The Big Question: Do I Need Long Term Care Insurance?

The Big Question: Do I Need Long Term Care Insurance?

May 05, 2020
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Here are two key facts about life:

  • We're living longer. Life expectancy is higher today than it was for earlier generations. Chances are good you'll live longer than your grandparents did.
  • Healthcare is way better than it used to be. It can keep us healthy for longer and treat us better and for longer if we fall sick.

But healthcare, as we all know, is increasingly expensive. So, as we age, we face the possibility of spending a lot of money over an extended period for our care.

In fact, experts say that people who reach the age of 65 have more than a 50/50 chance of needing long term care -- that's help with key daily activities -- at some point in later life.

Long term care (LTC), like assisted living or nursing home care, is costly. In Maryland, the average is about $140,000 a year. But costs are rising so fast that, 20 years from now, that figure may be almost double.

Many people don't need a year of LTC, but others may need permanent care that, with today's expertise, could last for several years.

So, it's vital that everyone has a plan for how they're going to meet those costs.

How to Pay for Long Term Care

You may be in the fortunate position of relying on family to look after you if you need this level of care. But that's not the same as the professional help you would get in an LTC facility or through an in-home health visitor. And the strain it can put on family can be immense.

However, professional long term care fees, in the main, are not covered by Medicare or regular health insurance. Exceptionally, Medicaid may offer some help. Otherwise it's up to you to find the money.

You might do this by drawing on savings and other assets, such as investments and property. Or you may have an income stream, such as an annuity, that will cover some or all the fees. You might also have a whole life insurance policy you can make drawings on.

Or you could take out a long term care insurance policy.

What is Long Term Care Insurance?

More than 7 million Americans have long term care insurance policies, which provide benefits that can either totally pay for or offset the cost of LTC.

These policies can be for a fixed period -- three or four years usually -- or for however long you need the care. Most people require less than a year of LTC but 1 out of every 8 need more than 5 years.

They generally pay benefits monthly, based on a daily amount which you select when you take out your coverage. With an inflation clause, that daily amount can increase by a certain percentage (usually 3%) or a fixed amount every year, to keep pace with rising costs.

Care can be in your own home, or an assisted living or nursing home facility. Many policies will also pay for adult day care, hospice services and certain home modifications.

To qualify for benefits, a policy holder usually must be unable to perform at least two or three activities of daily living (ADLs) like dressing and bathing, supported by medical evidence from a doctor.

Policies also usually don't become active until three months after the first premium is paid.

How Much Does Long Term Care Insurance Cost?

Naturally, this depends on the terms of your policy. For example, length of the benefits period, your age when you start your policy, and the actual benefits amount.

Some policies may limit the benefits to the actual cost of care, while others pay that fixed daily amount -- often reduced to 50% if care is provided at home.

Although it's only a guide, annual premiums average $2,700. Premiums for women are slightly higher than for men because, on average, women live longer and require longer periods of care.

However, some insurers offer a discount if both partners take a policy.

Furthermore, there are potential tax advantages. Maryland offers a one-time credit of up to $500 when you take out your premium, and part of your premium may also be deductible from federal taxes.

More than a dozen insurers offer LTC policies, so if you opt for this coverage, it's wise to work with your agent -- such as Rice Agency Inc. in Hagerstown -- to ensure you get the best possible coverage to meet your needs.

So, Should I Buy Long Term Care Insurance?

Many factors affect your decision on whether to buy LTC. For example:

  • Your current state of health
  • Longevity within your family
  • Your likely assets -- could you meet LTC costs from savings, investments and property ownership?

A simple piece of math might help. Say you pay a premium of $2,500 for 20 years. If you never need long term care, you would have spent $50,000 insuring yourself for no benefit. But if you need, say, $200,000 of LTC benefits, you would have only paid $50,000 for them -- effectively saving yourself $150,000.

Another possibility might be to take out a whole life insurance policy that can be used as collateral towards LTC costs. An advantage of this option is that your premium is fixed at the outset, whereas long term care policy premiums can increase.

Not easy is it? That's why it's important to discuss your needs and resources with a good financial advisor and your insurance agent. No need to rush the decision.

Where to Get Help and Information on Long Term Care

In addition to discussing your situation and needs with financial and insurance experts, Marylanders can also tap into a service offered the state's Insurance Administration.

The state operates a Long Term Care Insurance Partnership Program, which has a useful downloadable guide at: https://tinyurl.com/MD-LTC-guide

If you'd like to know more about LTC insurance, annuities or whole life policies that can be used to draw down, please get in touch with the Rice Agency Inc. at Hagerstown. We have the answers to your questions and the LTC expertise that can help you towards you decision.

This service is offered without cost and without obligation. And regardless, of course, we wish you a long and healthy life!