Long-term care insurance is a type of insurance that helps cover the costs, such as nursing home care, home health care, and assisted living. It is relevant because Medicare does not cover long-term custodial care.
This type of insurance can seem like an appealing option for people who are concerned about the financial impact of a prolonged illness or disability. The flexibility to receive care at home or in a facility of their choosing is appealing on the surface as well. However, there are both pros and cons to consider when deciding whether long-term care insurance is right for you.
Pros of Long-Term Care Insurance
- One of the main benefits of long-term care insurance is that it can help protect your assets and your family’s financial well-being in the event of a prolonged illness or disability. Without long-term care insurance, the costs of long-term care services can quickly add up. They can potentially deplete your savings and other assets.
- As we have stated, long-term care insurance gives you the flexibility. It allows you to receive care at home, in an assisted living facility, or in a nursing home, depending on your needs and preferences. This can be especially important if you want to maintain as much independence and autonomy as possible as you age.
- Long-term care insurance can provide peace of mind by giving you the confidence that you will have the financial resources to cover the costs of long-term care if you need it. This can allow you to focus on your health and well-being, rather than worrying about how you will pay for care.
Cons of Long-Term Care Insurance:
- One of the main drawbacks of long-term care insurance is that it can be expensive, especially if you wait until later in life to purchase a policy. Premiums can vary widely depending on factors such as your age, health, and the type of coverage you choose. They are generally more expensive for older individuals.
- Long-term care insurance policies may have limits on the amount of coverage they provide. They may also exclude certain types of care. This means that you may still be responsible for paying some of the costs of long-term care out of pocket, even if you have a long-term care insurance policy.
- Premiums are likely to increase over time due to inflation. The result could be that the coverage provided by your long-term care insurance policy may not be sufficient to cover the costs of care in the future.
- These policies can be complex. They have a variety of terms and conditions that you may not fully understand. It’s important to carefully read and understand your policy before you purchase it, so that you know exactly what is and is not covered.
- If you obtain long-term care insurance, there will be a so-called “elimination period.” The policy does not cover the care that you receive for a set amount of time. This will typically be 30 days, 60 days, or 90 days depending on the details of the policy that you purchased.
Overall, long-term care insurance can be a valuable financial protection for people who are concerned about the costs of long-term care and who want the flexibility to receive care at home or in a facility of their choosing. However, many people would say the cons outweigh the pros by a clear margin.
Long-Term Care Insurance Alternative
There is another approach that can be taken that will provide peace of mind without all the negatives. Medicaid does cover custodial care if you can gain eligibility. The asset limit is just $2,000, but you can potentially create a trust to divest yourself of direct possession of assets.
While you are living independently, you would be able to accept distributions of the trust’s income. The principal will no longer be within reach, but many retirees have no intention of spending the nest egg that is the source of much of their income.
As long as you fund the trust at least five years before you apply for Medicaid coverage, the principal would not count if you ultimately seek Medicaid eligibility.
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