What Is Long-Term Care Insurance?
Long-term care insurance is a policy that covers the services needed to meet a person’s health or personal needs for an extended period. The policy owner pays premiums and later makes claims for covered services.
When purchasing long-term care insurance, individuals choose coverages to pay for services in or out of their home. The policy usually indicates how much the person would receive daily or monthly for the covered services. The policy may allow different amounts for care in the person’s home versus in a nursing home, assisted living facility, or other location. Some policies may also have a waiting period called an elimination period, which is between the time the policyholder begins to need care and the time policy benefits begin.
What Is the Rule of Thumb for Long-Term Care Insurance?
One of the common questions about long-term care insurance is about the rule of thumb. However, there is not just one rule of thumb. There are several different guidelines that may be considered when thinking about purchasing long-term care insurance. These guidelines include:
- Only buy if assets are between $200,000 and $2 Million: People should only purchase long-term care insurance if their income is between these two figures. If a person’s assets are less than $200,000, the guideline says that person cannot afford the premiums, does not have enough assets to protect, and will be covered by Medicaid once those assets are depleted to a certain level. If the person’s assets are $2 million or more, he or she can fund long-term care with those assets. An estate planning attorney from The Law Office of Jason Carr may be able to help you determine whether you should consider long-term care insurance.
- Spend less than 10 to 15 percent of retirement income: People should keep their long-term care insurance premiums between 10 and 15 percent of their retirement income.
- Keep premium below 7 percent of income: If long-term care insurance premiums would be more than 7 percent of an individual’s income, that person should not get coverage.
- Skip if assets are less than $30,000 or eligible for Medicaid: If an individual has assets totaling less than $30,000 or is already eligible for Medicaid, the person should not purchase long-term care insurance.
- Start looking early: This rule of thumb refers to individuals who should purchase long-term care insurance. Current recommendations are to begin looking no later than a person’s 50s or early 60s. Looking sooner may be better to prevent worsening health, family history, or high premiums from ruling out coverage.
What Are Some Common Exclusions for Long-Term Care Plans?
Some exclusions in a policy will be obvious, but others may be hidden. Therefore, a person who is thinking of purchasing a long-term care plan should carefully read over all the policy terms to get a clear understanding of what he or she is paying for. Some common conditions that may not be covered include some forms of heart disease, diabetes, and cancer.
Some plans may exclude alcohol or drug use, attempted suicide or intentional self-harm, war-related illnesses and injuries, or treatment paid for or provided by the government. Other common exclusions that may be found in Texas long-term care plans include:
- Mental or nervous disorders — According to the Texas Department of Insurance, policies must cover schizophrenia, major depressive disorders, Alzheimer’s, and other age-related disorders. If a person has already been diagnosed with Alzheimer’s, the insurance company can decline to insure that person
- Care by family members — Though some policies may offer training for family members to become caregivers, these volunteer caregivers will not be paid for the service
- Preexisting conditions — In some cases, a preexisting condition may be covered after a waiting period of six months
What Are the Disadvantages of Long-Term Care Insurance?
While long-term care insurance can be beneficial for many, it does have disadvantages. These disadvantages should be weighed carefully before deciding whether to purchase coverage.
Expensive and Open to Price Increases
Long-term care plans are expensive. After a period of time, the premium may also increase. While some policies may have clauses that return the paid premiums if the policy is never used, many do not, which can mean that this money would seem to be wasted. Additionally, as a result of future price increases, some policy holders may find themselves with plans they cannot afford. This may require them to choose one of the following:
- Find a way to pay the premium they cannot afford
- Accept reduced benefits to continue paying the same premium
- Cancel the policy and possibly lose all premiums that have been paid
May Never Be Needed
While many older people reach a point when they struggle with some of the basic activities of daily living, not all do. Some people remain active and capable until the day they die. If this is the case, some people may feel that the money spent on long-term care insurance premiums could have been better spent elsewhere.
May Not Live Long Enough To Use
No one can predict how long a person will live. Someone may live until age 90 or older or die much younger. If a person does live long enough to potentially need care, he or she may decline rapidly and die before the long-term care insurance benefits can begin, especially if the policy holder chose a longer elimination period in exchange for a lower premium. Additionally, a long-term care insurance policy holder may die from causes that do not require long-term care.
Difficult To Predict Necessary Coverage Amount or Time
Long-term care offers different benefits and coverage amounts based on whether the care takes place in an individual’s home or at an assisted living facility or nursing home and other factors. Unfortunately, it is impossible to predict where someone will need care, what kind of benefits or coverage the person may need, or how long that person will need long-term care. This means that purchasing a long-term care plan is a gamble. You may or may not need it, and if you do need it, you may or may not get what you need from it.
What Is the Biggest Drawback of Long-Term Care Insurance?
Of all the disadvantages that long-term care insurance has, the biggest drawback is the expense. Long-term care insurance is expensive to get initially, and premiums can be increased with the approval of the Texas Department of Insurance. If approved, the company can raise rates on blocks of policies between 5 and 25 percent, often 10 to 15 years after the policies were purchased. The Texas Department of Insurance does require the insurer to allow policyholders to adjust their benefits if the premium is increased.
Since most policies do not refund the premium if benefits are not used or if the policy is canceled, this can be a large expense that some individuals feel is better spent in other ways. Someone who is interested in purchasing a long-term care plan should carefully go over the terms and conditions and ask about premium refunds if there are concerns about spending the money and not using the policy.
Consider Asking an Experienced Attorney for Help With Your Long-Term Care Plan Today
These are the most common questions about long-term care insurance. You may have other questions to help you decide whether you need or want a long-term care plan. Whether you are confident in your decision to purchase long-term care insurance or have more questions, consider contacting an experienced attorney from The Law Office of Jason Carr by calling (214) 800-2366 to learn more about how to make the right decision for your circumstances.