Long-Term Health Care Insurance 101

What is Long-Term Health Care Insurance?

As Americans live longer, they are investing in health-care security for their later years; years that could involve sickness and various frailties. A lengthy stay in a nursing home is costly and can exhaust a life savings, while putting distress on your family’s income. Long-term health care insurance usually provides coverage for nursing home care, long-term care, assisted living facilities, home care, and adult day care.

Most long-term care policies cover a base rate per day for nursing home care. Some may or may not cover pharmaceuticals, supplies, and incidental charges, which may become expensive. The average cost of a day in a nursing home is approximately $181. In 20 years, it is estimated to be more than $400. Long-term health care insurance can protect you against catastrophic financial loss.

Who Needs Long-Term Health Care Insurance?

People need long-term health care insurance when they are unable to care for themselves. Care includes medical attention or assistance in activities of daily life, such as bathing, eating, dressing, walking, and using the bathroom.

Long-term health care insurance is not just for the elderly. Any person recovering from an illness, or younger people with a chronic condition that renders them incapable of caring for themselves, can use long-term health care insurance.

When determining whether to buy long-term care insurance, consider your financial situation. If you have significant savings or are financially well off, you likely can afford the costs of your own care and may not need insurance. If you are of modest means, you may not be able to afford the premiums, which for a 65-year-old can be $3,000 to $5,000 annually.

Consider long-term health care insurance if you:

have a family history of one or more debilitating illnesses,
have a chronic condition,
have Alzheimer’s disease or other cognitive impairment, or
believe you will not have anyone to care for you in your old age.

When Should I Buy Long-Term Health Care Insurance?

If you are in generally good health, you should begin long-term care insurance around age 60. Since the average age of a person going into a nursing home or long-term care facility is 83, you do not want to begin paying premiums when you are too young.

If you are in poor health, you may not qualify for long-term health insurance or your premiums could be very high. If you are approaching age 60 and already have a chronic condition, consider long-term care insurance.

What Kind of Policy Should I Buy?

First, research the geographic area where you may be spending your senior years. Rural areas are likely to charge less per day for nursing home care and home care than metropolitan areas. Purchase a policy that provides enough coverage per day for your region.

In addition, look for a policy that:

begins to cover expenses after you are unable to perform two of the activities of daily living.
covers expenses for four years, which is the maximum length of the majority of nursing home stays.
offers a low deductible of a 30-day elimination period (the number of days you must pay out of pocket before coverage begins). However, a lower deductible means higher premiums.
has inflation protection toward the cost of services which will be substantially greater 10, 20, and 30 years in the future.
is comprehensive, covering any kind of long-term need: nursing home, assisted living, home care, or adult day care.
has a user-friendly claims process and easy access to claims representatives.
has premiums that are tax deductible under certain federal standards.

What Are the Risks in Buying Long-Term Health Care Insurance?

Insurance is only as valuable as the company that provides it. Because long-term health insurance will be needed 20 to 30 years in the future, make sure that the company providing it is financially stable and likely to still be in business by the time you need it.

Check insurance ratings companies such as Moodys (http://www.moodys.com) and Standard and Poor’s (http://www.standardandpoors.com) for insurance companies rated B+ or better. If your company goes bankrupt or out of business, you may lose coverage and benefits, or pay higher premiums if another company buys your policy.