Long term care insurance is insurance that will pay in the event that an individual needs caregiving due to a number of afflictions or diseases. For example, if an individual is suffering from Alzheimer’s disease or dementia they made needs round the clock care. Generally, that care is provided by family members, with the majority of caregivers being daughters and spouses of caregiver.
The costs for needing long term care can be expensive. Depending on the area of the country, care can range from $50,000 to $80,000 per year to stay in a nursing home and may run in the range of $20 to $30 per hour for care outside of the home. Based on the numbers above, long term care expenses can quickly drain an individual’s retirement savings, or other assets that were planned for other uses.
Generally, long term care insurance will help cover the costs of long term care and may provide coverage for those costs in a number of settings. For example, Medicare specifically excludes coverage for custodial care (nursing home care). Long term care insurance will pay for these costs. Many individuals prefer not to go to a nursing home for care, some long term care polices (called comprehensive) will pay for coverage needed in a facility or at home.
In order to qualify for long term care insurance an individual applying generally needs to be in good health and not showing any signs of chronic illness or mental incapacity. Once coverage is in place, most tax-qualified long term care policies will start to pay benefits when the individual suffer from either substantial cognitive impairment (Alzheimer’s or dementia) or is unable to perform 2 of 6 activities of daily living (ADLs).
The activities of daily living are eating, bathing, dressing, toileting, transferring from bed to chair and continence. If unable to do 2 of those 6 tasks for a period of 90 days long term care insurance will “trigger” and start to pay benefits.
When looking at the affordability of long term care insurance premium a person or family needs to decide what the impact of not having care would be. Will an inheritance be lost or greatly diminished? Although not cheap, long term care insurance premiums are partially deductible (see IRS publication 502). Siblings may even decide to purchase insurance on their parents in the event they live far away from their parents or to alleviate the caregiving burden on a sibling that may live nearby.
Consider long term care insurance as part of your overall financial plan. While many people will choose to “self-fund” (pay for care out of other resources) others may choose to leverage the costs and transfer the risk of depleting assets to long term care insurance.