Long-term care insurance can be an effective tool to help pay for daily care in the event of a long-term illness or disability, but not all plans provide adequate coverage and may not be worth the premiums paid in over time.

What is Long-Term Care Insurance?

Long-term care insurance policies reimburse policy holders for costs incurred from a disability or illness that results in an inability to perform daily tasks, such as bathing, dressing, or eating. Long-term care insurance supplements health insurance as it pays for expenses outside of medical care. Typically policies are intended to cover the costs of home care or care in an outside institution, such as a nursing home or assisted living facility.

What to look out for

A lifetime coverage policy may seem like an attractive option, but the daily coverage rate may be woefully insufficient to cover the cost of care. In this case, despite having purchased insurance, individuals may still be unable to afford comprehensive long-term care.

If individuals cannot afford long-term care, then the alternative of last resort is to apply for Medicaid coverage. Medicaid coverage, however, has some drawbacks. In order to qualify for Medicaid, an individual or couple’s assets have to be below a certain level. Reaching this level may require spending down one’s accumulated wealth. Additionally, after death, Medicaid can recover the costs paid for care from an individual’s estate.

An alternative is to look for policies that cover care for a limited period of years. Policies limited to a term of years can offer higher reimbursement rates that better cover the daily cost of care. While people are living longer, most individuals will rarely need long-term care insurance to cover care for more than a few years.

Partnership qualified plans are a relatively new policies that shield individuals both from the need to spend down their estates to qualify for Medicaid and from Medicaid estate recovery. Every dollar of coverage purchased earns individuals a dollar of asset exemption from Medicaid qualification and asset recovery. While most states, including Missouri, have partnership plans available, they are not yet available in all states. As a result, these plans may not provide full Medicaid protection if individuals buy a policy in one state and later move to another.

One positive feature to look for is a return of premium rider. If the insurance is never used, then the total premiums paid are returned to the policy holder. Ideally, an individual will never need to use long-term care insurance. Knowing that a full refund is on the way, but only if the policy is never used, represses the temptation to use the policy for mild illnesses. Invoking the policy for a mild illness may leave individuals uncovered for future, more severe conditions.

Similarly, in the case of a couple, if one partner needs care for daily tasks, the healthy partner should strongly consider providing the care, if possible. By providing the care, the partner again preserves the policy for a case of necessity.

To obtain an additional measure of security, consider policies whose premiums are paid for a fixed number of years, rather than on an ongoing basis. By budgeting and paying for the policy now, individuals can secure future coverage without having to deal with the future decision of dropping insurance coverage because of unforeseen financial circumstances.