The US Department of Health and Human Services reported that the average person who turned 65 in 2020 has a 70% chance of requiring some form of long-term care or assistance during their later years. The expenses for such care are steep - an individual needing care at home typically spends $54,000 per annum or $4,500 per month, while someone requiring a room in a care facility spends an average of around $96,000 annually or $8,000 per month, as per the HCG Secure's 2022 data. These expenses can quickly deplete one's savings and restrict options for better quality care. Long-term care insurance can be significant in ensuring a comfortable life for oneself or their loved ones during their final years, but it's vital to understand the intricacies of this product before deciding on its suitability.
Long-term care insurance assists in covering the expenses related to receiving skilled care for an extended period due to chronic health conditions. According to Peggy Haslach, a certified financial planner at Finity Group, long-term care insurance provides more day-to-day care and support, and it is distinct from health insurance, which generally does not cover these costs, including Medicare. Even though Medicaid covers the costs, not all facilities accept Medicaid payments.
Long-term care insurance covers care at home, including training for family members and in-home assistance, and it may also cover modifications to your living space, such as ramps and shower handles, to make it more accessible and comfortable. You don't need to relocate to a facility to take advantage of long-term care insurance.
Long-term care insurance comes into play when an individual finds it difficult to live independently. Typically, insurance companies classify this based on the six activities of daily living (ADLs), which include bathing, continence, dressing, eating, transferring (moving from bed to chair), and toileting. If an individual loses two of these ADLs, they may be eligible for long-term care insurance benefits. Additionally, certain cognitive issues related to Alzheimer's and dementia may trigger policy benefits automatically, but this usually requires a medical evaluation.
After the insurance benefits are triggered, you will still have to pay for a certain amount of time (known as the elimination period) out of your own pocket. The elimination period varies from policy to policy but is usually either 30, 60, or 90 days. Once that period is over, your insurance will cover the rest of the costs up to a daily limit.
However, many policies have lifetime maximums on how long they will pay out - typically two to four years of care, although unlimited policies do exist. If there is a limit on your policy and you exceed it, you will need to dip into your savings to cover costs. A high-yield savings account, such as UFB Premier Savings or Marcus by Goldman Sachs High Yield Online Savings, allows you to keep money earmarked for long-term care in a safe, insured deposit account that still earns a decent amount of interest.
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