Long-Term Care Insurance
The most common insurance for senior living is long-term care insurance. But before signing up for a policy, there’s a lot to learn. Long-term care insurance policies tend to be complex and difficult to understand, so it’s important to work with a trusted insurance company or adviser to understand how you can use – and maximize – your benefits.
Traditional Long-Term Care Policies
Put simply, traditional long-term care insurance policies work much like policies for car or home insurance: You pay monthly premiums, usually for as long as the policy is in effect and make claims if covered services are needed.
You can choose a little coverage or a lot to help pay for senior living. Typical policies include a pre-determined amount that can be received daily or monthly. Reimbursement can be used in a variety of settings including independent and assisted living communities and skilled nursing centers, but a demonstrated need for assistance with the activities of daily living like dressing, eating and bathing is usually required.
Hybrid or Linked-Benefit Insurance Policies
These policies combine coverage for long-term care with another benefit like life insurance. One lump sum is paid, and a fixed amount is broken into several annual payments. Beneficiaries can receive long-term care coverage with benefits like those found in traditional policies, along with some amount of life insurance that will go to heirs if long-term care benefits are never used. The life insurance payout is reduced or eliminated if long-term care benefits are used.
When to Buy Long-Term Care Insurance?
There is no right or wrong time. But the older you are when you buy long-term care insurance, the more expensive it is. Health problems also will make it more costly or, in some cases, impossible to get coverage. Some insurers require a physical exam or medical-record review; others conduct virtual health interviews. In general, traditional policies have more stringent health requirements than hybrid ones do. While experts used to suggest shopping for long-term care insurance by the early 60s, many now suggest starting sooner, in the 50s or even late 40s.
Life Settlement: The Sale or Conversion of a Life Insurance Policy
Many people who own a life insurance policy don’t realize it can be a financial asset. Policy owners often outgrow the usefulness of their life insurance. And many of them believe their only options are to let the policy lapse. But policies can be turned into case with a life settlement. And it can be used to help pay for senior living. Here’s how:
- Cash Benefit – sell the policy outright for an all-cash lump sum.
- Long-Term Care Benefit – use the existing policy to fund a long-term care benefit account.
- Retained Benefit – keep a portion of coverage intact with no future premium obligations.
Selling a life insurance policy to fund a tax-advantaged annuity is another way to help pay for senior living. Think of an annuity as a contract issued by a long-term care insurance company that converts premiums into a guaranteed fixed income stream. You can choose to use deferred annuities with payouts scheduled to begin later and earmarked for long-term care. Withdrawing the money later means larger payments, which may cover more long-term care expenses.
Private health insurance may cover medical costs related to senior living, such as skilled nursing. Remember that you or your loved one must have a medical referral for skilled nursing—it is not an opt-in form of senior living. Insurance coverage will vary depending on your plan, age and other factors.
Medicare and Medicaid
A common misperception is that Medicare and Medicaid (link to new MC/MA site) are available to help pay for senior living. While both can be used in certain circumstances, most senior living is not covered. Traditional Medicare may cover some long-term skilled care right after hospitalization for an injury or illness. Typically, Medicaid can only be used when savings and assets are nearly exhausted – and this varies by state.
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