With the average life expectancy of Americans at 77.8 years, the likelihood that we will need long-term care (LTC) has increased dramatically. In fact, more than half of us will spend part of our lives in situations that require some sort of LTC. Americans who reach age 65 will have a 70 percent chance of needing some sort of LTC. 20% of those who will need LTC will need it for more than 5 years. This year, about nine million Americans will need LTC; by 2030 it’s estimated to be above 20 million.
Unfortunately, LTC can be very expensive. In 2014, home care in Hawaii cost more than $55,000 and a nursing home cost more than $135,000 a year. These prices are expected to rise exponentially, therefore it is important to have a strategy to address the threat of LTC expenses.
Some choose to rely on family and friends for their LTC needs, while others plan to use their personal assets and savings. Both of these options may not be ideal. Also, Medicare and Medicaid will generally not pay for LTC unless you meet certain economic conditions, and it can be difficult to get. For LTC terms and a glossary, click here!
Buying LTC insurance is an excellent way to protect yourself from these expenses. If choosing this route, here are some steps to help you when shopping for LTC insurance:
- Talk to a financial professional to make sure the product is right for you and your family. The adviser should be unbiased and help you shop around with different companies and plans. Don’t be pressured to make quick decisions and take your time to do your own homework. Daniel Peters, VP at WealthBridge Inc, states “Since there is no ‘one-size-fits all’ policy, it is important to have a comprehensive financial plan and strategy to make sure it covers what you need. You don’t want to buy too little, or too much.”
- Take time to do your own homework on LTC companies. Different companies offer different types of benefits, riders and premium costs. Some products combine benefits such as life insurance and LTC and are hybrid products. Make sure the insurance company has a lot of experience in the LTC industry, at least 10 years or more. This shows longevity, and that they have the experience necessary to pay out claims. Peters states that he checks and compares the costs, pricing, and the background of over sixty LTC insurance companies in order to make sure his clients gets the best policy.
- Check the strength of the company and its ratings. Insurance companies are rated by various agencies such as A. M. Best, Moodys and Standard and Poors. Choose a company that has “A” or higher. You want to see how they have treated clients in past. When it comes time to collect, you want one that will be fair and is financially strong.
- Make sure the policy covers a broad range of care. The different options of care are home care, adult day care, assisted living facilities, residential care facilities, respite care, hospice care and nursing homes. You can click here to get more information on the different types of facilities.
- Study the fine print and policy to see the limitations on the plan and what conditions need to be met to receive the benefits. Not all plans are equal and premiums are directly related to benefits such as the amount of benefit, inflation protection, waiting period and length of benefits. Generally the long the elimination period (how long it will take for you to receive benefits), the lower the premium. If you decide to choose a longer period, make sure you have enough finances or caretakers setup to cover in the meantime.
- Ask the companies how many times they have raised their rates on existing customers. It can be a red flag if they have done it several times the past few years. Some insurance companies found that the number of claims, the length of the claims, and the use of benefits were significantly higher than expected. Almost all companies have had to do this, but those that to it frequently may continue to do so. If this happens, you have three choices: keep the policy and pay more, scale back your coverage, or drop your policy. Make sure you choose the best option for you and your family.
- Decide early enough where the premiums will be affordable. The longer you wait, the more expensive the policy. Also most companies require medical testing to determine suitability. Since LTC insurance is similar to health insurance, your health, age, and gender will play a large role in the price of your premiums.
In some cases, your employer may offer LTC insurance. Be sure to check it out as it may have better premiums and benefits. LTC insurance should be an integral part of your financial plan. The right LTC product can give you the quality of life you need while giving your family emotional and financial stability for the future.