Long-Term Care Insurance: The Basics

August 3, 2018

When you hear about long-term care insurance (LTC), you may wonder: what is it, do you need it, how much does it cost, and when you should purchase it?  We have tried to address these questions with the understanding that the answers will differ based on your financial circumstances and health.

What is long-term care insurance?

This is a type of insurance that reimburses policyholders with a daily amount for services that assist them with activities of daily living (ADLs), such as bathing, dressing or eating, to name a few.  Many people don’t think that far into the future or they assume that a loved one will take care of them. Most clients who have gone through caring for a loved one decide that they would not want to place that same responsibility on someone else and realize the value in securing LTC coverage.  Additionally, some clients feel that they are self-insured after evaluating their assets relative to the cost associated with LTC insurance premiums and benefits.  With the rising cost of long-term care services, those who think their savings may be sufficient to cover long-term care services or assisted living may be in for a surprise later on.  Lastly, it is important to note that Medicare does not pay for long-term nursing or home care.

Who is the best candidate?

Someone who has a family history of Alzheimer’s, dementia or other health concerns that may require assistance with activities of daily living at some point in the future. Someone who wants to cover a portion of their costs if they were to need long-term care services and does not want to rely on others to care for them.

Why would I need coverage?

The duration and type of long-term care will vary from person to person; however, based on current statistics at www.longtermcare.acl.gov, someone turning age 65 today has almost a 70% chance of needing some type of long-term care services during their lifetime.  Additionally, based on information from insurance company Genworth, the 2017 median long-term care services in San Diego can range from $50,000 to well over $100,000 annually depending on the level of care.

When is the best time to buy?

As with most types of insurance, it is critical to purchase long-term care insurance when you are healthy.  We typically suggest that you evaluate LTC insurance in your late 50’s or early 60’s as that is often the best time to buy since you do not want to start to pay premiums too early when the likelihood of needing these benefits is very low.  However, the cost of premiums will increase with age so waiting too long can be costly.  Each individual’s circumstances are different, but if you have a potentially debilitating condition, then you may want to apply for LTC insurance sooner rather than later.

What are the cost and coverage options?

Several factors determine the cost of a policy. As long-term care policies tend to be expensive, we suggest covering only a portion of the full daily cost of long-term care and using your other sources of income to cover the difference.  CCMI can assist with guidelines to use when asking for a quote.  You can then determine if the cost justifies the coverage.

What other options do I have?

We suggest that clients evaluate the cost of purchasing long-term care insurance and hope that they never need it!  Another option, is to purchase a hybrid policy that has both a life insurance and long-term care component.  With this type of insurance, any long-term care funds that are not needed would go toward your death benefit.  This option only makes sense for some individuals, and usually only if there is a need for life insurance.

At CCMI, we are a fee-only firm and do not sell any type of insurance products; however, as part of our financial planning process we review and make recommendations on potential risk exposure, including long-term care coverage.  We have local insurance resources that have helped our clients purchase long-term care insurance and can assist you with getting a long-term care insurance quote.

If you would like to know more about long-term care insurance, please give us a call.

 


CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country.  CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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