Whether you’re looking for long-term care for your loved one, or thinking about how to cover the costs of your own care in the future, it’s good to know the facts about long-term insurance. We sat down with Thomas Ferrara, a member of United Hebrew’s Board of Directors and founder of Future Value Associates, to find out what people should know about long-term care insurance.
Q. What is long-term care insurance?
A. (Thomas Ferrara) A common misconception is that long-term care insurance is “nursing home insurance.” Long-term care insurance is coverage for individuals who aren’t able to perform some of the basic tasks of daily living without help—like eating, drinking, walking, and bathing. Policyholders become eligible to use their long-term care insurance when they are unable to perform two or more of the daily living tasks without substantial assistance and need custodial care. The coverage typically pays a set amount per day until the policy runs out of benefits. Services can run anywhere from $200 to $500 per day, depending on how much care you need, and where you receive it. The insurance may be applied to skilled nursing and assisted living facilities, home health and community-based care, and respite and hospice care, as long as the providers are licensed.
Q. Should everyone buy long-term care insurance?
A. Nearly 70 percent of people turning age 65 will need long-term care at some point in their lives, according to federal estimates. But that doesn’t mean they all need long-term care insurance.. When considering insurance, try to anticipate a future need. It’s a question of how strongly you feel about insuring a need you may not have.
Things to consider include your family history of Alzheimer’s, dementia or strokes. Even when you’re very healthy – and today’s Baby Boomers have longer life expectancies — the chance of needing help with daily activities goes up. Insurance underwriters will look at how mobile and independent you are now. They’ll also evaluate your cognitive ability and medical history. There are qualifying thresholds buyers must meet, and they’re only getting tougher.
Q. Don’t Medicare and Medicaid cover the costs of long-term care?
A. That’s another common misconception. Medicare typically pays only for medically necessary care, such as short stays in a skilled nursing or rehabilitation facility, to recover after a hospitalization. Medicaid, the federal insurance program for low-income and disabled individuals, does pay for custodial care—but after your assets are spent. If you run out of funds to pay for private long term care, then you have to flip to Medicaid, which may not cover the cost of care in every facility. If you are accustomed to care in a facility that you don’t want to leave, long-term care insurance can help you avoid having to make a switch.
Q. When should I purchase long-term care insurance?
A. Optimally, when you are younger and healthier because it is more more affordable. If you wait until you are 70 to purchase a policy, even if you are in very good health, premiums may be steep. The annual premiums for long-term care insurance generally increase with age.
Q. How much will it cost?
A. It depends on how long you want it to last, how healthy you are, what kind of facility you want to enjoy, how much you want to be reimbursed, and how old you are. All of these variables make it difficult to generalize the costs. Part of what we do when consulting with families about planning for the future is to discuss options, budget, and what you want to enjoy later in life. There may also be discounts available, such as those available to spouses who buy a joint long-term care insurance policy.
Long-term care insurance is a good option for middle-income families, as well as wealthier families, who want to preserve their savings or assets for family. The decision about whether or not to purchase long-term care insurance is a big one. If you do, ultimately it can give you peace of mind, knowing you will have the freedom to choose where you want to receive care and the ability to receive the services you need.
Thomas Ferrara is the founder and CEO of Future Value Associates, a financial advisory firm in Pound Ridge, New York, and a member of the board of directors of United Hebrew of New Rochelle. Sarah Becker, president of Future Value Associates, also contributed to this post.