Fall is right around the corner — and that means open enrollment season is almost here, too. When you think about the benefits choices you’ll make this year, is long-term care insurance (LTCI) on your list?
Before investing in LTCI on your own or through your employer, it’s important to understand how it all works and decide whether it’s right for you.
What is long-term care?
Long-term care (LTC) generally means an extended stay in a nursing home or assisted living facility. It also includes home health care. It’s usually used by people over age 65 who need ongoing health support and treatment for chronic health conditions or disabilities.
What is LTCI?
LTCI works like most other insurance policies. You make monthly payments to the company that’s providing it, and when you need LTC support, your policy helps cover those costs.
How do LTC and LTCI work?
Unless you qualify for Medicaid, you’ll need to buy a long-term care insurance policy or pay for LTC expenses out of pocket. And those costs are something to be prepared for.
When you buy LTCI, you can choose the benefits you want included in your policy, which can help you to only pay for what you can afford. Some of the options you’ll need to consider include:
- Your daily coverage amount.
- The length of time you’ll be able to receive benefits.
- The lifetime maximum dollar amount you can receive.
- Inflation protection features.
Once you have your policy, you generally become eligible for benefits if you’re unable to perform two out of six “activities of daily living,” or ADLs. ADLs are dressing, eating, using the toilet, getting in and out of a bed or a chair, managing incontinence, and bathing. You also qualify if you suffer from dementia or another cognitive disability such as Alzheimer’s disease.1
How much do LTC and LTCI cost?
Before you decide on an LTCI policy, you’ll need to understand the costs of LTC. The annual median costs of long-term care in 2016 ranged from about $46,000 for a home health aide to $92,000 for a private room in a nursing home.2 Think carefully about how much LTC support you’ll need — because if you need care that your policy doesn’t provide for, you’ll have to pay the difference out of pocket, which can substantially affect your savings. For this reason, you may want to look for a policy that has flexible options.
When it comes to the price of policies, it varies depending on benefits that are covered, your insurance provider, your age, your health, and where you live. As a point of reference, however, for a couple both age 60 in standard health, the average cost of an LTCI policy ranged from $1,920 to $3,560 in 2016.3
So, is LTCI right for you? That’s a personal decision, of course, but here are a few factors that may help you decide:
Your age and health.
It’s general practice for insurance companies to increase premiums for older and less healthy applicants. For this reason, it’s a good idea to consider purchasing your policy when you’re younger if you think you may need LTC later in life. If you’re healthy, you may not think you need LTCI. But it may actually make sense for you because you could live longer than others who are not quite so healthy. And the longer you live, the more likely you are to need long-term care later in life.
Your family medical history.
Look at the longevity and health of your family members to help gauge your care needs in your later years. You can learn a lot from your parents, siblings, aunts, and uncles.
How much you can afford.
Like other types of insurance, many LTCI policies allow you to dial up or dial down the benefits you want, which affects the cost of your policy. That flexibility is helpful — some coverage is better than none in many cases. But the lower you go, the more you may have to pay out of pocket if and when you need your benefits.
Impact on your loved ones.
More than 43 million Americans each year provide some form of LTC for their loved ones.4 If you need LTC, do you know if a family member will help? If so, you may want to think about the emotional and financial impact your decision could have on family members when deciding whether to buy LTCI. It can help to ease the burden for your loved ones and give you more options for how you’ll get the care you need. It may also help enable you to maintain some of your independence.
LTCI policies for women are generally costlier than policies for men. This is because women tend to live longer.5 As a result, women are more likely to make long-term care insurance claims.
Investing in LTCI isn’t an easy decision, yet it’s one worth looking at, especially during open enrollment season. While we don’t offer LTCI at Financial Engines, we can help you as you talk with your insurance provider or employer to figure out if it’s right for you.
Having an LTCI policy may give you peace of mind and help you through some of those ‘you just never know’ situations that seem to spring up in later years. Think about your future needs, talk with your loved ones, and understand the details of how it all works to decide whether LTCI should be part of your financial plan.
1, 2, 5 Marquand, B. (June 22, 2017). Long-Term Care Insurance Explained. Nerd Wallet. Retrieved August 3, 2017, from https://www.nerdwallet.com/blog/insurance/long-term-care-insurance/
3 (January 2017). 2016 National Long-Term Care Insurance Price Index. American Association for Long-Term Care Insurance. Retrieved August 02, 2017, from http://www.aaltci.org/news/wp-content/uploads/2016/02/2016-Price-Index-LTC.pdf
4 (2016). Caregiver Statistics: Demographics. Caregiver.org. Retrieved May 06, 2017, from https://www.caregiver.org/caregiver-statistics-demographics