As parents get older, a question looms large over their adult children: “How will I care for my aging parents?” For many, the idea of Long-Term Care (LTC) insurance feels stressful and complicated. Some worry about the cost of policy premiums. Others weigh the potential out-of-pocket expenses if they forego LTC insurance.
While it’s normal to worry about your parents as they age, the LTC insurance decision depends on your personal situation. To help you make an educated choice, we’ve put together a list of the most frequent LTC insurance questions, as asked by Xennials. This article is a starting place for you to have a more insightful conversation with your wealth strategist or insurance agent.
What is LTC?
Long-Term Care refers to medical and non-medical services provided to those who cannot perform everyday activities. These include dressing, eating, or bathing.
Provided at home, in assisted living or in nursing homes, long-term support helps individuals of all ages.
What is LTC Insurance?
Medicare and most health insurance plans don’t cover long-term care. Designed to cover long-term services, LTC insurance policies reimburse policy holders for personal and custodial support at home or in a facility.
It’s important to point out that these policies only pay for a pre-determined daily dollar amount. This coverage amount varies, depending on the limits established at the time of policy purchase.
What determines the cost of LTC insurance premium?
The cost of LTC insurance premiums varies depending on several factors, such as:
- Policy holder’s age at the time of purchase
- Maximum daily coverage amount
- Maximum number of days the policy will cover
- Lifetime maximum that the policy will pay
- Optional benefits such as inflation protection, survivorship, or nonforfeiture
Does everyone qualify for LTC insurance?
No. Most policies require medical underwriting. If the policyholder is in poor health, they may not qualify or only qualify for limited coverage.
Are there tax benefits to LTC insurance?
“Tax qualified” LTC insurance policies can have some advantages for taxpayers who itemize deductions. These deduction limits increase with age, according to the following information provided by the IRS:
Age at the End of 2021
Maximum Deductible Premium
40 or under
41 to 50
51 to 60
61 to 70
71 and over
How do I know if my parents need LTC insurance?
When deciding whether to purchase a LTC policy, the key points to assess are:
- The policyholder’s current health
- Their family’s medical history
- Whether their asset base can support self-insurance
One thing to keep in mind is that the insurance companies price policies to continue making money on the average policy holder. Depending on how the policy is written, annual premium increases can be substantial particularly as your parents age and the probabilities of filing a claim rise.
Unless your parents have been diagnosed with or have a family history of Alzheimer’s, dementia, or other potentially long-term conditions, you should assess if you have adequate assets with which to self-insure.
Depending on where you live, the costs of assisted living range from around $3,500 – $5,000 per month. Memory care ranges from $5,000 – $6,000 monthly.
These average figures suggest that an asset base of between $1,000,000 – $1,500,000 could support assisted living costs. An asset base of $1,500,000 – $2,000,000 could support the memory care costs.
However, we recommend increasing the asset base numbers since LTC cost may increase faster than inflation.
How do I find the best LTC insurance for my parents?
A policy that’s right for one person may not be good for another. The following are some factors to consider when choosing the right policy for your loved ones:
- Duration of Benefits: LTC policies can pay benefits for as little as 12 months or for multiple years. Companies no longer sell lifetime benefits.
- Benefit Triggers: What conditions does the policy require to start paying benefits?
- Waiting Periods: This is the amount of time before a policy begins paying benefits after someone becomes eligible. Some policies have one, others start paying as soon as the policyholder’s benefits trigger. Understanding how the company calculates this period can save you money now and in the future.
- Daily Benefit Amount: This is the maximum amount that the policy will pay for each day of care. This amount may also change depending on the type of care received.
- Maximum Policy Benefits: The total dollar amounts a LTC policy will pay for care once the policyholder starts to use their benefits.
How do I find an insurance agent?
When buying a LTC insurance policy, it’s important to work with a trustworthy agent. This can make future changes easier and provides a qualified resource to answer your questions.
A reputable agent should:
- Have up-to-date LTC insurance training
- Work for an established company
- Take the time to answer your questions in detail, considering your unique circumstances
- Review each of the provisions of the policy to make sure you understand them
- Offer a 30-day premium refund period
How can I reduce the cost of my parent’s LTC insurance premium?
The earlier you start discussing LTC insurance with your parents, the better. Applying when they’re healthy and relatively young can reduce their premiums.
If partial self-insurance is an option, you may be able to reduce their benefits to lower the cost of coverage. Talk to your advisor to review your assets and determine your parent’s / parents’ possibility of covering the cost of LTC.
What if I don’t plan on sending my parents to a nursing home?
LTC doesn’t only cover the cost of nursing homes. Many policies also cover other care options, including:
- In-home care
- Adult care homes
- Assisted living
- Memory care facilities
As you discuss your family’s long-term financial management plan with your wealth strategist, consider starting a conversation on your parents’ LTC. Using insurance to cover these expenses could help your parents maintain some of their independence while receiving proper care and preserving their retirement savings.
For many Xennials and their parents, LTC insurance can be a tool to help Life Appreciate even as family members navigate very different stages of life in parallel.