Being financially prepared for the possibility that you could require long-term care is an important part of retirement planning. Yet, too many people hope for the best and don’t give this much thought. Our rapidly aging population, lengthening longevity and unpredictable health care costs highlight the need for long-term care insurance. So, couples getting a divorce, especially those approaching their senior years, should definitely explore long-term care insurance.
Statistics show that 70 percent of those who reach age 65 will need long-term care. In addition, many people should realize that Medicare does not cover long-term care. And Medicaid only kicks in when you’ve exhausted most of your assets.
In-home care or assisted-living care is expensive (up to $250 per day) and most experts believe costs will only go up. Excluding specific market variations, the average cost of a nursing home ranges from $60,000 to $120,000 a year; hiring an aide to spend six hours a day in your home starts at around $40,000 a year.
For these reasons, considering some method of long-term care insurance or savings has become a key strategy for preserving assets, especially for women. However, buying long-term care insurance requires some effort: do your homework on plans, features and companies; read and understand the fine print of policies; and choose a reputable company.
Here are some general guidelines to consider when shopping for a policy:
- By choosing a longer “elimination period,” you can lower your premium. Just be sure you consider how long you can afford to pay all your expenses before you choose the length of your elimination period. Check how the elimination period works before you buy a policy.
- Look for a policy with level premiums. That way, if you buy a policy when you’re 55, for instance, you’ll always pay the premiums that a current 55-year-old would pay, even when you’re actually 75.
- Make sure the policy is “guaranteed renewable for life.” Otherwise, the insurer could cancel when it looks like you may actually use the benefits. And insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb.
- Look for a policy that provides for home health care — older people prefer to remain in their own homes, if possible.
- Try to get “protection from lapse,” which can provide for third-party notification in case of a missed premium payment, or reinstatement if there is proof that the lapse was due to a cognitive impairment.
- The policy should cover cognitive impairments such as Alzheimer’s, when a patient may be otherwise physically healthy, but still need long-term care.
- Ask for a provision waiving premiums once you’re in a nursing home, so you will not have to worry about premiums.
- Check for a financial rating of A or A+ or the equivalent from the rating agencies that monitor the financial stability of insurance companies.
- As a cost-effective measure, buy coverage for three to five years with a daily payment of at least $200, pegged to the national average cost of nursing-home care. This will cover the average nursing-home stay — typically less than three years — and lifetime benefits are much more expensive.
For those who haven’t yet bought a long-term care policy, keep in mind that premiums for long-term care insurance increase as you age. And since there is a discount for purchasing while married — no one checks to see if you remain married — it is in your best interest to establish coverage prior to a divorce settlement.