With life expectancy rising in the U.S., many individuals are considering long-term care policies as they prepare for their golden years. Annually more than 8 million people receive support from long-term care (LTC) services.
What is long-term care? When a chronic condition or illness limits an individual’s ability to perform basic self-care tasks, such as bathing, dressing or eating, or instrumental activities of daily living, such as doing household chores, preparing meals or taking medication, LTC allows an individual to maintain an optimal level of functioning. It includes medical, social, personal, and supportive services and specialized housing required by those who cannot care for themselves.
Should you consider long-term care coverage?
- Health and life expectancy: Your health and longevity are critical in determining the need for coverage. For those with a family history of health conditions, consider coverage at an earlier age, when you are still insurable. For any elevated risk, being adequately insured can help protect your assets.
- Assets: Long-term care insurance, generally, only makes financial sense for those who have sufficient assets to disqualify them for Medicaid.
- Opportunity cost: The opportunity cost of premium payments may play a role as to whether LTC insurance is cost effective. Generally, individuals in their 50s or 60s have relatively for low odds for needing extended LTC, assuming they are relatively healthy. For those not foreseeing this need, the payments may not be worth the opportunity cost.
- Balance sheet considerations: Will your post-retirement budget sustain the cost of LTC premiums? Many expect a reduction in income as they retire. Those purchasing a plan during their working years must factor this in their long-term budgets.
Choosing a long-term care policy
When selecting LTC insurance, evaluate what the policy covers. For one, the definition of a long-term care event can differ among plans, from a condition where an individual is unable to do simple daily tasks to specific medical problems. Below are other key aspects to consider:
- Deductible: First, does the policy require a deductible? If so, the definition of deductible may include dollar amounts and/or a period of coverage. The insured may have to pay expenses out of pocket for a specific number of days, as defined by the deductible.
- Policy coverage: Coverage is the amount of expenses covered. Some plans will pay up to a certain amount per day, which could impact the care you choose, such as in-home or a professional facility, and the care provider options that will depend on their fees. Higher coverage usually requires a higher premium.
- Coverage period: A plan may limit coverage to a certain number of years. Additional coverage may require additional premiums.
- Inflation protection: Does the policy protect against inflation? This ensures premiums do not increase, or limits the rate at which they increase, even if LTC costs increase.
The LTC decision is both a medical and financial one that should include personal preference, probability and other statistics to determine the optimal choice. For any couple or individual, it requires reviewing options based on their risk tolerance and personal situation.
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