Long term care insurance is an insurance policy that can cover the cost of a potential stay in a nursing home or other care alternatives. A nursing home stay can potentially drain the savings all but the wealthiest individuals. While long term care insurance policies can provide peace of mind, these policies are not for everyone due to the cost and alternative planning options.
One advantage of long term care insurance is the wide range of care options. Unlike some states’ Medicaid nursing home policies, long term care insurance may also cover in-home care and and adult day care options. Some states’ Medicaid policies only cover traditional, live-in nursing homes.
There are a number of factors and options that affect how much long term care insurance will cost.
The biggest factor that affects the cost of long term care insurance is the age of the person buying the policy. Premiums are much lower for younger individuals. As individuals approach and and exceed retirement age, long term care insurance becomes much more expensive. Even waiting one year for older individuals can mean a significant increase in premiums. However, once the policy is purchased, premiums will generally not significantly increase.
An additional factor that can limit the cost of long term care insurance is that most insurance companies offer a discount for couples as opposed to buying separate, individual policies.
One of the biggest options that affect the cost of long term care insurance is whether or not the policy protects against inflation. Functionally, long term care insurance pays out a certain amount of care coverage per day or month, called the daily or monthly benefit. What looks like a reasonable amount of coverage now will probably not cover the cost of coverage in the future. While inflation protection is highly recommended to provide financial security, inflation adjusted policies are significantly more expensive.
Additional factors that affect the cost of policies are the elimination period and the benefit period. The elimination period functions like a deductible by stating how much coverage, generally stated as amount of time, a person must pay for out of pocket before the policy kicks in. The benefit period is the amount of time that the policy will cover the cost of care. The shorter the elimination period and the longer the benefit period, the higher a long term care insurance policy will cost.
One major drawback of long term care insurance is that if a person never needs care, then traditional long term care insurance policies do not pay anything out. One alternative that significantly increases the overall cost are hybrid policies that combine long term care insurance and life insurance. These policies will pay out benefits to the policy’s listed beneficiary upon the death of the insured individual if care is never needed.
If the cost of long term care insurance is prohibitive, Medicaid planning with an experienced elder law attorney can also help people protect their assets in case of a potential nursing home stay. However, planning techniques are more effective the longer it is before a person needs nursing home care.
To discuss how long term care insurance can fit into your long term estate plan, please call Martha C. Brown & Associates at (314) 962-0186.