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The COVID-19 pandemic has significantly affected our lives and businesses in many ways that are still playing out. Among other things, it has served as a reminder of how hard it can be to deal with an unexpected health crisis, and how important it is to foresee and plan for potential health care needs before they arise. One such potential eventuality is long-term care (LTC) — and an insurance policy can be the best approach. But before you commit to LTC insurance, it’s wise to be aware of the pros and cons.
Getting to know the options
LTC insurance policies can 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.
Weighing the benefits and drawbacks
Whether LTC insurance is right for you will depend on a variety of factors, such as your net worth and your estate planning goals. If you’ve built up substantial savings and investments, you may prefer to rely on them as a potential source of LTC funding rather than paying premiums for insurance you might never use.
If you’ve socked away less and also want to have something left for your heirs after you’re gone, LTC insurance might be a good solution. But it will be effective only if your premiums are reasonable.
If you determine LTC insurance may be right for you, the younger you are when you purchase a policy, the lower the premiums typically will be. Plus, 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.
Familiarizing yourself with the terminology
It helps to understand a few terms when considering an LTC policy:
- 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.
- Elimination period. This is the period of time between the start of the benefit trigger and the time that the policy begins paying benefits, which can range from 30 days to several months. The longer the elimination period, the less expensive the premiums typically are.
- Benefit period. This 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.
- 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.
- Exclusion. An exclusion is a condition not covered by a policy. For instance, some policies won’t cover treatment for addictions or self-inflicted injuries.
Being informed is the best defense
Only you can decide whether LTC insurance will likely benefit you and your loved ones. But it certainly helps to get as much information as possible before making that decision. In addition to noting the points highlighted here, consult a Beflint advisor to ensure your long-term care plans are the right ones for you