Do I Need Long Term Care Insurance?

Most people don’t like to spend money on insurance unless they see a real benefit. Let’s say a few of the benefits included:

  • Receiving tax-free money when you get sick
  • Avoiding depleting your life savings on medical expenses
  • Claiming tax deductions on premiums paid
  • Preserving your dignity
  • Saving family members the burden of your care

Convinced yet? Let’s talk about long-term care insurance.
Long-term care includes skilled care and/or personal care you may need at home, in respite care, hospice care, adult day care, a nursing home, or an assisted-living facility. The policy claims are available when you are unable to perform two of the six activities of daily living, known as ADLs (transferring, bathing, toileting, dressing, eating, and continence).

Here’s the basic construction of a long-term care insurance policy:

  • Daily or monthly benefit: Amount of money paid to you
  • Benefit period: How long the benefit is paid to you
  • Elimination period: Similar to a deductible, but in the number of days you would be self-insured
  • Inflation-protection rider: Because $100 today is not worth $100 in twenty years
  • Tax-qualified vs. non-tax-qualified: Today, most are tax-qualified, meaning a tax deduction is allowed at purchase, and the benefits are not taxable.

When do you need long-term care insurance? If you:

  • Want to protect your assets and income, especially if they are significant
  • Can pay the premium without straining your monthly budget
  • Prefer flexibility in choosing where you receive care
  • Would rather not rely on family members to care for you during a difficult time of need

Long-term care insurance is not always the right choice. You might not need long-term care insurance if you:

  • Have limited assets
  • Can’t support the premiums on your income, especially if Social Security is your only income and you have trouble paying for basic necessities
  • Are eligible for and receiving Medicaid

The cost of long-term care insurance can vary greatly from city to city and state to state. Check out this “Cost of Care” map from the Life and Health Insurance Foundation for Education to see costs for your part of the country.

If you’ve decided that long-term care insurance is right for you, you have some options for providers:

  • Private, individual policies
  • Employer-sponsored group coverage
  • Medicaid: You must be approved in order to qualify for eligibility per your state.
  • Medicare: This is very limited.
  • Partnership policies: These were started in the 1980s in California, Connecticut, Indiana, and New York to encourage people who would normally need to rely on Medicaid to look for other options for long-term care.

Unfortunately, because long-term care policies are also underwritten based on age and health, providers evaluate you according to your health history. If you have a preexisting condition, such as Alzheimer’s disease, it is highly unlikely that you will be able to secure a long-term care insurance policy. In addition to taking into consideration your health concerns, you need to figure out if long-term care insurance is the right fit for your financial portfolio. Long-term care insurance is not for everyone.

Buying long-term care insurance is a big decision that requires forethought, analysis, and planning. Consult with your adviser on how you should proceed to protect your health, your assets, and your loved ones.

Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.

Follow Linda on Twitter.

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