Basics of Long Term Care
Because a health event can have a serious impact on a family’s finances, a comprehensive financial plan will often include a long term care assessment as part of its insurance analysis or risk management section. It is important to consider the financial risks of certain unforeseen events such as disability or prolonged illness that could require some level of long term care.
Long term care is generally not covered by Medicare. As nursing home care has become more expensive, a family that needs nursing care, even if only for a few years, runs the risk of depleting hundreds of thousands of dollars. This direct cost is then compounded by the lost investment earnings that those assets could have earned had they stayed invested. The overall wealth effect on a family from a nursing home stay can be significant.
Proper insurance coverage is the foundation of a comprehensive financial plan. Understanding the amount and types of insurance you require should be the result of sound analysis and reasoned considerations. The following reports look specifically at long term care risks and will help you gain an understanding of your current long term care insurance coverage, if any, and how it may help protect your assets. Items to consider when analyzing your long term care insurance coverage include:
Different Benefits Types: Some policies offer different benefit amounts for different types of care such as skilled nursing home care or home health care. Make sure you understand specifically which types of care are covered by your policy.
Benefit Period and Amount: Some policies provide benefits for a stated period. So even if you collect less than the maximum per period, benefits stop when the period is over. In comparison, some policies offer a pool of money approach so that if you collect less than the maximum benefit per period, the policy would extend beyond the original coverage period until you collected the maximum pool of money.
Benefit Sharing: Some policies allow for a sharing of benefits between policies (or from one joint policy) between a couple. This can provide a very useful level of added flexibility.
Taxation of Benefits: Policies can be classified as qualified or non-qualified. Qualified policies have fully or partially deductible premiums and tax-free benefits. Non-Qualified policies do not provide tax deductible premiums and the current taxation of benefits is unclear. These policies, however, might offer other better terms and conditions.
What does Long Term Care cost? The cost of long term care can vary greatly based on the exact services needed and the region where care is being provided. Some national averages, however, might be of interest. According to the Genworth Financial Cost of Care Survey 2014:
- The average annual national cost for a private room in a nursing home is over $87,000, and a semi-private room is in excess of $77,000.
- A one bedroom unit in an assisted living facility has an average annual cost of $42,000 representing a 4.3% increase from previous year.
- The average daily rate for adult day health care was over $65.