How will you pay for long term care?
Among all the uncertainties surrounding professional long term care is one sure thing: It costs a lot. Unfortunately, public programs cover only so much of the cost. A great majority of individuals must rely on personal income and resources to pay for long term care. To start determining your long term care plan, learn about all the possible options:
If family members are willing and able to devote the time and energy required for care, their help can greatly reduce costs. But keep in mind, an untrained family member may not be able to provide the level or type of care that is needed. In addition, caregiving is stressful work that often strains family relationships, and many older adults prefer not to burden family members. If you plan to have family members help, be sure to have frank conversations now and on an ongoing basis.
Long Term Care Insurance
Long term care insurance may provide a high level of coverage depending upon the policy benefits but it can get expensive particularly for older adults. As a general rule, the sooner you enroll, the lower your premiums will be. Most financial planners recommend long term care insurance for those who own assets of at least $75,000, not including a car or home; expect to have an annual retirement income of at least $25,000; or are able to afford premiums even if they increase over time. Existing health conditions may disqualify you, and a medical screening will be required unless you sign up for an employer-sponsored plan that may waive medical screening during a short predefined period of time. Check with your employer to see if they offer long term care benefits.
Medicare or Other Health Insurance
While Medicare and other health insurance policies may cover medically necessary care provided in a skilled nursing facility or in the home after a major medical condition or event requiring a hospital stay, neither method covers ongoing personal or custodial care, including help with essential daily activities. Medicare and health insurance don’t cover most long term care because the need for care often develops gradually, rather than as a result of a hospital stay for a specific medical condition or event.
Medicaid covers long term care only for those who meet strict state-specific financial eligibility requirements. Personal investments and assets must be almost completely exhausted before Medicaid can be accessed. Even when that’s the case, Medicaid covers services only from a list of approved providers. If relying on this option, be sure to look into the types of providers and facilities approved by Medicaid to be sure these are acceptable to you.
Some insurance companies offer long term care additional riders for life insurance policies. Other options may enable you to use your life insurance policy to help pay for long term care. Accelerated death benefits and viatical settlements (selling your policy to a third party) provide payments lower than the full value of the policy, but can make sense for those who are terminally ill or in poor health. A life settlement essentially sells your life insurance policy for its present value—often a wise choice for those who no longer need or want a policy.
For homeowners over 62 years old who are reluctant to sell, a reverse mortgage is a type of loan that gradually converts the built-up equity in their home into money. The payments are tax-free, there are no health requirements, and the loan doesn’t have to be repaid until the owner moves or dies. Heirs can then sell or refinance the property.
Offered by most employers and sold individually, disability insurance replaces some of the income lost when an individual is unable to work due to an illness or disability. While coverage does not specifically cover long term care or health expenses, you can use payments as you see fit. Employer-sponsored coverage is generally available only while you’re employed by the company up to age 65, not after you’ve retired. Because it replaces only a portion of your salary and may be subject to time limits, it is unlikely to cover all the long term costs one might incur while away from work.
Long term care annuities, the sale of a home, and personal savings are sound funding options for many. If eligible, look into how the Veterans’ Administration can also help with long term care services. The VA owns and operates nursing homes and provides some at-home care, including nursing, home health aide services, homemaker services, and community residential care. Eligible veterans may also receive respite care, adult daycare services, and geriatric care management services. Contact the nearest VA hospital to determine eligibility.
References: National Clearinghouse for Long-Term Care Information, www.longtermcare.gov; A Shopper’s Guide to Long-Term Care Insurance, National Association of Insurance Commissioners.