The following is an excerpt from 20 Retirement Decisions You Need to Make Right Now.
This is part three (the final part) in a series about long-term care insurance. If you want to read previous parts, here's part one and here's part two.
Nursing Home, Assisted Living, and Home Healthcare
Nursing home coverage is just one of several types of long-term care. Most policies also include coverage for assisted living facilities and home healthcare.
Assisted living is the step between living in your own home and living in a nursing home. If your health won’t allow you to continue living at home, but you don’t require round-the-clock nursing-home care, an assisted living facility will suit you nicely. The goal of assisted living is to help you continue living as independently as possible. Assisted living facilities provide the privacy and feel of living in your own apartment, condominium, or small home. However, assistance is available to help you with the basic activities of daily living. Assisted living facilities average $36,372 per year.
No one wants to leave his or her home any sooner than necessary, even when health conditions begin to deteriorate. The best way to ensure you can remain in your home as long as possible is to hire a home healthcare agency to provide you with the level of help you need. Non-skilled help, which can assist with dressing, bathing, preparing meals, and other household duties, can cost $1,000 per month. Skilled help provided by a physical therapist or healthcare professional can cost much more. Home healthcare averages $29 per hour.
What Is Not Covered by Long-Term-Care Insurance?
If you purchase a policy, make sure you understand exactly what is covered and what is not. Long-term-care policies do not cover a number of items, and the exclusions in each policy differ. Treatment that was under way or recommended before obtaining long-term coverage is usually not. In addition, the following ailments are often excluded:
- Mental disorders (other than Alzheimer’s disease or other dementia)
- Nervous disorders
- Alcoholism
- Drug abuse
- Care necessitated by an act of war
- Intentional self-inflicted injury
Focus on the Benefits
The most serious blunder people make when purchasing a long-term-care policy is that they focus on the premium more than the benefits they may need. Here are some benefits to focus on:
Coverage Amount
Long-term-care policies generally pay benefits on a daily, weekly, or monthly basis. Check the costs of nursing homes in your area to determine the amount of coverage you need. For example, if nursing homes in your area run $150 per day, you can buy a policy that will pay $150 per day, $1,050 per week, or $4,500 per month. Usually, assisted living and home healthcare benefits will be paid as a percentage of the nursing-home coverage amounts.
Inflation
Many people save a lot of money on premiums by purchasing a policy that doesn’t adjust for inflation. They’ll save money in the short run, but it’s not likely that their policy will provide them with nearly enough benefits if they enter a nursing home. If nursing-home costs continue to increase at 4 percent per year, a nursing home that costs $150 per day today could cost $328 per day in twenty years. If costs continue to soar at this pace, wouldn’t it be wise to add a feature to your policy that adjusts your benefits by 4 percent per year to combat this inflation?
Choosing a policy that adjusts for inflation will increase your premium. For example, one plan that pays a $150-per-day benefit for four years of nursing home coverage would cost a sixty-five-year-old about $1,500 annually without an inflation feature. With 4 percent compound inflation protection, the same policy would cost $2,700 yearly. However, the additional cost is worth it if it protects you and your spouse from bankrupting your life savings.
Elimination Periods
An “elimination period” represents the number of days you must be in a nursing home before your policy kicks in and begins paying benefits. Most policies offer a range between zero and one hundred days. Not surprisingly, the longer the elimination period you select, the lower your premium will be. You can determine your optimum elimination period by looking again at your retirement plan to estimate whether or not your investment resources are sufficient. If you have plenty of assets, you may want to opt for a policy with a longer elimination period.
How Long Will Benefits Be Paid?
Most policies provide a maximum dollar amount, or ceiling, on the number of covered days. Often, benefits will last two to six years or a lifetime. In addition, some policies have various limits for different types of coverage—nursing homes, assisted living facilities, home healthcare, etc.
When Will the Policy Pay?
Most policies will begin paying benefits when you need substantial assistance with at least two of six activities of daily living. These activities include bathing, continence, dressing, eating, toileting, and transferring (moving in or out of bed or a wheelchair). Incidentally, the ability to bathe is typically the first daily living skill to go.
Getting a Quote
When you begin shopping for a long-term-care policy, you may want to follow the example of Alan Rucker, a recently retired sixty-two-year-old. To get the ball rolling, Alan requested premium quotes from three top-rated companies using the following key parameters:
- Coverage for both Alan and his wife, Margaret, age sixty, who both enjoy excellent health
- Three-year benefit period
- $100 per day of coverage
- 90-day elimination period
- 4 percent compound inflation protection
- Nursing home, assisted living, and home healthcare coverage
For this coverage, premiums ranged from $2,100 to $2,400 per year. Alan then used the following questionnaire to compare the policies and narrow his choices down to the policy that best fits his needs.
Long-Term-Care Questionnaire
1. What services are covered?
A) Nursing home care
B) Home healthcare
C) Assisted living facility
D) Adult day care
E) Alternate care
F) Respite care
G) Other
2. How much does the policy pay, per day, for nursing home care? For home healthcare? For an assisted living facility? For adult day care? For alternate care? For respite care? Other?
3. How long will benefits last in a nursing home? At home? In an assisted living facility? Other?
4. Does the policy have a maximum lifetime benefit? If so, what is it for nursing home care? For home healthcare? For an assisted living facility? Other?
5. How long must I wait before preexisting conditions are covered?
6. How many days must I wait before benefits begin for nursing home care? For home healthcare? For an assisted living facility? Other?
7. Are Alzheimer’s disease and other organic, mental, and nervous disorders covered?
8. Does the policy require an assessment of activities of daily living? An assessment of cognitive impairment? Physician certification of need? A prior hospital stay for nursing home care? Home healthcare?
9. Is the policy guaranteed renewable?
10. What is the age range for enrollment?
11. Is there a waiver-of-premium provision for nursing-home care? For home healthcare?
12. How long must I be confined before premiums are waived?
13. Does the policy have a non-forfeiture provision? (This feature returns part of your premium if you cancel or lapse your policy.)
14. Does the policy offer an inflation adjustment feature? If so, what is the rate of increase? How often is it applied? For how long? Is there an additional cost?
15. What does the policy cost per year?
A) With the inflation feature?
B) Without inflation feature?
16. Is there a thirty-day free look?
17. What is the insurance company rated?
18. Is the policy tax qualified or non-tax qualified?
19. Has the insurance company ever raised its long-term-care insurance rates?
Is Long-Term-Care Coverage Worth the Cost?
The answer depends, of course, on whether you wind up needing long-term care. Let’s assume you purchase a policy at age sixty-five to cover the average cost of a five-year stay in a nursing home. The premium is $2,500 per year. Let’s also assume your policy has an inflation feature, so your benefits will increase as long-term-care costs escalate.
At age eighty, you incur a chronic illness that requires your admission into a nursing home for the average stay of two and a half years. Was this a good investment? For fifteen years, you paid $2,500 per year in premiums for a total of $37,500. The total cost of your two-and-a-half-year nursing home stay, adjusted for inflation, is $307,997. By having the coverage in place, you avoid having to withdraw $307,997 from your investment accounts to pay for your stay. The ability to keep this money invested may prove vital if your spouse is using it as a source of retirement income.
In this scenario, buying a long-term-care policy was a very wise investment decision. If you never used the coverage, you would have spent $37,500 on a policy you didn’t need. But would it be worth the risk of financial ruin to bet that you and your spouse will never require long-term care? Looked at in that light, $37,500 may seem like a small sum for peace of mind.
Understandably, “toileting” is not a term most people want to think about when they’re dreaming about their happy retirement. It’s not enjoyable to consider a future where you might need others to care for you, either in your own home, in an assisted living facility, or in a nursing home. But by thinking about it now and planning for its eventuality, you’ll save your spouse and children the burden of caring for you later on. By taking the simple steps outlined in this chapter, you’ll have enough money to cover your long-term-care needs, leaving your spouse a healthy nest egg. After all, none of us wants our kids to be forced to take the job of home healthcare aid.
Recent Comments