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Determining the Need for Long-Term Care Insurance (LTCI)
How Much Is Enough?
The Daily Benefit Amount
Most LTCI policies will let you select your coverage amount, typically running at a set amount per day, with a few companies offering a fixed amount. The cost of nursing home care varies tremendously. It's important for you to research the cost of nursing homes in your area. You should consider whether you plan to remain in your current location or relocate to another area. Some people prefer to move closer to family, children, or friends.
Variations in long-term care costs can make it difficult to recommend specific dollar amounts appropriate for all persons. A general recommendation is that you should buy enough insurance to cover 50-100% of nursing home costs where you'll reside. Fifty percent of current nursing home cost is appropriate for persons planning to have supplemental income to pay for care. If you cannot supplement the cost of care in the future, you should buy closer to 100% of nursing home costs. Be aware that policies usually differentiate between the benefit amount per day for institutional or facility care and the amount per day for home care. The policy's daily benefit usually refers to the amount paid for nursing home care. Some policies offer less than the daily benefit (usually one-half) for home care. Ask if your policy offers an optional rider for home care to be covered at 80-100% instead of at the base contract amount of typically 50%.
Inflation Rider
It may be wise to purchase an optional inflation rider for your policy. The average daily cost of nursing homes affordable today could significantly rise just five years from now. And the younger you are when you buy an LTCI policy, the more critical inflation protection is. An inflation rider can be very expensive, sometimes increasing the cost of a policy by as much as 40%.
The Length of the Benefit Period
When purchasing LTCI, you'll be asked to select a benefit period ranging from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years).
Tip: The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. These partnerships may allow you to preserve some of your wealth. Typically, individuals who purchase partnership-approved LTCI policies and then exhaust policy benefits on long-term care services will generally qualify for Medicaid without spending all or part of their assets first. Ask us to discuss what options you may have available in your state.