Help with the Long-term Care Equation

Apr 3, 2013

By Staff Writer State Farm™ Employee

The average cost of a private room in a nursing home is $87,000 a year, according to a 2011 article in Forbes. And the population of Americans who are 65 and older is expected to double to 72 million by 2030. That's one out of every five Americans.

Standard employer-based medical insurance doesn't cover long-term care. Neither does Medicare. While Medicaid offers some long-term care services, it is the poor who are its biggest beneficiaries. For individuals and couples whose net worth and savings preclude them from qualifying for Medicaid, long-term care insurance can help provide a more substantial level of health care protection and peace of mind.

When is a Good Time to Apply for Long-term Care Insurance?

Insurance companies offering long-term care policies tend to issue them to individuals who are reasonably healthy. Most people who consider this type of insurance are between the ages of 52 and 64. Not surprisingly, the younger you are when you apply for this coverage, the lower the premium. The American Association for Long-Term Care Insurance (AALTCI) calculates that only 11% of applicants that apply for this coverage are turned down at age 50 or below, while 24% are declined between ages 60 to 69.

According to the AALTCI, over 10 million Americans have already purchased this type of coverage. But in a country of over 300 million, that's a small percentage. The low participation rate is one of the reasons that the cost of long-term care coverage is high.

What Are the Benefits of Purchasing Long-term Care Insurance?

If you have substantial assets or savings, you might be able to self-finance your long-term care. But for most people, the prospect of spending their life savings to pay for the high cost of nursing or home care is not an attractive option. Long-term care insurance helps protects your assets and eases the burden of asking your children or other family members for assistance.

Once you purchase long-term care insurance, your carrier can't cancel your policy or raise rates based on changes to your personal health status. Rates can only be raised across the board in your policy class. The policy is usually guaranteed for life and generally can only be cancelled due to non-payment of premiums.

Long-term care insurance premiums may even be eligible for an income tax deduction. Check with your accountant to see if you qualify.

What Are the Risks of Purchasing Long-term Care Insurance?

Long-term care insurance is expensive. As with life insurance, you are buying protection against a worst-case scenario that you hope never occurs. And unlike certain forms of life insurance, you can't tap into the policy's cash value and borrow from it.

In addition, most long-term care policies don't pay out benefits until you have been in a nursing care facility for more than 90 days. Consequently, if your stay at a nursing home is less than three months, then your visit is paid for out of pocket.

What Factors Are Important in Purchasing Long-term Care Insurance?

The National Clearinghouse for Long-Term Care Information suggests considering these factors when determining whether to purchase long-term care insurance:

  • Age. The older you are when you purchase long-term care insurance, the more expensive it will be.
  • Gender. On average, women outlive men by five years and are more likely to live alone, without assistance.
  • Lifestyle. The healthier your lifestyle and diet, the less likely you are of developing debilitating conditions as you age.
  • Health status. If there is a family history of certain chronic illnesses (such as high blood pressure or diabetes), you are more at risk of health problems later in life and might need additional financial assistance as you age.
  • Financial resources. If you do not have enough personal savings to afford a year in a nursing home or two and a half years in an assisted living facility, then purchasing supplemental insurance can help ease the financial burden of long-term care.

What Conditions Are Not Covered by Long-term Care Insurance?

All policies have limits and exclusions. Long-term care insurance usually doesn't cover preexisting conditions. Some mental disorders are also excluded. Physical deterioration based on alcohol or drug abuse is not covered.

The information in this article was obtained from various sources. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. These suggestions are not a complete list of every loss control measure. The information is not intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. Nor is it intended to effect coverage under any policy. State Farm makes no guarantees of results from use of this information. We assume no liability in connection with the information nor the suggestions made.

State Farm Mutual Automobile Insurance Company
Bloomington, IL

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