As you contemplate your “Golden Years,” you likely think about the possibility that you (or a spouse) will end up in long-term care. Although most of us prefer to envision living out our retirement years in our own home, the reality is that long-term care could be necessary at some point which makes planning for how you will pay for that care an important part of your estate plan. The Long Island estate planning attorneys at Eghrari Wealth Training Firm discuss whether long-term care insurance is worth the cost.
The Need to Plan for Long-Term Care
Nationwide the average cost of a year in LTC was over $100,000 in 2021. The real problem is that as a senior you will probably rely on Medicare to pay for most of your health care expenses; however, Medicare will not cover expenses related to LTC. If you retain private health insurance, the odds are very high that it will also exclude expenses related to LTC. For the average person, paying out of pocket for years of LTC expenses is not a viable option which is where buying LTC insurance becomes an option. Is it the best option though?
How Does Long-Term Care Insurance Work?
Long-term care insurance is a separate insurance policy that is limited to covering costs associated with LTC. It works in much the same way as flood insurance works for your home. Because most homeowner’s insurance policies don’t cover flood damage, insurance companies offer homeowners the option to purchase a separate flood insurance policy that only covers losses that are the result of flood damage. LTC insurance works the same way by only covering expenses that are related to long-term care.
If you are considering LTC insurance, however, you must pay close attention to what a policy does cover and what it doesn’t cover. An LTC insurance policy may, for example, pay for any (or all) of the following:
- Nursing home care
- Home health care
- Respite care
- Hospice care
- Personal care in your home
- Services in assisted living facilities
- Services in adult day care centers
- Services in other community facilities
What people often fail to pay attention to, however, are the limitations and exclusions that apply to an LTC policy. Because every policy is different, you must read each policy to see if any of these limitations and/or exclusions apply. Common things to look for include:
- Waiting period. The applicable waiting period length can vary but you could have to wait months before an LTC policy will start paying out benefits, meaning you must pay out of pocket in the meantime.
- Maximum benefits. Some policies have a yearly, per occurrence or lifetime maximum benefit.
- Automatic termination. Does the policy terminate at a specific age or after a specific number of years?
- Cancellation policies. If you miss a single payment, will the policy cancel? What type of grace period do you have, and can you reinstate the policy with the same premiums if it is canceled?
- Coverage out of state or abroad. Many retirees move out of the state, or country, which could make your policy worthless if it won’t provide coverage.
Along with taking any exclusions or limitations into account, you must consider the lifetime cost of the policy. Premiums increase the older you are when you take out a policy, making it wise to take out the policy when you are young and healthy right? The problem with that is that you could be paying those premiums for decades before you see any benefits – if you use the policy at all! Take the time to calculate what you will be paying if you pay the premium for 20, 30, or even 40 years.
Medicaid Planning Is Often the Better Option
Long-term care insurance isn’t the only option, nor is it usually the best option when it comes to planning or the high cost of long-term care. What many people do not realize is that while Medicare won’t cover LTC expenses, Medicaid will. Medicaid eligibility can be problematic though if you failed to plan. If you believe there is even the possibility that you will need to rely on Medicaid in the future, including a Medicaid planning component in your estate plan is imperative to ensure that your assets are protected and that you are eligible for Medicaid when the time comes that you need long-term care.
Contact Long Island Estate Planning Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding long-term care insurance, contact the Long Island estate planning attorneys at Eghrari Wealth Training Firm by calling us at 631-265-0599 to schedule your appointment.