Long-Term Care insurance (LTC) pays for assistance in the event a person cannot perform certain activities of daily living due to disability, illness, or cognitive impairment. The person in question may be yourself or a loved one such as an elderly parent. The assistance may come in the form of respite care, hospice care, assisted living, Alzheimer’s facilities, nursing and home health care, or adult day care.
Disability is typically defined as inability to perform two or more of the following activities of daily living: dressing, bathing, eating, toileting, continence, and transferring (standing up, walking, sitting down). A formal medical diagnosis from a physician is required to establish disability.
The cost of an LTC policy varies depending on gender, age, state of health, marital status, and the level of benefits. More favorable benefits, including cost of living adjustments, better facilities, shorter elimination periods, etc., are more costly. A man in his mid-fifties can expect to pay at least several thousand dollars in annual premiums. All else held equal, women pay more than men for coverage because their life expectancies are higher and they are expected to require care for longer.
You may qualify for tax deductions for long-term care premiums if they are deemed legitimate medical expenses.
Concerns Over LTC Policies
Over the years, serious concerns have surfaced regarding LTC insurance, including:
The LTC industry has undergone significant change in recent decades. Many insurance companies priced policies incorrectly, lost a lot of money, and decided to exit the business. Since the late 1990s the number of firms offering LTC insurance plummeted from more than 100 to fewer than a dozen.
Who Needs LTC Insurance?
Many people don’t need LTC insurance. They fall into two categories. The first consists of those with negligible assets who qualify for long-term care services through Medicaid. The second consists of those with significant assets who can afford to pay for long-term care costs directly instead of buying LTC insurance.
This leaves a population of people who have too much in the way of assets to qualify for Medicaid, but not enough to fund their own anticipated needs. Arguably, this is the population most in need of long-term care insurance, but also a population which may find it difficult to afford the premium payments.
Those who don’t have LTC insurance sometimes draw down their assets over several years and become eligible for Medicaid once their assets decline below the eligibility threshold.
If you make solid financial decisions throughout your career you should not need LTC insurance. You’ll be able to fund required care using the income from your nest egg.
Ultimately, purchase of long-term care insurance for yourself or for your parents depends on your family’s specific circumstances and preferences. Consider engaging all stakeholders in a conversation about the available choices. Stakeholders include the prospective patient(s), family members who may provide care, adult children, and their spouses. Topics for discussion include whether you prefer to receive care at home or in some other facility; roles of family members, aides or nurses; and how to pay for long-term care expenses (from savings, insurance, Medicaid).