Long-term care is needed when you can no longer care for your own needs.
According to the Department of Health and Human Services, long-term care is a range of services and care that may be required to meet your daily living and personal care needs. The agency reports about 60% of the population will need assistance with things like getting dressed, making meals or caring for their daily living needs.
Long-term care may be needed because of a chronic illness, old age, an accident or other medical issues like a stroke. To pay for the cost of long-term care, one can purchase long-term care insurance.
What exactly is long-term care insurance?
Although rules for policy activation vary from state to state, long-term care insurance is coverage to pay for costs associated with room, board and any custodial care for services that assist with activities of daily living.
"Before your long-term care policy can be used, you must be unable to perform three or more of these daily activities," Lindsay Malzone, Medigap.com’s Medicare expert, tells FOX Business.
What does it cost?
Malzone says prices vary wildly depending on several factors such as monthly benefit amount, inflation protection, elimination period, and age.
"The price will be significantly lower if you purchase the insurance when you're younger," she says.
Another factor to keep in mind is that these insurance plans are underwritten.
"You must be healthy enough to qualify for coverage with most insurers," Malzone says. "Some companies will approve you with health issues, but the premium may be increased."
That being said, she reports the average costs of a 55-year-old can range between $950 and $1,500 a year. Depending on the policy selections and the other factors mentioned above, the policy could differ from the average provided, she says.
What would it cover?
Long-term care, says Malzone, covers non-medical costs associated with nursing homes or assisted living facilities. In addition to standard room and board costs, the funds can be used to cover assistance for daily activities such as:
– Incontinence care
– Toileting (getting on or off the toilet)
– Transferring (getting in or out of a bed or a chair)
In addition, Malzone says that one of the most common chronic conditions that long-term care assists are individuals with Alzheimer's disease or other types of dementia.
"People with these illnesses require specialized care at facilities that handle their unique situations. People with chronic diseases need to live in a location equipped to help them maintain their health and quality of life," she says.
Why should it be purchased?
Nursing homes and assisted living facilities are pricey. Malzone says that costs can range from $800 to $8,000 per month. This cost will vary depending on where the facility is located and the amenities it provides.
"Many seniors can't afford to pay for assisted living on their Social Security, so they rely on family members or go to it alone," she says.
If you hold a long-term care policy, your benefits can cover the cost of some or all of your care.
What is the ideal age to buy it?
Malzone says to buy a long-term insurance policy as soon as you can budget it and the costs are significantly less for younger individuals.
"Most individuals purchase their long-term care insurance in their 50s," Malzone says. "This is due to being in a balance of good enough health to qualify and having sufficient income to budget."
Once the policy is locked in, the premium can't change based on age and health, she notes.
Long-term care and its realities
Chris Orestis, president of Retirement Genius, reports that 84% of people surveyed think that the need for long-term care will never happen to them, but if it does, they will be able to afford it.
"The reality is that 70% of people over the age of 65 will need long-term care in their remaining lifetime," he tells FOX Business. "Nothing will undermine someone’s financial security in retirement faster than the expensive costs of long-term care. One of the smartest moves a person can make to fend off a disaster brought on by the loss of being able to live independently any longer is to have long-term care insurance."
Orestis says there are three important things to understand about long-term care insurance:
The younger and healthier you are when you buy a policy, the more affordable it will be.
"If you are able to get a policy through your employer you should sign-up immediately to get it for a very low cost without any underwriting, and if you leave your employer you can keep the policy and take it with you," Orestis says.
People make the mistake of thinking Medicare provides long-term care coverage, and it does not.
"Medicaid will provide coverage but to qualify your total assets and income must be below the poverty level. Paying out of pocket for care can easily cost $10,000 per month and can bankrupt a family quickly," he says.
People who have long-term care insurance are considered "private pay" and are more desirable to care providers than people who do not have the coverage and/or are on Medicaid, Orestis says.
"The reality is if they can only take one person, they are going to take the person with long-term care insurance over the person on Medicaid every time," he says.
Also, if you are private-pay, Orestis says you are able to decide what kind of care you want and where you will receive it, such as staying at home. If you are on Medicaid, you are no longer able to make those decisions and will almost assuredly end up in a nursing home sharing a room with one or two other people, he says.