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Chances are about 70 percent that you’ll need long-term care sometime after age 65, according to the nonprofit Life and Health Insurance Foundation for Education (LIFE). And it won’t come cheaply.
The median cost of a full-time nursing home room is $81,030 per year, according to the Genworth 2012 Cost of Care Survey. The national median hourly rate for a licensed home health aide is $19, which would total $55,480 a year for eight hours a day of care.
Statistics like those make long-term care insurance sound like a no-brainer, but misunderstandings still abound.
Here are eight myths about long-term care insurance — and the truth.
Myth No. 1: I don’t have to worry — I’ve got Medicare
Of all the misconceptions, this is one of the biggest, says Steve Casto, founder and president of Strategic Wealth Solutions Inc. in Omaha, Neb., and author of “Is Your Retirement Headed in the Right Direction?”
Generally, health insurance — including Medicare — pays for hospital and doctor bills but not for custodial care when you have a long-term disability or illness. Custodial care includes help with such daily tasks as eating, getting out of bed, toileting, bathing and remembering to take medications. Casto says he counsels clients not to expect a dime from Medicare for long-term care.
Medicaid will pitch in for long-term care expenses, but only after you’ve depleted your assets.
Myth No. 2: My spouse will take care of me
“A lot of people tend to be in denial,” says Wendy Spencer, a Certified Financial Planner with Spencer Capital Strategies Co. in Arvada, Colo.
Although you may be able to depend on your spouse, it’s something of which you can’t be sure. What if you outlive your partner? What if you develop Alzheimer’s disease and need around-the-clock supervision? What if you become physically disabled and need more help than your spouse alone can provide?
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Myth No. 3: Everybody should buy long-term care insurance
For many people, long-term care insurance is simply out of reach.
“Typically, long-term care insurance is for middle-income people,” Casto says.
Poor people generally can’t afford the premiums, and the very wealthy may prefer to pay for their care out of pocket. If assets, other than a home, are less than $30,000 for single people and $80,000 for married people, they probably can’t afford long-term care insurance, according to the LIFE organization.
If you lack adequate assets, you’ll have to spend your own money and then rely on Medicaid, the federal and state program for low-income families and elderly and disabled adults, to cover your long-term care.
If you have assets to protect, you should consider purchasing long-term care insurance, unless you’ve done a thorough financial analysis and determined that you can self-insure.
Myth No. 4: The premium will never go up
No company guarantees premiums on long-term care policies will remain the same, says Charles Matt, a financial adviser with Sapient Financial Group in San Antonio. Insurance companies reserve the right to increase premiums through the life of the policy, depending on overall claim costs and investment earnings.
Myth No. 5: I should put off applying for long-term care insurance until I’m ready to retire
Many people wait until they approach retirement to apply for long-term care insurance, thinking it’s best to put it off as long as possible. But Matt has seen this backfire for some clients. By the time they applied for coverage, they had developed conditions, such as diabetes or high blood pressure, which disqualified them for the best rates for their age or made them ineligible for coverage, period.
“I make a concerted effort to get clients to start looking at long-term care insurance at age 50,” Matt says.
Myth No. 6: It’s nursing home insurance
Although long-term care insurance covers care in nursing homes and assisted-living facilities, most of the claim dollars today are spent on home health care, Matt says.
Myth No. 7: The elimination period is a waiting period
Most policies have an elimination period, typically 90 days, before the policy will pay for services.
“People think this is a waiting period when you sit around and twiddle your thumbs,” Spencer says.
But it works more like a deductible. The elimination period begins when you meet the policy’s terms for qualifying for benefits and you start paying for services from a qualified provider.
Typically to qualify for coverage you must be unable to perform two out of six “activities of daily living” on your own. Those are:
- Eating
- Bathing
- Dressing
- Transferring (for example, from a bed to a wheelchair)
- Toileting
- Maintaining continence
In many cases, you also can qualify if you suffer from a severe cognitive impairment, such as Alzheimer’s disease, that puts your health and safety at risk.
You can’t just sit out the elimination period and rely on neighbors and relatives to help out, and then expect the insurance company to pay for services once the 90 days are up, Spencer says. You have to pay for health care services from providers approved by the insurance company through the elimination period. Then the insurance company will start paying.
Myth No. 8: The quote is too high. I can’t afford it
Long-term care policies have lots of variables you can tweak to bring the premium down. For instance, you can reduce the daily benefit amount, the number of years of coverage or the inflation rider. Work with a good financial adviser to adjust the policy to provide the best combination of features for you.
“It’s not an all-or-nothing situation,” Matt says.
