Should You Consider Buying Long-Term Care Insurance?

Since the 1900s, each generation of Americans has lived longer than the previous one. In the 1900’s, for example, the average life expectancy was 46.3 for men and 48.3 for women.  In the 1950s, the average life expectancy for men was 66.5 and 71.8 for women. In an August 2022 press release, the Centers for Disease Control’s National Center for Health Statistics reported that, for the year 2021, the average life expectancy was 73.2 for men and 79.1 for women. 

It’s estimated that as many as 70% of Americans over age 65 will need long-term care, so these odds mean that you will likely be one of them. But does that mean you should buy long-term health insurance?

What Is Long-Term Care Insurance?

Long-term care (LTC) insurance is a vehicle that helps pay for long-term care, such as adult day care, hospice care, nursing homes, and the like. It can also include paying for home health when a person needs assistance with activities of daily living, such as dressing, eating and bathing. So, while LTC insurance is a good thing in concept, there are a number of drawbacks.

First, it’s important to be aware of the history of long-term care insurance. U.S. insurers began selling nursing home insurance in the 1960s. They eventually expanded the products to include benefits for home care and other types of aging care. The market boomed in the 1980s and 1990s, when interest rates were higher, then faltered in the 2000s after new premium rate rules kicked in. Around that time, the issuers discovered that almost every assumption they had made about interest rates and consumer behavior was wrong. In short, people were living longer and making more and higher claims than expected.

The result was that most insurers of those products left the market. In New York state, the number of people with private LTC  insurance coverage dropped to 394,000 in 2020 from 754,000 in 2002. Most issuers with policies still in force have ended up asking their policyholders for cumulative premium increases of 50% or more. They cited the effects of inaccurate policyholder behavior assumptions and low investment earnings on their LTC insurance operations’ performance.

Questions To Ask

If you decide to buy a policy, make sure you understand its terms. Policies generally pay a set rate per day, week or month — say, up to $1,400 a week for home care aides. Before you actually purchase a policy, you should understand what services are covered and how much it pays for each service.

You should also check to see if benefits are increased to take inflation into account and by how much. Ask about the maximum amount the policy will pay out and if the benefits can be shared by a domestic partner or spouse.

Many people find comfort in buying and knowing that they have long-term care insurance. It has been a Godsend for many of our clients. But there are many considerations in this complex area, including the following:

• LTC rates are not set, and they increase as you age. Long-term care insurance policies can factor in future inflation costs, such as adding 1% to 5% to the benefits each year. While this provides a cushion for your costs, it also adds to your premium. 
• LTC insurance is expensive. The federal government’s Administration for Community Living says the exact cost of long-term care varies by the duration and type of care, the providers and where you live. Other factors that influence costs include the time of day when home health and home care services are needed. 
• If you have pre-existing conditions or health problems, you may be ineligible or otherwise unable to afford long-term care insurance. 

The price and accessibility of long-term care are important, but they’re not the only factors you should consider when purchasing a long-term care insurance policy. If you’re looking into them, be sure to evaluate the following factors: 

• The types of facilities covered: Some long-term care insurance policies restrict coverage to certain kinds of facilities. Others provide coverage for a broader range of facilities, including home care. 
• The types of caregivers covered: Some policies only cover formal caregivers who are certified or are provided by commercial long-term care providers. Be sure the policy you purchase covers the type of caregiver you plan to have, including family or friends.
• Riders: Riders add coverage to your insurance policy. For example, some riders may protect you from inflation, while others offer coverage for your spouse. Consider if you should add riders based on your unique needs. 
• Coverage limits: All long-term care insurance policies have coverage limits. Make sure your policy offers enough coverage to meet your long-term needs.

Other Solutions for Long-Term Care

Long-term care insurance is still an option for a number of our clients and, in fact, it has been a good purchase for some. But many of our other clients evaluate protecting their assets in other ways. For example, Medicaid benefits can cover a large part of long-term care coverage, including home care and nursing homes. To be eligible for Medicaid, however, you must meet strict asset and income limitations.  A Long Island elder lawyer can help you structure a “Medicaid Asset Protection Trust” or “MAPT” so that you are eligible for Medicaid benefits. A MAPT can also operate as an effective estate planning tool. You can designate the beneficiaries who will receive the assets upon your passing and protect your heirs from capital gains tax. 

Contact a Long Island Elder Lawyer for Assistance

If you are an older adult looking to protect your assets, the lawyers at Davidow, Davidow, Siegel & Stern are here to help you. We can also offer other legal guidance regarding elder law issues. Call us, contact us online, or use the live chat function to schedule a consultation with a Long Island elder lawyer today.