What you need to know about long-term care insurance

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As people live longer, it becomes more likely that many of us will need long-term care one day.

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About 70% of people turning 65 today can expect to use long-term care of some kind in their lives, according to the Administration on Aging.

And with demand growing and health care costs rising, paying for that care requires some forethought. That’s where long-term care insurance comes in.

“Most of us want to have a healthy, active retirement. But as you get older, the risk is greater that you may need extended care,” says Nadia Allaudin, senior vice president of wealth management for Merrill Lynch in Century City, Calif.
“Whether you are in an assisted living home for an extended period, or even in a convalescent center for a shorter time frame, a long-term care insurance policy is a valuable option to help cover incurred costs.”

Long-term care insurance can be used to pay for various services that may be provided in a care facility or at home - for example, adult day care, skilled nursing, physical therapy and help with personal care, such as bathing. While Medicare and other health insurance cover immediate medical expenses, they fall short on long-term care related to chronic conditions. Medicaid can cover some services, but has very strict conditions that must be met before coverage kicks in.

How it works

With a long-term care insurance plan, you’ll have to pay a monthly premium determined by factors such as your age, health and what you need in a policy. Your policy will usually include a list of what are called “Activities of Daily Living” (ADL) - for instance, bathing, dressing, eating and using the bathroom. Coverage, in the form of a daily benefit, starts when you are unable to manage a specified number of such activities on your own.

You can apply for long-term care insurance at any time, but since premiums rise as you age, it’s best to buy between the ages of 55 and 64. Securing coverage when you’re in good health can ensure a lower premium, and insurance carriers may reject applicants with pre-existing conditions or those who have undergone medical procedures.

When considering a long-term care insurance policy, look carefully into which benefits are covered; the process of getting paid; whether there are any blackout periods; what the monthly long-term benefits are; whether it includes inflation protection; and whether premiums can rise unexpectedly.

Take a longer view

Don’t make the mistake of thinking long-term care insurance is only for retirees and seniors to worry about, says Mark Sullivan, a general agent for Genworth Financial and the president of the New England Long-Term Care Planning Group in Massachusetts.

“Many people often think ‘that will never happen to me’ when discussing someone else’s health issues, but frankly, it can happen to anyone,” says Sullivan. “Costs of nursing home care, as with other medically related services, are skyrocketing, and the family’s retirement savings can quickly be exhausted if an insurance policy isn’t in place.”

Indeed, health care costs are rising among all sectors, including long-term care services. The average cost of a private room in a nursing home is around $240 daily, an increase of 4.35% over the year before, according to Genworth Financial’s 2014 Cost of Care Survey. From 2013 to 2014, assisted living facility costs rose 1.45%, to $3,500 a month. In the same period, costs for home health aide services increased 1.59%, to $20 per hour.

“Knowing that you are protected may help ease the worry of having to depend on family members to provide care or financial support in the future,” says Laura Knolle, a certified financial planner at Ballou Plum Wealth Advisors in California. “Having a policy also helps prevent depleting your estate if you would like to leave assets to loved ones when you pass.”