The purpose of long-term care insurance is to help you absorb the costs of taking care of your elderly parents. It is an insurance product intended to help the beneficiary pay for the costs of nursing facility, home care, assisted living, etc. This insurance primarily pays for non-skilled assistance with activities of daily living (ADLs)*, which include:
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For example, my parents’ insurance agent wants to sell them each a long-term care policy for about $150 a month per person. In return, the insurance company promises to pay $150 per day (with 2% inflation protection) for up to 3 years. The premium must be paid until they die (I am not sure what happen if they used up the benefits before they die).
How much really depends on the type and level of services that you need. The price can vary from $5,000+ per month for a nursing home (again wide range depending on the region) to a $1,000+ for home healthcare visits, and a few thousands for assisted living facilities.
The short answer is some, but not all long-term care services are covered by Medicare/Medicaid. And you must meet all the requirements in order to qualify for these benefits.
Medicare is a Federal program designed to cover health care for people age 65 and older, or younger people that qualify. It focuses on medical acute care, and only covers medically necessary care. It doesn’t pay for most long-term care services. Some exceptions include limited skilled nursing facility stay, hospice care, and home health care.
If you qualify, Medicare pays a portion of your cost up to 100 days (100% the first 20 days, and for days 21-100 Medicare pays any expense above $128 per day deductible).
Medicaid is a joint Federal and state program that helps pay medical costs for people with limited incomes and resources. The exact coverage varies from state to state. Most often, eligibility is based on your income, which means that you must use up your personal assets before you qualify.
My parents are 64 and 62 current, so they are just in the tail end of that window to buy long-term care insurance. They are likely to outlive their retirement savings and will be able to qualify for Medicare, if needed.
Here are some of the costs and benefits:
|After||Out of pocket expenses||Opportunity cost at 7% CAGR||Coverage amount|
As you can see the opportunity cost is quite steep. Although it’s less than half of the potential benefits even after 25 years, the key word is potential. Unlike life insurance, there is no guarantee that my parents will be using their long-term care benefits. They could die without ever needing the insurance. They may not use up their entire benefit allowance. And most likely their children and grandchildren will be providing some level of support.
In the end, I am still on the fence about whether LTC insurance is worth it or not. On one hand, it would put my mind at ease to have the safety net of long-term care insurance coverage for my parents. On the other hand, the opportunity cost could be quite significant.
I think comparison shopping is a prudent next step. So I’ve submitted my parents information to InsureMe to get free insurance insurance quote. Looks like I’ll be seeing some information from John Hancock, MetLife, Northwestern Mutual, and LTC Financial Partners soon.
Now let me ask you this. Are you familiar with long-term care insurance? Do you think long-term care insurance is worth it?