Long-Term Care Insurance

How Can Individuals Prepare for Future Long-Term Care Needs?

Planning for retirement involves more than saving and investing. It also means considering the possibility of needing long-term care in the future.

Many people may eventually need assistance with daily activities because of aging, illness, disability, or cognitive impairment. Long-term care can be expensive and may place a significant financial and emotional burden on family members who provide care.

Long-term care is also not limited to older adults. People under age 65 may also require extended care because of illness, injury, or disability.

One common misconception is that Medicare covers long-term care. Medicare may cover certain skilled care following a qualifying hospitalization, but it generally does not pay for ongoing custodial care, assisted living, or most long-term nursing care.

How Does Long-Term Care Insurance Work?

Long-term care insurance, or LTCI, is designed to help pay for qualifying care when you can no longer live independently.

Depending on the policy, covered care may be provided at:

Benefits are generally triggered when the policy's requirements are met. Most policies use Activities of Daily Living, or ADLs, and may also provide benefits when the insured experiences qualifying cognitive impairment.

• Your home
• An assisted living facility
• An adult day care center
• A nursing facility
• A memory care facility

What Are Activities of Daily Living?

ADLs are everyday activities used to determine whether someone needs substantial assistance with personal care.

The six commonly recognized ADLs are:

Bathing: Washing and caring for yourself, including getting in and out of a tub or shower.

Dressing: Putting on and removing clothing and necessary medical devices.

Eating: Feeding yourself.

Toileting: Getting to and using the toilet and completing related personal hygiene.

Transferring: Moving between a bed, chair, or wheelchair.

Continence: Maintaining control of bladder and bowel functions.

Many tax-qualified policies require an inability to perform at least two ADLs for a specified period before benefits can begin.

Severe cognitive impairment may also qualify someone for benefits when substantial supervision is required for their safety.

Important Long-Term Care Policy Features

Not all LTCI policies work the same way. Before purchasing coverage, pay attention to the policy's definitions, benefit limits, and claim requirements.

Important features include:

Elimination Period

This is the waiting period before benefits begin after you qualify for coverage. Common periods include 30, 60, 90, or 180 days.

Benefit Amount

Policies may provide a daily or monthly maximum benefit. A monthly benefit can offer greater flexibility because care costs can vary from month to month.

Benefit Period

The policy determines how long benefits can be paid. Options may include two, three, or five years, or potentially lifetime coverage.

Inflation Protection

Healthcare costs can increase significantly over time. Inflation protection can help preserve the purchasing power of your future LTC benefits.

Home and Community-Based Care

Many people prefer receiving care at home rather than moving into a nursing facility. When comparing policies, check whether coverage includes home care, adult day care, assisted living, memory care, and skilled nursing.

Some policies may also provide benefits for qualifying home modifications that make it easier to receive care at home.

How Much Does Long-Term Care Insurance Cost?

LTCI premiums depend on factors such as age, health, coverage amount, benefit period, inflation protection, and the policy's elimination period.

Premiums can also change over time because insurers may request rate increases from state insurance regulators based on their claims experience.

When comparing policies, look beyond the initial premium. Review the insurer's history of rate increases and the benefits provided by the policy.

How to Evaluate an LTCI Insurance Company

Financial strength is an important consideration because LTCI is designed to provide benefits many years in the future.

Consumers can review financial ratings from organizations such as A.M. Best and other independent rating agencies.

You can also review consumer complaint information through the National Association of Insurance Commissioners and your state insurance department.

Looking at both financial strength and complaint history can provide additional information when comparing insurers.

Tax Benefits of Long-Term Care Insurance

Tax-qualified long-term care insurance can provide certain federal tax advantages, subject to IRS rules and applicable limits.

Benefits from a tax-qualified policy are generally not subject to federal income tax when paid for qualifying long-term care expenses.

Depending on your circumstances, some LTCI premiums may also qualify for tax deductions, including certain situations involving businesses and self-employed individuals.

Because tax rules can change and depend on individual circumstances, consult a qualified tax professional before making decisions based on potential tax benefits.

Other Ways to Get Long-Term Care Coverage

Standalone LTCI is not the only way to plan for potential long-term care expenses.

Some life insurance policies offer long-term care riders that allow qualifying benefits to be accessed from the policy's death benefit.

There are also hybrid life insurance and annuity products that combine long-term care benefits with other financial features.

These options can have different costs, benefits, and limitations compared with standalone LTCI. An insurance professional who understands these products can help you compare the available approaches.

Partnership-Qualified Long-Term Care Policies

Some states participate in long-term care partnership programs.

Partnership-qualified policies may allow certain assets to receive protection when an individual later qualifies for Medicaid, based on the amount of qualifying LTC benefits paid.

The rules vary by state, so anyone considering this strategy should understand the requirements that apply where they live.

How Should You Approach Long-Term Care Planning?

Choosing long-term care coverage is a personal financial decision. Consider your health, family history, retirement savings, income, family support, and the type of care you would prefer to receive.

You should also consider the potential cost of care in your area and whether your existing assets could cover those expenses.

An independent insurance agent who works with multiple insurers can help you compare policy features, costs, underwriting requirements, and available coverage options.

If you need assistance with long-term care insurance, contact us today. We can help you understand your options and explore coverage that fits your financial goals and future care needs.