October 26, 2020

Alternatives to Long-Term Care Insurance

Long-term care may not be something to which you give much thought. Younger people often leave concerns about aging and care needs until they are older.

However, according to Aging in Place, one-third of the people who receive long-term care are under the age of 65. Everyone needs to take some time to figure out how they will handle their long-term care needs when they arise.

Long-term care is quite expensive. For many people, it requires using all their assets and resources to pay for it. Long-term care insurance can help, but it may not always be the right choice. You may want to consider alternative options instead.  

Traditional Long-Term Care Insurance

Long-term care insurance is a type of health insurance that pays for personal care expenses. It covers assistance with daily tasks:

  • Eating
  • Bathing
  • Mobility
  • Cleaning
  • Preparing meals

In general, it covers those types of care that are outside of medical needs and which you receive in your own home. However, policies also cover room and board expenses if you need residential care in a facility. Some plans will allow you to pay a family member to do your care.

The actual coverage varies significantly from policy to policy. It is unlike other insurances in that there are no real standards. You will see great variances with benefits, coverage, and premiums.

You should know that LTC insurance costs may be low when you first get your policy, but they will increase over time. Large rate hikes are not out of the question and can happen at any age. However, most plans do not make you pay your premium if you are actively using the benefits.

LTC policies also have a benefit limit. Unlike typical health insurance policies, the limit is not monetary but rather a time limit. The most common limits are three to five years, which means you can only use your benefits for this time.

While the limit may make you think LTC insurance is not worth it, it makes sense. NerdWallet explains that the average need for care is not close to this limit, with women needing about 2.5 years of care and men needing about 1.5 years. 

Who Benefits the Most from Long-Term Care Insurance

You might be asking yourself, "should I buy long-term care insurance?" It may be challenging to know if this is the right move because the need for such coverage may seem like it is far into the future.

LTC insurance is a good idea for two groups of people:

  • Those who have a lot of assets
  • Those who have few assets

People with a lot of assets get LTC insurance to protect those assets. Without insurance, it is possible to have to sell assets to make ends meet and pay for expenses.

People who do not have a lot of money, savings, or assets, including those who may think they can rely on Medicaid, Social Security, or Medicare to afford the costs, need the coverage because otherwise, they will be unable to afford care. 

The Pros and Cons of LTC Insurance

Considering whether you need this coverage, it may help to think about the pros and cons.

Pros

  • Allows you to safeguard your assets
  • Ensures you have coverage if you need it
  • Usually tax-free benefits
  • May be able to deduct the premiums from your taxes

Cons

  • Gets more expensive over time
  • May not be unable to afford it when you need it
  • No standardization among companies, which means a lot of research and shopping around
  • Heavy on exclusions and waiting periods

Does Medicare or Medicaid Cover Long-Term Care?

Government health insurance programs may help with long-term care needs, but only somewhat. Medicare has limited care coverage. It will only pay for health care, which means it won't cover daily living assistance tasks that LTC insurance covers. Plus, it only pays for up to 100 days of nursing home care, making it useful in the short-term but not something you can rely on for the long haul.

Medicaid will pay for some costs, but you must meet strict income qualifications to get this coverage. Meeting those income limits may mean having to sell your assets, leaving nothing behind for your family in your estate. It could also force you to spend savings and other money you put back for other things.

Waiting Too Long to Get Coverage

If you wait too long to buy insurance, you could run into having to qualify for coverage and dealing with waiting periods.

Most companies will deny you if you have pre-existing conditions. So, waiting until your health is failing could mean you can't get an insurance policy at all. Even those who accept you will often have a waiting period, such as six months, before you can use your benefits.

Waiting periods are the norm, even without any health issues. Most companies will have one, and you must wait it out until you can use your coverage. The standard period is 30 days. 

How to Shop for Long-Term Care Insurance

Since there is no standard for coverage and benefits, you must consider all the options. Your best bet is to go through your employer if that is possible. Group plans typically cost less and offer better terms.

If you don't have that option, then you need to shop around for private plans. Work with an agent who can help you gather information from various companies. Take your time to research the details and compare them before making a final decision.

Alternatives to Long-Term Care Insurance Policies

Long-term care insurance is not your only option. There is no doubt that it is expensive. For some people, it may not be feasible. PolicyGenius explains that the average premium at age 55 for women is $2,700 and for men is $2,000. Remember, premiums rise as you get older, too.

If it seems too expensive for you or you simply do not want to waste your money on coverage you may never need, then some potential alternatives include:

  • Using life Insurance
  • Funding annuities
  • Selling your home
  • Saving money
  • Getting a reverse mortgage
  • Earning extra money
  • Tapping into other benefits

Using Life Insurance

There are a few options for using your permanent life insurance to fund your care needs. First, you can borrow from your policy, which will decrease your death benefit, but it is money you can get with little hassle. Your plan may have some restrictions, though.

Second, you can cash out your policy. That is if your plan allows you to do so. Plus, you will have some tax ramifications that you need to account for when doing this.

Lastly, you can sell your policy. With this option, you may have fewer restrictions. You can also typically avoid taxation.

Do note that for any of these options, you need a whole life insurance policy. Term life insurance policies typically won't allow for borrowing against, cashing out, or selling.

You may have the option of getting a combination policy that puts life insurance and long-term care insurance together. If you need money for LTC, then you borrow the money from your benefits. If you end up not needing care, then you have the full death benefits.

Funding Annuities

Getting an annuity allows you to secure a regular income. Once you make your deposit, it will payout consistently. You can then use this money to fund any care you need.

Of course, the upfront cost is rather large. It is an investment, but if you have the funds, it can be a good option. There is the potential it won't provide enough money, though. Plus, annuities have complicated taxation, so you will need some professional help managing it. 

Selling Your Home

If you are like most people, your home is your most valuable asset. If you can part with it, selling it can bring in a large influx of cash.

The downside is that you will need to find a new place to live if you aren't going into a nursing home. You also may find it takes a long time to sell. It depends on the market. The market will also affect how much you could make off the sale. So, it isn't a guarantee this will even bring in the money you need. 

Saving Money

If you are young, then you can start saving for your senior years now. Put aside a savings account where you put money in regularly and that you won't touch until you need long-term care.

The issue is if you are not young enough that you have time to accumulate considerable savings. Also, it can be tempting to tap into that savings if other life events require you to find funds.

Getting a Reverse Mortgage

A reverse mortgage is a particular type of home equity loan. You must be at least 62 years old to secure one. You also need adequate equity in your home.

You can get the money as a line of credit, monthly payments, or a lump sum. You do not have to repay the loan if you live in your home. If you move or sell, the lender will require repayment or take the money owed off the sales income.

Earning Extra Money

You can get creative and find ways to earn some extra money. For example, if you have a big house, you might rent out rooms or take in boarders.

The gig economy is robust right now, so there are many potential opportunities to earn extra money. Use your hobbies or talents to help you find projects or work.

Tapping into Other Benefits

You may find other benefits from the government or through your community that offer financial help. For example, if you are a veteran, you may be eligible for benefits from Veterans Affairs. It doesn't hurt to at least check into it.

Local agencies may also help and not just financially. You may be able to get access to a daycare option or free help from a home aide.

There are also many elderly programs and programs for people with lower incomes. These options offer everything from free care to financial assistance.

Final Words

Long-term care insurance isn't for everyone, but everyone should have a plan to handle care needs. Whether you decide to get a policy or use an alternative, just make sure that you know how you will afford care when the time comes.

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