What is Long Term Care Insurance?

Long-term care insurance is specifically intended to help policyholders cover the cost and expenses of long-term care. Typically, these are services that go above and beyond what traditional health insurance covers. 

Many people wonder whether or not long-term care (LTC) insurance is right for them. However, more often than not there’s some confusion around what long-term care insurance is, what it isn’t, and how it fits into a financial plan. Let’s dive in to unpack the details of long-term care insurance, and help you start to determine whether or not it’s a fit for your needs.                                                   

What is Long Term Care Insurance?

Long-term care insurance helps to cover what traditional health insurance does not. Typically, anytime ongoing services or custodial care are required, long-term care insurance comes into play. According to LongTermCare.gov, long-term care insurance covers:

  • Daily care in your home
  • Adult day service centers
  • Hospice care
  • Respite care
  • Assisted living facilities
  • Memory care centers
  • Nursing homes

If you use your long-term care policy for home care, it usually covers:

  • Rehabilitation therapy
  • Personal care and living help with daily activities

Other services that you may think of as “long term care” may be covered by Medicare. One common example of this is skilled nursing assistance, performed by those with professional medical training and licenses. Long term care is typically for unskilled care, like housekeeping, helping people bathe, etc., also referred to as custodial care.  It’s important to understand the difference between LTC insurance and Medicare. If you have any questions about this, make sure to contact an advisor for additional insight. 

How Do LTC Policies Work?

Long-term care covers a wide range of care needs. However, coverage doesn’t automatically kick in as soon as you need long-term care assistance. Instead, you need to meet two specific criteria as a policyholder:

  1. Benefit Trigger
  2. Elimination Period

Your benefit can be triggered in several different ways, but it’s always unique to your specific policy. Some policies require that, in order for long term care benefits to kick in, you need to require assistance in 2/6 daily living activities. These usually include things like dressing, bathing, using the restroom, continence,  transferring from bed to chair, and eating. Even if you don’t meet 2/6 of these criteria, your policy may still qualify you for a benefit trigger if you have severe cognitive limitations - either from an accident or as a result of dementia, etc.

Once your benefit is triggered, there is typically a 0-90 day elimination period, based on your policy options. During this period of time, you’re responsible for any fees you may be charged for your care. After you pass through the elimination period, your benefits kick in. 

Your long-term care policy likely offers a daily benefit and will cover services up to that set limit. This is important to remember when looking for service options for yourself or a loved one because your coverage won’t always cover the full expense of more intensive care services. 

Can LTC Be Customized?

Yes - you can customize your long-term care insurance policy. Usually, options like your daily rate (or the amount that your policy will cover each day for services), and the length of your elimination period can both be customized at the time of obtaining your policy. One option available is inflation protection that will increase the benefit over time to keep pace with rising costs. 

It’s important to think ahead about how your policy will fit into your future budget. For example, if you shop around and settle on a policy that offers more coverage, but has a longer elimination period, you’ll need to think about how you’ll pay for potentially expensive services for the period of time when coverage hasn’t kicked in yet. It’s also important to find a policy that fits your unique needs. 

Often, shopping for a long term care insurance policy is part of your retirement financial plan. It’s an added expense to cover the premium, but you’re able to budget for worst-case scenarios and find a policy that covers potential expenses you may not have enough savings to handle in the future.  

Is Long Term Care Insurance Right For Me?

Long-term care insurance is something you should be thinking about before retirement, as policies are often less expensive when you’re in your 50s or early 60s. The truth is that there isn’t a “perfect” long-term care insurance policy, because everybody’s needs are unique. Speaking to your doctor about the potential future need for long term care based on your current health and family history can be useful. Often an employer will provide the opportunity to purchase long term care at a discounted group rate.  These policies belong to the employee and will transfer with them when they leave or retire.

There are several reasons to consider long-term care insurance, the most likely are to take care of your future in the event that you may need help staying in your home or moving to assisted living.  Also, it can help to preserve your estate in that the policy will cover costs that can add up quickly and drain your savings if you are unprepared.  

You should also reach out to a financial planner about long-term care insurance questions you may have. A fee-only financial planner will be able to help you weigh the cost of coverage with the potential future financial assistance you’ll receive if you should need to use your benefits.

Have questions? Long-term care insurance isn’t an easy insurance policy to shop for, and it can be tough to know how it fits into your financial plan. If you’d like to discuss your unique needs, get in touch with us today.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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