on any of the topics in the Table of Contents listed below to go directly
to that discussion.
Medicare and Medigap health coverage do not cover nursing home care.
About half of all nursing home expenses in the U.S. are paid for by
patients and their families. Therefore, you should think about how you
would cover the cost of nursing home care for yourself, your spouse or
One way of covering these often burdensome nursing home costs is long-term care insurance (LTCI), which is now sold by more than one hundred insurers.
But is LTCI a good buy? This Financial Guide covers the factors you will need to think about if you are considering purchasing LTCI and offers help in selecting a policy if you decide to buy LTCI coverage.
Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.
The older the individual covered, the higher the premium. For instance, premiums for coverage on a 70-year-old individual are about three times those for a 50-year-old.
Most long-term care policies are indemnity-type policies, meaning they will pay you for actual charges by the care provider (up to the policy’s limits). Other long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insurers greater flexibility (e.g., allowing them to pay for home care) and less paperwork.
When Benefits Are Paid
To receive benefits, you must usually suffer serious cognitive impairment or be unable to perform several "activities of daily living" independently.
Period Of Payment
The benefit period you choose can range from one year to life. The longer the period, the higher the premium.
Types Of Care Covered
Most policies cover skilled care, intermediate care, and custodial care at a nursing facility. Home care may also be covered or offered as an extra. You may also be able to purchase coverage for adult day care, assisted living facilities, or hospices.
This period constitutes the number of days the insured must wait—after becoming eligible for benefits—before coverage actually begins. The elimination period generally ranges from zero to 90 days, but can go up to one year. The longer the elimination period, the lower the premium.
Most policies are guaranteed to be renewable. However, rates are generally not guaranteed, and can be raised for a class of policyholders with the approval of the state insurance commission.
Rising Health Care Costs
A fixed-benefit policy will lose much of its protective ability over the course of 10-20 years. Thus, if you purchase a policy at age 60 and expect to rely on it for 20 years, you need inflation protection. This is available with most policies in the form of "benefit increase options" of various types.
Here are the reasons most often given by insured for purchasing LTCI:
LTCI may not be the best way to achieve these goals. There are alternatives to obtaining LTCI that are more suitable for certain people.
Long-term care insurance is both complex and controversial. Here is a summary of some of the main points for and against purchasing such coverage.
Reasons For Buying LTCI
Reasons Against Buying LTCI
Here are some options for paying for long-term care, along with their advantages and drawbacks:
Giving away assets to qualify for Medicaid may make sense for some people who want to leave their heirs an inheritance. The downside of giving away assets is that there is less flexibility and fewer resources to pay for care.
So called "Medicaid trusts" are another option. However, recent changes in federal law make it more difficult to have a trust and still qualify for Medicaid.
Reverse Mortgage Or Equity Conversion
Reverse mortgages and other forms of home equity conversion are often viable alternatives for those who wish to remain at home. Seniors can borrow money against the equity in their homes and defer repayment until they die or sell their house. However, for these options to make sense, a home must have a high monetary value and be fully or mostly paid for. Moreover, the individual must intend to stay in the home for the Long-Term.
Other Sources Of Income
Developing other income sources is an option that many older persons overlook. If you are retired, you might want to get a part-time job. If you are currently working, you might work a few years longer than you had planned. You might consider either renting part of your home or selling your current home in order to invest the proceeds.
Even though self-insurance—i.e., just paying for costs yourself if they arise—is a gamble, it is the current strategy of choice for most people. Self-insurance makes the most sense for people with major assets, for those who can afford a long nursing home stay, and for people of modest means who would quickly qualify for Medicaid anyway.
Premiums for LTCI vary greatly, depending on your age at the time of purchase, the comprehensiveness of the coverage, and the company selling the plan. Here are the approximate annual costs for LTCI:
Here are some general guidelines that suggest buying LTCI:
If you decide that LTCI is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area while others have not. Do not assume that a company is a safe bet just because it is licensed by the state insurance department to sell LTCI.
No matter how good a policy sounds, it is worth little if the company won’t be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company's rating by A.M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.
Read the policy from cover to cover. Do not rely on marketing literature. When you compare LTCI policies, consider the following features:
A policy that covers nursing homes should also cover assisted living, a better alternative for many people who can no longer live on their own. If you want a policy with home care, look for one that offers a full range of community-based services, including adult day care, or that pays you a monthly cash allowance to spend as you please for care.
Look for a policy that bases eligibility on the need for help with activities of daily living. Policies that pay only for medically necessary care are not usually a good buy.
If you purchase a policy before the age of 75, inflation protection is essential to ensure adequate coverage if you need long-term care at some point in the future.
If you cannot afford inflation protection, either choose a less comprehensive policy or do not buy LTCI at all.
Keep in mind that the chances of needing long-term care for five years or longer are relatively small. For most people, a policy covering two or three years will be more cost-effective.
Books and Other Publications
United Seniors Health Cooperative Publications:
About 43% of us will spend some time in a nursing home at some point in our lives. On the positive side, the risk of needing nursing home care before age 75 is relatively low and most people will not need nursing home care for longer than a year.
Your chances of needing long-term care vary with your age, health, family history and longevity, exercise habits, diet, smoking, and gender. Women are at higher risk because they live longer and are more likely to live alone when aged. If you are now 65 years old, the likelihood of being in a nursing home during your lifetime is shown below:
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