Planning for long-term care is an important component of a comprehensive estate plan. The high cost of long-term care (LTC) in the United States makes planning ahead imperative. One way to do that is to purchase an LTC insurance policy. In this article, I explain what you need to know about long-term care insurance.
Planning for Long-Term Care
There is a high probability that you will need LTC during your retirement years. Nationwide, the average cost of a year in LTC was over $100,000 for 2021. In Maryland the figure is more like $120,000. With an average length of stay of three years, an LTC bill could wreak havoc with your finances – and deplete your retirement nest egg because neither Medicare nor most basic health insurance policies will cover LTC expenses.
Is Long-Term Care Insurance Worth the Cost?
Long-term care insurance is a separate insurance policy that is limited to covering costs associated with LTC. Care must be taken when purchasing an LTC insurance policy because the coverage, exclusions, and terms can be complex and confusing. No two policies are the same. An LTC policy may cover some, or all, of the following:
- Nursing home care
- Home health care
- Respite care
- Hospice care
- Personal care in your home
- Services in assisted living facilities
- Services in adult day care centers
- Services in other community facilities
Considerations When Deciding to Purchase a Long-Term Care Insurance Policy
LTC insurance typically becomes more expensive the older you are, making it important to choose a policy when you are younger and stick with it if you decide LTC insurance is your best option. When purchasing an LTC policy, consider the following questions:
- How much will you pay over the lifetime of the policy? Even a seemingly reasonable premium will add up if you are paying that premium for 20, 30, or even 40 years before you use the coverage. A good rule of thumb is to calculate the lifetime costs of paying until age 70, 80, and 90 to give you a rough idea what the aggregate cost will be compared to the benefits the policy offers.
- Is there is mandatory waiting period? It is somewhat common for a LTC insurance policy to have a waiting period during which time the policy will not cover expenses.
- Does the policy have an annual or lifetime maximum? Both are pretty typical. An annual maximum benefit will limit your options when choosing a LTC facility to those that are within your price range while a lifetime maximum might mean significant out of pocket expenses if your stay is lengthy.
- Are there exclusions? Most LTC policies, like other types of insurance, include exclusions that you should pay attention to when considering the policy. Some of the most common exclusions include:
- A mental or nervous disorder or disease, other than Alzheimer’s disease or another dementia.
- Alcohol or drug addiction.
- Illness or injury caused by an act of war.
- Treatment in a government facility or that the government has already paid for.
- Attempted suicide or intentionally self-inflicted injuries.
- Will the policy cover you outside of the U.S.? This is another common exclusion which can render the policy worthless if you are planning to move out of the country when you retire.
- Does the policy terminate at a specific age or after a specific number of years? Make sure there is not an arbitrary termination age which can also result in out-of-pocket expenses.
Why Medicaid Planning May Be a Better Option
Paying for an LTC insurance policy can be prohibitive, particularly if you wait until you are older, and the premiums are high. Moreover, depending upon your health, you may not be eligible for LTC insurance. Planning to qualify for Medicaid may be a better option because Medicaid will cover LTC expenses. Medicaid eligibility can be problematic though if you failed to contemplate that need. For that reason, Medicaid planning should be incorporated into your estate plan.
Contact My Office Today For Help
For more information, or if you have additional questions or concerns about long-term care insurance, or about including Medicaid planning in your estate plan, contact my office today by calling 410-654-3850 to schedule an appointment.