Most don’t like to dwell on the thought, but most of us will have to depend on others for our daily needs later in life. Long-term healthcare insurance is a tax-efficient way of saving funds for the specific purpose of meeting the long-term care costs not covered by regular health insurance. Nearly 70 percent of people will need long-term care at some time during their lifetime according to the American Association for Long-Term Care Insurance (AALTCI).
As helpful as it is, Medicare does not include long-term hospital visits, limits nursing home stays as well as the amount of skilled nursing that can be provided in your home. The out-of-pocket expense for these services can often be out of reach. And, the cost could severely impact your long-term savings or place undue financial pressure on your family members.
A long-term healthcare insurance plan provides you with the financial security to deal with the consequences of a chronic medical condition. Your monthly premium insures you during your lifetime for the cost of the required long-term healthcare covered by your plan.
It is vital to building projected healthcare costs into any long-range financial planning whether you will be in your own home, a nursing home, an assisted living environment, or even an adult daycare center.
The first thing to establish is the amount of coverage you need or can afford with the help of a qualified health insurance broker. The premium you pay will depend on your age at the start of the plan, the details of your plan (e.g., the upper limits of daily and lifetime expenditures), and your medical history. Insurance companies will also consider your gender and marital status.
Most long-term care insurance plans are purchased by consumers in their mid-fifties to mid-sixties. But your choice depends on your situation and preference. And remember, that waiting longer to purchase a plan will increase your monthly premiums. And, if you wait too long, you may be refused a policy altogether.
There are six activities of daily living that are considered essential for independent living: bathing, caring for incontinence, dressing, eating, toileting, and transferring. You become eligible for the benefits of your policy once you cannot safely perform at least two of these six functions without assistance. You are also eligible if you suffer cognitive impairment, such as dementia.
If you become eligible and want to make a claim, your doctor will provide the appropriate documentation. The insurance company will review this and possibly send a nurse to make an evaluation. Before endorsing a claim, the insurer must approve of your plan of care.
On average, men who require long-term care can expect to need it for just over two years, while women’s life expectancies are higher and the anticipated care time for women is around eighteen months longer than men.
Most healthcare is delivered at home, so it seems sensible to plan for between two and three years of full-time home care at the current median cost of around $50,000 per year, adding up to approximately $150,000. If you subsequently decide to use nursing home care, this figure will be approximately double. However, you can use your insurance dollars to make a sizeable contribution to reducing the extra costs. Finally, most long-term healthcare insurance policies offer a death benefit. If you don’t call on all the funds in your account, you can pass the balance on to your loved ones.
Additionally, there are certainly some tax benefits to holding a long-term healthcare plan. Federal regulations (and some state rules) recognize the value of long-term healthcare insurance and premiums for tax-qualified long-term care insurance premiums are often tax-deductible as medical expenses. There are certain limits to the amount you can claim, but the amount you can deduct increases according to your age. For example, your federal deductible limit at age 51 would be $1690 and from ages 61 to 70 it would be $4,520 (Source: IRS Revenue Procedure 2020-45). Remember to check with your insurer or financial advisor to ensure that your proposed plan is tax-qualified.