When planning for your family’s future, you’ve likely thought about life insurance. You may have even thought about permanent disability insurance. But there are many types of illnesses and injuries that aren’t permanent but can prevent you from earning an income for months or even years. The answer is long-term care insurance.
Though it’s unpleasant to think about, consider how your family would cope financially if you couldn’t work for months. Do you have enough savings to cover your mortgage payments, utility bills, and daily living expenses? Could you afford to hire someone to help you with basic tasks like bathing, dressing, or eating?
When you’re at your most vulnerable, long-term care insurance can help ease the financial burden on your family.
What is Long-Term Care Insurance?
At some point in time, most people suffer from a sick or injured that they need to take some time off work. Usually, it only takes a few days to recover, so you can rely on your paid sick leave if needed. But if you have a long-term illness that takes you months to recover, you will likely deplete your sick days, and that’s where long-term care insurance comes in.
A long-term care insurance policy pays you a monthly benefit while you’re recovering to help you cover the daily costs of living as well as any additional care you might require during your illness. It only applies to the most serious illnesses that impact your ability to perform basic self-care tasks and make you unable to fulfill your work duties.
Why Buy Long-Term Care Insurance?
If you have existing health insurance, you may not think you need long-term care insurance. However, regular health insurance will usually only cover your medical bills, such as doctor’s fees, hospital stays, and medications. Your insurer may even partially assist with rehabilitation by paying for physiotherapy or a home nurse for a short period of time. But if you need someone to help you with basic tasks like moving, eating or bathing, for a long period of time, your health insurance won’t cover it. Nor will they cover your non-medical expenses, such as food and utility bills.
There are some government programs that offer financial assistance in these cases, but only for those with low incomes, or no savings, which means you’ll need to deplete your savings before you become eligible for these benefits. Government benefit amounts are usually minimal, so chances are you won’t receive enough money to make up for your lost wages. You may even have to change your lifestyle and cut back on expenses. If you need a career, you might find limited options for what you can afford on government benefits.
A long-term care insurance policy can ensure that you’ll have enough money to maintain your lifestyle and remain comfortable while you recover. The extra money can also broaden your home-care and wellbeing options.
How Does Long Term Care Insurance Work?
When you purchase long-term care insurance, the contract will specify the number of benefits payable and the conditions under which you can make a claim. These are the main features of a long-term care insurance policy that you need to consider when choosing a policy.
Eligibility
The long-term care insurance policy states what it covers and what it doesn’t. So it’s important that you read it carefully. Most insurers will only pay a benefit if you can’t fulfill two of the basic tasks required for living, for example, bathing and eating. You will likely need to provide proof from your doctor or specialist that outlines your illness, the impact it has on your ability to function, and how long he/she expects your condition to last. Your insurer may request regular reports from your doctor so they can monitor the progress of your recovery, and they may also ask you to see a particular physician or specialist for an independent assessment.
Benefit payable
When you purchase a long-term care insurance policy, the contract will state upfront how much the monthly benefit will be. Usually, the amount is less than your normal income. As a result, you have an incentive to go back to work as soon as you’re better.
Your policy may also be indexed for inflation, which can occur in several ways:
- Some policies increase the benefit each year in line with inflation while you are paying premiums. Once you make a claim and they start paying you the benefit, the inflation increases stop.
- Others keep the benefit amount constant while you’re paying premiums. Once you make a claim and they start paying you the benefit, the benefit increases in line with inflation.
- Some insurers offer a combination of both 1 and 2 above so that the benefit is constantly increasing with inflation whether you make a claim or not.
Keep in mind that most long-term care insurance policies don’t change the benefit level at all. The insurer will generally offer inflation indexing as an additional feature and will charge more for it.
Waiting period
Most long-term care insurance policies have a waiting period between 30 and 90 days. This means that once you become ill, you’ll need to rely on your savings for the first 30 to 90 days, and after that, you’ll start receiving a monthly benefit. As a result, it’s best to be prepared with buying long-term care insurance ahead of time.
Benefit duration
There is a limit to how long the insurer will pay you a benefit. The rules for the length of time you will receive benefits are also in the policy document. Some insurers stop benefits when you are well enough to go back to work, while others stop benefits once you’re well enough to perform most basic self-care tasks. Some stop payments once you no longer meet the claim criteria.
For example, le’ts say the claim criteria states that you can’t perform two basic self-care tasks after you become unexpectedly sick. Due to the illness, if you have trouble feeding and dressing, the claim is approved. After a few months, you start to feel better and can begin feeding yourself again, but you still need help dressing. At this point, you no longer meet the claim criteria. Depending on your policy, the benefit payments might stop, or they might continue until you have made a complete recovery.
Many insurers also impose a maximum benefit payment limit. For example, your insurer may have a maximum benefit payment period of two years. If you recover before the two years are up, your benefits will stop, and you can go back to work. If your illness stretches for longer than two years, the insurer will stop paying you after two years even if you’re still sick, and you’ll need to go back to relying on your savings.
Factors Affecting Price
When you sign up for a long-term care insurance policy, the benefit amount and any future price increases are fixed. But your premiums may keep increasing due to your increased age, increased costs for your insurer, or due to legislative changes. It’s a good idea to periodically reassess your policy and shop around to find a better deal. These are some of the factors you should consider to keep your costs down:
Age and Health
Like most insurance policies, your age and health will determine how much you pay for long-term care insurance. Generally speaking, the older you are, the more expensive your policy will be, and if you have pre-existing health problems, your premiums will be higher.
Gender
Women are statistically likely to live longer than men and are more likely to make a claim. For this reason, their long-term care insurance premiums can be higher than those for men.
Marital Status
Statistics show that married people tend to have better health outcomes. In a situation where one person is ill, their partner is usually able to help care for them, although they may also need some professional care. For this reason, married people generally pay a bit less for long-term care insurance. Some insurers may also offer discounts when a client purchases two policies together.
Benefit amount
No matter the type of insurance, the general rule of thumb is the more you’re insured for, the higher your premiums will be. And long-term care insurance is no different.
Benefit duration
Long-term care insurance policies with longer benefit durations are usually more expensive. For example, a policy that pays a benefit for up to five years will cost more than one that limits benefit payments to two years.
Waiting period
When it comes to long-term care insurance, the longer your waiting period is, the cheaper your policy will be. For example, a policy with a 90-day waiting period has lower premiums than one with a 30-day waiting period.
Features
Features such as indexing benefits to inflation usually drive up the cost of long-term care insurance. Policies that offer wider coverage tend to be more expensive too.
If you’re not sure what wider coverage entails, the best way to think about it is by using an example. Let’s take two policies, A and B. Policy A says that to make a claim, you have to be incapable of feeding yourself. Policy B says that you can claim if you struggle to feed yourself sometimes.
In this example, Policy A will only pay a benefit in the most extreme cases of impairment. Policy B, on the other hand, will pay a benefit for both extreme and more moderate cases of impairment. Policy B has wider coverage, and so the premium for B will cost more.
How to Buy Long Term Care Insurance
Like most types of insurance, you can buy a long-term care policy directly from a life insurance broker or from an insurance company directly. If you choose to use a broker, make sure to choose one that works with multiple insurers and who has plenty of experience.
Your workplace may also offer long-term care insurance. This sort of group policy has a lot of employees paying premiums, and can offer great discounts. However, group policies tend to be quite basic, so it’s important to read the terms carefully to decide if it’s the right policy for you.
No matter which policy you choose to purchase, it’s always a good idea to compare prices across several insurance companies. While there are usually few discounts in the insurance industry, you may find a price that’s even better than the group rate. Make sure to ask your employer if this is a possibility.
Other Features to Look for When Buying Long Term Care Insurance
Premium caps
Because premiums can increase over time, some insurers implement premium caps for a set period of time, usually five years. Knowing that your premium increases Need long-term care insurance? This article covers the topic from start to finish. Read on and protect yourself and your loved ones from a disaster. can bring you peace of mind. However, it’s important to remember the cap is only temporary. Once the capped period is over, your premiums can increase a lot, so make sure you keep an eye on your policy and shop around for a better deal if the one you own is becoming too expensive.
Return of premium
Long-term care insurance protects you from future financial calamities. Some insurers have a return of premium clause in the policy, which states that if you die, they will refund a portion of your premiums to your beneficiaries.
Is Long-Term Care Insurance Worth It?
The thought that you may become too sick to work or even care for your basic needs is unpleasant to think about. Even worse is the thought that you may not be able to afford the care you need to see you through to your recovery (which may take several months or even years). This can cause significant stress for both yourself and your loved ones in a time of need.
If the worst happens, long-term care insurance can ease the financial burden and give you peace of mind so that you can focus on the thing that matters most − getting well again.
