare the coverage outlines and understand the terms, you can rely on an experienced financial advisor. Don’t be mislead by advertising and check the financial stability of your insurance provider. 

Image: 401(k) 2012/Flickr; "Health Care Costs";  CC BY-SA 2.0