Long-Term Care Insurance: Good or bad?

As the baby boomers reach their 60s and 70s, many might wonder what their future holds. Will they be as sharp as a tack and robust in their strength? One would hope so. But the reality is that many boomers will require some type of long-term care (LTC). If you or a loved one is among them, here are some Q&As on how to navigate the future.

Is it really needed?

LTC insurance policies help pay for the cost of long-term nursing care or assistance with activities of daily living (ADLs), such as eating or bathing. Many policies cover care provided in the home, an assisted living facility or a nursing home, although some policies restrict coverage to only licensed facilities. Without this coverage, you’d likely need to pay these bills out of pocket. Medicare or health insurance policies generally cover such expenses only if they’re temporary — that is, during a period over which you’re continuing to improve, such as recovering from surgery or a stroke. Once you’ve plateaued and are unlikely to improve further, health insurance or Medicare coverage typically ends. That’s when LTC insurance may take over. But you need to balance the value of LTC insurance benefits with the cost of premiums, which can run several thousand dollars annually.

Should you buy now or later?

The younger you are when you purchase a policy, the lower the premiums typically will be. And, the chance of being declined for a policy increases with age. Having certain health conditions, such as Parkinson’s disease, can also make it more difficult, or impossible, for you to obtain an LTC policy. If you can still get coverage, it likely will be much more expensive. So buying earlier in life may make sense. But, you must keep in mind that you’ll potentially be paying premiums over a much longer period. You can often trim premium costs by choosing a shorter benefit period or a longer elimination period.

Do you understand the terms?

It helps to understand a few terms when considering an LTC policy. One is the benefit trigger. This is the criterion the insurer uses to determine when your need for LTC begins. Examples include cognitive impairment or the inability to perform several ADLs on your own. The elimination period is the period of time between the start of the benefit trigger and the time that the policy begins paying benefits. This can range from 30 days to several months. The longer the elimination period, the less expensive the premiums typically are. The benefit period is the period of time over which the policy pays for care. This can range from a year or two to an unlimited amount of time. Another term is inflation protection. This boosts the dollar value of the benefit for each year of the policy. It becomes more important if it’s likely you won’t begin to receive benefits for a decade or more. Exclusions are conditions not covered by a policy. For instance, some policies won’t cover treatment for addictions or self-inflicted injuries. Many policies are classified as either reimbursement or indemnity. With a reimbursement policy (which is the most common type), you’re paid for the costs you incur up to a set daily or weekly limit. The policy may require that care be provided in a licensed facility. Under an indemnity policy, you receive a set amount of money to use against your expenses, even if your bill is less than the amount allowed in the policy. For example, if your caregiver sends you a bill for $150, but your policy is for $200, you would receive the full $200. Not surprisingly, indemnity policies tend to be more expensive.

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