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What is Long Term Care Insurance?

Insurance Planning

The cost of long-term care can deplete your family’s hard-earned assets – a burden that can jeopardize your quality of life today and financial security in the days ahead. LTC insurance is designed to help defray the potentially dramatic costs of extended care without jeopardizing your income, retirement savings, and other investments.

Whether you should buy LTC insurance depends on your age, health, retirement goals, and income. Long-term care insurance makes sense for people between the ages of 45 and 79, with assets of $100,000 or more, who don’t want to risk having those assets depleted to pay for long-term care. Women, in particular, should think about LTC insurance because they tend to outlive their spouses and therefore, will more likely need to pay for long-term care.

How Does LTC Insurance Work?

Under a long-term care policy, you receive a daily benefit to cover the cost of a nursing home stay or skilled or custodial care in your home. Generally, your benefits are paid when you are unable to handle the normal activities of daily living. You can also receive benefits if you suffer a cognitive impairment such as Alzheimer’s disease.

You pay regular premiums for LTC insurance, and should the need for long-term care arise, the insurance will cover some of the costs. Long-term care policies don’t start paying benefits until you have been receiving care for a specified number of days, at your own expense (like a deductible).

The three basic types of long-term care policies are:

  1. Facility only: This type of policy pays benefits for care in a nursing home, assisted living facility or board and care facility. This is the most basic type of policy.
  2. Home Health Care: This type of policy pays benefits for care in one’s home, but not in a facility. This type of plan is preferable when a home healthcare plan works.
  3. Comprehensive: This type of policy pays benefits for care in one’s home or in a facility. This is by far the preferred type of plan due to its flexibility.

When selecting a policy, it is important to understand what types of care are covered. You can choose to cover only nursing home care, or both nursing home and home health care.

What about Medicare and Medicaid?

Medicaid primarily protects those with minimal assets. To qualify, you must exhaust nearly all of your assets. In fact, because spouses have a legal responsibility to support each other, both must spend down their assets before an ill spouse may qualify for Medicaid benefits.

Nor does Medicare provide a long-term care safety net. In fact, Medicare only pays for long-term care if it’s needed as a result of sudden illness or injury, rather than gradual physical or mental decline. Even then, Medicare only pays for skilled nursing care, or skilled rehabilitative care provided in a Medicare-certified skilled nursing facility. It does not cover purely custodial care, which is the type of care that’s provided to most people in nursing homes.

Today, more people are finding long-term care insurance to be the most economical, convenient, and sensible alternative. Just as your homeowner’s insurance protects you from a catastrophic loss, long-term care insurance provides financial protection while minimizing your out-of-pocket costs. By including affordable, high-quality long-term care insurance in your overall financial plan, you’ll be able to preserve your savings, maintain your quality of life, and cope with the potential financial burden of care during a long illness or period of disability.