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Should you consider purchasing long-term care insurance? It depends on your situation.

November was long-term care insurance month and with the holidays around the corner, it’s common for people to think about loved ones and their future. If this year has taught us anything, it is that we need to be prepared for everything — sometimes, for the unexpected or for events that change our lives and the people around us.

Long-term care insurance is one of those things that people too often don’t think about until it’s too late. So, what is this insurance product and why might you consider looking into it now?

We’ll look into that a bit further. First, let’s look at what long-term care insurance is.

What is long-term care insurance?

Long-term care insurance is a newer product that has gained some popularity over the last 15 to 20 years. It is a type of insurance people purchase — generally between the age of 55 and 65 — that helps them pay for assisted living care should they need it.

Unlike traditional health insurance, long-term care insurance covers long-term services and supports. This includes personal and custodial care in a variety of settings such as at home, a community organization, or another facility.

Long-term care insurance policies reimburse policyholders a daily amount (up to a pre-selected limit) for services that assist them with activities of daily living. Those insured can select a range of care options and benefits that allow them to get the services when they need them.

Technically, you can purchase it before the age of 55 and it is possible to purchase it after 65. However, if you start long-term care insurance too early you’ll typically end up paying too much for too long. If you start too late, you’ll be paying too much due to your age (you would essentially be catching up on premiums to try and pay enough so that you can use the benefit if and when needed).

The cost of long-term care insurance

Let’s take an example of a 55-year-old man in good health who’s looking to buy coverage. He would pay an average of $1,700 a year for a long-term care policy with a pool of benefits starting at $164,000 that compounds 3 percent annually — this is according to the 2020 Long-Term Care Insurance Price Index. Note, that rate is several hundred dollars less than the previous year’s index. A single female who is 55 would pay $2,675.

A married couple should anticipate paying $3,050 for combined coverage, the same as 2019.

When an individual or couple needs to begin tapping into long-term care insurance, they would pay out of pocket for services 30, 60 or 90 days during an elimination period, and then the insurer would begin to reimburse for services.

Qualifying for long-term care insurance

Long-term care insurance can be more challenging than purchasing life insurance. In fact, there’s a long list of reasons why people have been denied long-term care insurance, ranging from being diabetic to being overweight (or underweight) or being unemployed. Boomer Money…and More shares a number of reasons why people have been denied. Research suggests that two out of every five people between the ages of 50 and 71 can expect to be denied long-term care insurance.

And if you’re denied, there really are only a handful of companies that provide long-term care insurance. Unlike with life insurance, there aren’t countless insurers you can shop around.

Types of long-term care insurance and when you’re eligible to begin using it

Most long-term care insurance policies reimburse for care in your home, nursing homes, assisted living facilities and adult day centers. However, in order to begin the reimbursement process, individuals are typically unable to perform at least two of the six “activities of daily living” that qualify. These include:

  • Bathing
  • Incontinence care
  • Dressing
  • Eating
  • Toileting (using the bathroom)
  • Transferring (getting in or out of a bed or where you’re sitting)

What happens to my insurance if I don’t use it?

With traditional long-term care insurance, if you don’t use it, you lose it. It functions in a similar fashion as term life insurance. However, long-term care insurance premiums are not fixed — they will change based on your age or health rating.

There are newer long-term care insurance products that combine whole life insurance with long-term care, meaning that owners of those policies may be able to pass along something to beneficiaries if they don’t use all of the policy on long-term care.

Tax benefits of long-term care insurance

There are some tax benefits associated with long-term care insurance. When itemizing deductions, you can include premiums and take as a medical expense. Payments are tax-free, which is a benefit. You can also use a health savings account to pay for long-term care insurance premiums, up to the allotted amount you can deduct based on your age.

Reasons why you might want to consider long-term care insurance

So, why might someone consider long-term care insurance? As with any financial or insurance product or decision, it depends on your situation. Everyone’s financial situation is going to be different. However, here are some common reasons people choose to purchase this type of insurance.

  • You want to be able to pay for care at home should you need it
  • You would rather not tap into pension or retirement money (or use less of it)
  • You are married and want to make sure someone can take care of your spouse if needed
  • You want more choice in the type of care you receive if or when you need it
  • You pay a parents’ premium (or siblings chip in to pay the premium together) to ensure mom and dad are taken care of when they need help

If you’re thinking about long-term care insurance for yourself or someone in your family, reach out to us at FinDec.com. A long-term care specialist can talk to you about it further and help you make the best decision based on your specific needs.

Tolen Teigen

Disclosures:

FinDec is a Servicemark under which Financial Decisions, Inc. does business. Financial Decisions, Inc. is a SEC-Registered Investment Advisor.

Information presented is believed to be factual and up-to-date, but it should not be regarded as a complete analysis of the subject discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

Information contained herein does not involve the rendering of personalized financial planning advice but is limited to the dissemination of general information.

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