Following up on my article about the options available for taking care of elderly parents, in which I discussed the 4 main avenues available for people to do so. While some of the options may not resonate with families, one that has become increasing popular is buying Long-Term Care Insurance.
The first thing you must do is determine whether or not you NEED long-term care insurance. The three primary reasons somebody would need long-term care insurance is:
1. You have assets that you want to protect.
2. You have a spouse and you don’t want to be forced to spend down your assets to become eligible for Medicaid (therefore leaving your spouse with little to nothing).
3. You want to have options: specifically, you want to be able to choose whether or not you have in-home care or have the ability to choose one facility over another.
The reality for many people is they simply do not need long-term care insurance. If you don’t have a reasonable amount of assets or have a desire to choose your facility, then Medicaid will be a viable option for you as the government will provide care for you in the event you cannot provide it for yourself.
The second thing you must determine is when to get coverage. Waiting too late to purchase long-term care insurance is a problem I often encounter. Just last week I met a couple in their 70s that wanted long-term care insurance but the reality for them was that it was too late as the premiums were too expensive to fit into their budget.
While opinions vary widely on the topic, it’s not unfathomable to start thinking about buying long-term care insurance when you’re in your 40s. From all of the quotes that I’ve run, it’s clear that waiting to buy long-term care insurance adds up and the ideal age window seems to be around 45-65. If you are eager to get started, I recommend starting with Genworth online tool (here).
Once you’ve determined whether or not long-term care is suitable for your situation, then meeting with somebody that understands the intricacies of the policies is important. As I mentioned earlier, there are about 15 different variables to these policies and some are extremely important whereas others just aren’t.
Remember, each of these options can be changed and finding the proper quote ultimately depends on your specific situation and what you’re trying to accomplish.
1. Partnership Plan
In my opinion, the most important aspect of long-term care insurance is the Partnership Plans that are now being offered by 42 of the 50 states in the U.S.
While there are requirements to make your long-term care insurance policy a qualified “partnership plan” (varies by state), it is important to try and meet those requirements. A partnership plan is something that the government has created to incentive people to buy long-term care insurance.
Basically, the partnership plan states that for every $1 your long-term care insurance policy pays out in benefits, is $1 of assets (above and beyond the minimums) that are protected BEFORE you’re eligible to be covered by Medicaid.
So, if you’re single, the government may say you can only have $2,000 in assets before you’re eligible for Medicaid. So, if you have $500,000 in assets, you’re required to spend all of that down by paying for care out-of-pocket before you’d be eligible for Medicaid. However, if you had a long-term care insurance policy that was a part of the Partnership Plan, and that plan paid out $300,000 in benefits on your behalf, then you can have $302,000 remaining in assets and still get transferred to a Medicaid facility.
Again, the plan allows you to protect $1 of your assets for every $1 that’s paid out in benefit. It’s a great benefit and something that certainly should be considered if you have a spouse.
2. Monthly or Daily Benefit
The monthly or daily benefit should ultimately be based on the cost of a long-term care facility near the city you plan on staying. Here in Kansas City, the average cost for a long-term care facility is currently $4,500/month. That cost certainly is higher in places where the cost of living is higher. If you live in B.F.E., then it’s possible the current costs would be lower.
So, we typically start long-term care insurance quotes with the $4,500/month average and may increase/decrease it based on the person’s wishes, goals, and/or budget.
The more you want in coverage, the more you’ll pay in premium; the less you want in coverage, the less you’ll have to pay.
3. Benefit Period
The average length of stay in a long-term care facility is somewhere around 3 years, therefore, we start many of our quotes at 3 years.
Sometimes people want to base their benefit period on family experiences they’ve had (i.e. their parents and grandparents each stayed in a facility for 5 years), while others prefer to choose a shorter term as that lowers the premium payment and enables it to fit in their budget.
Again, the longer the benefit period, the more you’re going to pay in premiums.
4. Home Care
Many long-term care insurance policies offer 100% home care which simply means that you can opt to have care in-home. While in-home care is MUCH more expensive than care at a facility, it’s often a very enticing option/benefit for people.
Furthermore, when people get to the point where they need long-term care assistance, they may not need somebody caring for them every minute of the day; therefore they’ll choose to have a nurse visit them a few times a week while also having the spouse or children care for them the other days.
5. Inflation Protection
Getting inflation protection on your long-term care insurance quote and policy is important. In fact, it’s one of the requirements (assuming you’re under age 75 at the time of purchasing your policy) to qualify your policy for the Partnership Plan.
Understanding that healthcare in general has outpaced inflation, it’s safe to say that the strain on the long-term care system will warrant high inflation as many boomers will start needing these services in the coming years. With that in mind, it’s often a good idea to have some inflation protection on your policy.
Depending on the carrier, most include options of 5% simple, CPI increases, 3% compound, and 5% compound.
While these 5 variables are extremely important when considering long-term car insurance quotes, there are others such as elimination period, spousal discounts, and return of premiums that may be important to factor in.
When it comes down to it, long-term care insurance quotes are confusing and it’s often best to seek somebody that’s willing to walk you through the details and explain all of the options that are available. Too often I’ve met with people that simply were sold a product and didn’t really know what they were signing up for.
The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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