Long-Term Care Insurance is still considered a new type of insurance protection and can be misunderstood as to what it really covers. There is a lot of confusion about what type of benefits long-term care insurance has, when will the benefits be needed, and who needs to get long-term care coverage. Long-term care has gotten increasingly popular due to the rising costs of long-term care services, the growing size of America’s retired population, and America’s increasing expected life span. These factors all combine to cause a great deal of concern for people faced with that decision.
“On average, U.S. nursing homes now charge $54,900 a year, and this could reach as high as $190,000 by 2030.” -www.retirement-living.com, 2005
- Your chance of having a car accident = 1 in 240
- Your chance of house fire = 1 in 1200
- Your chance of needing long-term care = 1 in 2¹
Long-term care insurance can cost from $100/month to over $1000/month depending on your age and health. At first, it can seem expensive, and people will let the cost be a reason not to get long-term care coverage and procrastinate getting covered, which will cost them a lot of money every year they grow older before getting a policy. And, if they wait too long and don’t have any at all when they do need it, it can be devastating. If you don’t think long-term care would be a good investment right now because of the price, consider this: At 5% annual compounded inflation, in 10 years, actual real-life care costs could mount to over $120,000 per year. This means if you pay an annual long-term care insurance premium investment of $3,000 for 10 years, you will break even within only 3 – 4 months of receiving care. The annual long term care insurance premium investment is often less than the actual cost of just one month in a care situation. Long-term care insurance may make good financial sense for you. Insurance industry articles indicate that long-term care insurance is such a valuable planning tool that financial advisors may face legal action if they don’t at least recommend consideration of coverage.²
¹Underwriter’s LTC Council
²Trusts & Estates Magazine
Commonly Asked Questions
Won’t Medicare Cover My Long-Term Care Needs?
Most people assume that medicare will help pay for their long-term care. They work toward retirement assuming that they don’t need to worry about it because should they need long-term care, medicare will pay some or all of the bill. Medicare is health insurance for people over the age of 65, and counting on Medicare probably isn’t the answer. To qualify for Medicare benefits, you must have a 3 day hospital stay first, then nursing home costs for each benefit period are as follows:
– On days 1 through 20, Medicare pays 100%.
– On days 21 through 100, Medicare pays all but the first $101.50 per day
– After day 100, you are required to pay 100% of the costs incurred.
While no one wants to think about the worst case scenario, we can help you plan for and help protect your future so you can focus your energy on what’s really important – enjoying life.
What Is Inflation Protection?
Similar to life insurance, the younger you are when you purchase long-term care insurance, the less expensive it will be. And the prices are set so you’ll always pay less by buying early, no matter when you end up needing it. Because of this, a lot of people will buy a policy twenty to forty years before they expect to use the policy. To make this a viable option, the insurance company will include an option for the benefits to increase by a certain percentage over the life of the policy to keep up with the increase in the cost of care.
Inflation protection can be one of the most important options when purchasing long-term care insurance and make a substantial difference in how the policy performs when needed. When purchasing long-term care insurance, an individual should consider adding inflation protection to their policy as an added benefit rider. Using a variety of different methods, inflation protection will increase the policy benefits on an annual basis. The methods used will be one of the following:
Simple Interest Benefit Protection
Based on the original daily benefit, benefits will increase by a pre-set percentage, typically between 1% and 6%.
Compount Interest Benefit Protection
Beginning with the original daily benefit, the benefit is increased based on a pre-set percentage, normally between 5%-6%. Each year when the daily benefit is increased it is based on the current daily benefit allowing for a much larger increase in benefits.
Consumer Price Index – Urban (CPI-U) Protection
This type of inflation protection isn’t as common as the previous two. The daily benefit is increased on a compounded bases by the same percentage as the CPI-U. While this may seem like a better way to make sure your daily benefit is keeping up with the increase in the cost of care, the cost of care inflation may not be the same as the inflation of other goods and services.
Call us with questions or