Understanding the Basics of Long-Term Care Policies
Those nearing their senior years need to make sure to plan for long-term care, should it be needed. Long-term care is ongoing assistance with basic, day-to-day living activities such as bathing, eating, mobility and more. It’s usually provided in an assisted living facility, but it can also be provided in the home, either by family members or by in-home health aides.
Regardless of where the care is provided, it’s usually a costly service. Long-term care often costs thousands of dollars per month, and care is often needed for several years. It’s easy to see how it can be a long-term drain on your savings, and can it can even completely derail your retirement plan if you aren’t careful.
Long-term care insurance is a popular and effective funding strategy to help cover these costs. You pay premiums to an insurer, and the policy then provides coverage for some or all of your long-term care costs. However, policies can vary widely in terms of cost and benefits. You may find the choices overwhelming.
Below are five key components in every long-term care policy. If you understand these elements, you may be better informed to make a decision. A financial professional can also help you find the right policy for you.
The policy premiums are the funds you must contribute to pay for the insurance coverage. Some policies require one-time, lump-sum premiums while others allow you to make monthly or annual premium payments.
Your premium amount is based on a few factors, including the policy benefits, your age and your health. You may have to go through an underwriting process that includes a medical exam before your premiums are finalized. Generally, the older or less healthy you are when you buy your policy, the higher your premiums will be, so planning in advance may be a wise strategy if it is feasible.
Another variable is the amount of coverage the policy provides. This is usually expressed in a daily or monthly benefit amount. For example, a policy may pay up to $200 per day or $6,000 per month for care. You would be responsible for any costs that exceed that limit.
Some policies also have maximum lifetime benefit amounts. Again, if your care exceeds this amount, you’re responsible for covering the difference. Higher benefit amounts usually lead to higher premiums.
Most policies spell out exactly which services they do and don’t cover. For instance, some policies may not cover private rooms. Other policies may cover in-home care or even home modifications to accommodate wheelchairs or hospital beds. Some policies can even be used to reimburse your loved ones for care they provide.
Coverage varies widely by policy. It’s important to think about your goals and which types of services are important for you. Be sure to research policies carefully to make sure the covered care aligns with your objectives.
Nearly all long-term care policies have a waiting period, also known as an elimination period. This is a period of time you must wait after you need care before the coverage kicks in. These periods usually last 30, 60 or 90 days. The longer your elimination period, the lower your premiums are likely to be.
Finally, you may want to choose inflation protection on your policy. This is usually an optional benefit, so it may increase your premiums. However, it’s an important feature that helps you keep up with rising long-term care costs. Inflation protection increases your benefit amount by a certain percentage each year. That could be especially helpful if you don’t expect to use the coverage until far in the future.
Ready to develop your long-term care funding plan? Let’s talk about it. Contact us today and we can help you analyze your needs and implement an appropriate strategy.
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