What Is Long-Term Care Insurance?
Long-term care insurance is insurance coverage that pays for home care, assisted living or skilled nursing care in a nursing home or similar facility. As the name suggests, this type of care is usually required for a long period of time and is typically not paid for by health insurance or Medicare.
Many people who require this type of care are not sick in the traditional sense, but they require assistance with two or more “activities of daily living.” These include eating, bathing, dressing, toileting, continence and transferring (i.e., moving from the bed to the chair). This is also commonly provided for those who have a cognitive impairment like Alzheimer’s disease or dementia.
Insurance policies for long-term care typically pay a certain amount per day toward covered services. The amount the policy will pay is called the Daily Benefit Amount and is expressed in dollars. (Some policies specify a monthly benefit amount.) Covered services can vary depending on the policy, but they can include home health care, assisted living care or skilled nursing care.
Insurance policies typically specify an elimination period. The elimination period functions like a deductible, and once that period has been reached, with care paid by the insured, the policy begins to pay benefits. Some policies pay a reduced benefit for lesser levels of care, such as home care and assisted living. The policy typically specifies a certain number of years for which benefits will be provided.
Long-term care is not only required by the elderly, some younger individuals require long-term care due to an accident or illness that leaves them unable to care for themselves. The insurance will pay for the services they require as well, up to the limits of the policy.
Long-Term Care Insurance Rates
Many people perceive insurance to be costly and unnecessary. Although it is true that a long-term care policy may never be needed, the cost of care is significant enough that an insurance policy is often a good investment. There are steps you can take to minimize rates while still getting the coverage you need.
- According to the U.S. Department of Health and Human Services, the average cost for this type of policy in 2007 was $2,207 per year. This is for an average policy, which provides 4.8 years of benefit with a daily benefit amount of $160. Younger purchasers paid significantly less per year than those who bought the policy when they were older. For example, the average cost for someone under 40 was $881 per year, but those over 70 paid $3,026. Your rate will be a lot lower if you buy the policy while you are young.
- Another factor that affects the cost is the daily benefit. This is the maximum amount that the policy will pay each day for long-term care if you need it. Since the policy will only pay up to the actual cost of care, it is important to know how much long-term care costs and how much you might be able to pay out of pocket. If the average cost of care in your area is $250 per day, it may not make sense to purchase a policy with a daily benefit of $350 per day, since it is unlikely that any care you may need will cost that much.
The elimination period also affects the cost of your policy. An elimination period is like a deductible. It is the number of days that you must pay out of pocket before the insurance policy begins to pay. Most policies have a choice of elimination periods, often 20, 45 or 100 days. Many people choose the 100-day elimination period because it results in a lower premium, and because many health insurance plans will pay for the first 90 days of nursing home care if the patient is transferred to the nursing home after a hospital stay.
Riders, or optional benefits, can also affect the cost of the policy. Pay careful attention to any riders you are considering and be sure you understand exactly what they do.