Tips for Buying Long-Term Care Insurance

Health-care costs are impossible to accurately predict when it comes to creating a retirement savings plan, but there are steps boomers can take to help ease the impact of medical expenses.

Requiring long-term care for a disability, chronic illness or any other condition over an extended period of time can become extremely costly and devastate a nest egg without proper planning. Often, employer-based health plans do not pay for extended-care services and Medicare doesn’t cover long stints in nursing homes or at-home care. To help cover potential continuing care expenses, many experts advise boomers to purchase long-term care insurance.

Jennifer Tucker, vice president of Homewatch CareGivers, which offers home health care for people with chronic illnesses, disabilities and other medical conditions, provided the following basics for boomers considering long-term care coverage:

Boomer: What is long-term care insurance and who should consider purchasing this type of policy?

Tucker:  Long-term care insurance policies cover the costs of assistance, over a long period of time, with the activities of daily living, such as bathing, dressing and cooking. Most policies cover personal care in a variety of settings, including nursing homes, assisted living facilities and in the home.

Anyone who is younger than 60 years old should consider buying long-term care insurance. The U.S. Department of Health and Human Services and the U.S. Department of Labor predict that by 2050, approximately 27 million people will be using paid long-term care services in any setting—double from 13 million in 2000. Additionally, more than 70% of people who are turning 65 years old this year can expect to use some form of long-term care in their lives; and, since most will not qualify for Medicaid, the security of purchasing these policies as early as possible is greatly beneficial to lower the overall financial burden.

Surprisingly, at Homewatch CareGivers, we have seen that only a small percentage of home care clients use long-term care insurance to pay for home care services. What we hear most often is that either people were unaware their spouse or parents ever had a policy or that they never bought one. Often, people who fall into the latter category were unaware a policy could cover the costs of in-home care and prolong the amount of time they or a loved one could stay in their home as they aged.

Boomer: How is the cost of long-term care insurance determined and how do you calculate how much coverage you should buy?

Tucker: Similar to other types of insurance, the cost of long-term care insurance is determined by the age of the person buying the policy, the amount of coverage the policy offers per day and the maximum number of days per year that the policy will cover. Basically, the rates are lower the younger you are when you purchase the insurance.

The average age at which people purchase long-term care insurance is 55 years old, with a typical enacting age of late 60s to early 80s. However, people can be diagnosed with chronic illnesses—such as multiple sclerosis, early onset Alzheimer’s disease and Parkinson’s disease at any age. We do care for some clients who had to enact their long-term care policies in their 50s due to unexpected illnesses.

While it is recommended to consider factors like family medical history prior to purchasing a policy, the best approach to ensure you are adequately covered is to speak with your insurance agent or a long-term care insurance specialist.

Boomer: What coverage should be included in a long-term care policy?

Tucker: There are several factors to consider when choosing which coverage you want in your policy. While an insurance broker can help sort out the particulars, the most important decision is about the kind of care you hope to receive.

The options for long-term care span various settings, including adult day care, nursing homes and group living facilities, as well as in the home. However, recent research has shown that more than 90% of older adults would rather live in their homes as they age than move to a nursing home or assisted living facility.

This is where home care can greatly impact a person’s life. Consider that the cost of “doing nothing” or having a family member provide care in the home poses a staggering average lifetime cost of $300,000 annually to that family member, according to a recent MetLife study. Home care services, which are covered by long term care insurance, average a cost of $45,000 per year. Also consider that 80% of claimants use home care as their first type of care, and only 25% of those ever progress to facility-based care.

Boomer: What health issues trigger the policy to kick in and how long will the policy pay?

Tucker: Some of the most common chronic illnesses in home care are also among those that will trigger a policy to kick in. These include Alzheimer’s and dementia, diabetes, chronic obstructive pulmonary disorder and Parkinson’s disease.

Policies may also be activated when an older adult can no longer perform two “Activities of Daily Living” (ADLs), such as safely bathing, dressing or preparing food.

Boomer: What are the most important questions to ask when buying a long-term care policy?

Tucker:  Ask about the “benefit triggers”—the conditions required to activate the coverage. These might be the number of ADLs you are unable to perform safely or the conditions that fall under your coverage. It’s imperative to ask about elimination periods, what the insurance covers on a daily basis, and in which states you can use your coverage. Consult with your long term care insurance expert to ensure that you are getting all the right information.

The most important question to ask is how you are going to make sure that you are able to use your insurance when you need it. At Homewatch CareGivers, we have had situations arise where the policyholder is incapacitated and family members are unaware of their loved one’s coverage or benefits. It is absolutely vital to have a plan in place, and to have a conversation with your adult children or other family members to ensure that the process is as smooth as possible.