At retirement age, many people start struggling to perform essential daily tasks. To get the help they need, they seek out assistance from home nurses or assisted living facilities, but the problem is their health insurance plan won’t cover the costs.

Long-term care insurance was developed as a solution. By purchasing long-term care coverage, older individuals with disabilities or chronic conditions can meet their everyday needs. However, there are caveats. Here’s what you need to know about long-term care insurance and whether it’s the right option for you.

Long-Term Care (LTC) Insurance: The Basics

Types of care plans

There are three main types of long-term care:

  • Traditional (Standalone): Under a traditional long-term care plan, you’re reimbursed for services that aren’t usually covered by health insurance, Medicare, or Medicaid. Annual premium payments are not fixed, like they may be with other plans, but a standalone policy offers a high amount of flexibility.
  • Hybrid: These plans combine long-term care with life insurance. If you don’t end up using your long-term care benefits during your lifetime, the policy pays a life insurance death benefit to your beneficiaries.
  • Accelerated Death Benefit Rider: Some plans allow you to pull from your life insurance policy’s death benefit to pay for your long-term care expenses. Any leftover benefits go to your beneficiaries after your death.

Starting age

The best age to take out a long-term care plan is in your mid-50s, according to the American Association for Long-Term Care Insurance. Coverage won’t kick in until you’re 65, and you may not even need to claim benefits until you’re in your 70s or 80s, but it’s a smart idea to purchase earlier because you must be healthy to qualify for most plans.

Coverage

Long-term care covers a wide range of care that health insurance policies, Medicare, and Medicaid typically do not. The exact coverage varies by policy, but it often includes a wide range of care offered in various settings, including nursing homes, assisted living facilities, and adult day service centers. More comprehensive plans also cover services received in your own home.

Pros of Long-Term Healthcare Insurance

It gives you peace of mind

Retirement often brings feelings of anxiety, especially when it comes to preserving your nest egg. A long-term care plan can give you the peace of mind that you’ll be financially and medically protected should you need assistance with the activities of daily living.

It can protect your savings

Without an insurance policy, long-term care costs can quickly deplete your retirement savings. For example, the median cost of a semi-private nursing home room costs more than $90,000 each year. Long-term care insurance helps you shoulder these costs so you can spend your hard-earned money on things you want and enjoy.

There are many coverage options

While Medicare does cover some long-term healthcare services, a private insurance plan comes with more options. For example, a long-term plan may cover medical and non-medical care that’s given at home or in a specialized living facility. Medicare does not offer this same coverage.

Medicaid offers many of the same benefits as a long-term care plan but is less flexible overall. It typically covers nursing home stays, but in-home care, many people’s preferred way of receiving healthcare services in retirement, is not a coverage option.

Your premiums may be tax deductible

The tax advantages of a long-term care plan are another way you may preserve your retirement savings. Premiums are often considered a tax-deductible medical expense if certain conditions are met:

  • Your policy must be tax-qualified, which a tax advisor can help you confirm.
  • You must itemize your deductions.
  • You can only deduct the amount that exceeds 7.5% of your adjusted gross income. For example, if your gross income is 50,000, your medical expenses would need to be above $3,750 to be tax deductible. · Depending on your age, there are limits on how much you can deduct. The older you are, the higher your limit.

Cons of Long-Term Healthcare Insurance

It can be expensive

For many people, long-term insurance plans are a better alternative than paying for care costs out of pocket, but policies can still carry a large price tag. Depending on different

factors, such as your age, health, marital status, and daily benefits, policies average $2,700 per year—a large sum for individuals that stay healthy most of their lives.

Premiums may change

Premiums usually aren’t fixed, and while it’s almost certain that they’ll go up over time, there’s no way to know exactly how much you’ll owe. This is particularly true for older policies. Individuals have seen premium raises on policies purchased years ago because, at the time of purchase, the policies were underpriced. Insurance companies were later approved to increase premium rates so they could continue paying claims.

Premiums are likely to continue rising for similar reasons, such as longer lifespans, low lapse rates, increased costs of care, and more.

Predicting coverage needs can be difficult

People generally start purchasing care plans in their 50s and early 60s but may not need the coverage until they’re 85. Because of this, it can be difficult to predict which care options you’ll need (and how much they’ll cost down the line). Additionally, there’s a chance you may not need the coverage at all if you pass away earlier than expected or live a long, very healthy life.

What Makes Sense for You?

If you’re still unsure whether a long-term care insurance plan is right for you, consider working with an Ironwood Wealth Management financial advisor. Our comprehensive financial planning services are completely focused on you and your goals, so you can rest assured you’re financially ready for any health-related problems. Contact us today to learn more.