Long-Term Care Insurance – How Does it Work?

Chris Maurer |

Insurance plays an important role in our financial wellbeing, from protecting our home to providing essential medical care. Yet insurance for the care we require later in life is often overlooked. Long-term care insurance helps bridge this gap. Beyond ensuring you receive the highest standard of support as you age, these policies can also help shield your assets without compromising care. Here, Park Place Financial, a Bellaire, Texas financial planning firm, explains how long-term care insurance works and its place in your healthcare retirement planning.  

The Rising Costs of Senior Care

As we age, our care needs evolve. Even individuals who rarely saw a doctor in youth or middle age can require additional support due to chronic conditions and disability. You may assume that standard health insurance will cover the costs of residential or in-home care, but this is unfortunately not correct. What’s more, the cost of these services exceeds what most individuals can pay out of pocket. As of 2020, research revealed the following median monthly costs for senior care in the United States: 

  • Homemaker services: $4,481
  • Home health aides: $4,576
  • Adult day care: $1,603
  • Assisted living: $4,300
  • Semi-private nursing home room: $7,756
  • Private nursing home room: $8,821

By 2050, these costs are projected to more than double, making advanced care even less affordable. 

While Medicaid and other federal and state insurance programs can help pay for long-term care, they require recipients to exhaust their assets. Additionally, you will lose the ability to choose your long-term care facility or provider and must rely on entities that accept government funding. 

What Is Long-Term Care Insurance? 

As with all insurance, long-term care insurance requires policyholders to pay monthly premiums. If you are affected by a disability or chronic condition, such as dementia or Alzheimer’s disease, the policy will pay for nursing home care, assisted living facilities, in-home care, or adult day care. It can also be used to pay for modifications that allow you to safely stay in your home and care coordination, a service that manages multiple care providers for individuals with chronic conditions. 

To receive benefits from your policy, you must be unable to independently complete at least two of six basic self-care tasks, known as activities of daily living. These include: 

  • Eating
  • Dressing
  • Bathing
  • Toileting
  • Transferring in and out of beds and chairs
  • Incontinence management

When you make a claim, you will need to provide health records and undergo an insurance review to ensure your need is valid. Your insurance provider may also require a home visit with a nurse, who will evaluate your condition and make recommendations for your care. Most policies require an elimination period before benefits take effect. During this period, usually 30 to 90 days, you will be responsible for the costs of long-term care. At its end, your policy will pay within specified limits. Should you exceed the daily or lifetime payout caps, you are responsible for the remaining costs of care. 

How Can I Get Long-Term Care Insurance? 

Keep in mind that you may not purchase long-term care insurance after developing a disability or chronic condition. To avoid this situation, it’s generally advised that you choose a policy in your 50s or 60s depending on your health and finances. 

Doing your research is the best way to find long-term care insurance. Rates vary widely between companies and policy types, and you should confirm what benefits are included and how payments will be made before committing. You may purchase a policy from an independent insurance company. Some individuals can also buy long-term care insurance through their employer. Doing so may result in easier acceptance and a lower rate. 

You may also choose a policy through a state partnership plan. By adhering to certain quality standards, these plans make it possible to protect a greater portion of your assets should you exceed lifetime caps. Additionally, some companies offer shared care plans, which distribute benefits between spouses according to need. 

There are two types of long-term care policies: 

  • Traditional: A traditional policy pays only for long-term care. 
  • Hybrid life and long-term care: These policies combine life insurance with long-term care coverage. Policyholders may access death benefits to cover care costs, and any remaining value is returned to beneficiaries in an inheritance. 

Hybrid policies tend to be more expensive but can be a good choice if you don’t qualify for traditional coverage. 

Once you’ve chosen a provider and plan, you’ll need to complete an application, answer a few questions about your health, and provide health records. Choose a level of coverage, begin paying premiums, and your long-term care insurance is active. 

What Are the Benefits of Long-Term Care Insurance?
As noted above, long-term care insurance helps protect your assets and provides a greater degree of choice in the care you receive. The federal government and some states also consider premium costs as medical expenses, making them deductible from your income tax burden if your plan is tax-qualified. These deductions will rise as you age, reducing the overall cost of insurance. Finally, long-term care insurance offers invaluable peace of mind. You can feel confident in your ability to afford the highest standard of care and maintain quality of life even as your health needs change. 

Long-term care insurance is a wise investment for most individuals and an important aspect of healthcare retirement planning. To learn more long term care planning, contact Park Place Financial. Our healthcare planning experts will work with you to create a fully customized plan tailored to your unique needs.