People have become increasingly aware of how easily long-term care (LTC) for seniors can wipe out a lifetime's savings -- and insurance companies have been quick to capitalize on that fear. Long-term care insurance, also known as nursing home insurance, has been widely advertised as protection against the costs of long-term care, particularly residential nursing facilities. However, this kind of insurance is expensive, and it often provides only limited benefits -- with many restrictions and conditions -- that may end up covering only a small percentage, or nothing at all, of your total long-term care costs.
Insurance companies market long-term care insurance by suggesting that consumers are likely to wind up spending years in a nursing facility -- a prospect that would wipe out their savings and perhaps leave them without a roof over their heads. However, the actual odds of a long nursing facility stay are considerably lower than the insurance industry would like you to imagine.
When you consider the true odds of a long nursing facility stay along with the high cost of LTC insurance and the other things you could do with that premium money, you may find that for you -- as for the 95% of the population over age 65 who have not invested in it -- LTC insurance is not a good bet.
The Performance of Long-Term Care Insurance
The relatively slight chance that an elder will need years of nursing facility care means that insurance companies do not pay out on their policies to nearly the extent that they suggest when they sell the policy.
When the policies' conditions, exclusions, and benefit limits are figured in, the performance of these policies has been quite poor;
- About half of all LTC policies lapsed before any benefits were paid; policy holders were unable or unwilling to continue paying their premiums [mainly due to increased premiums and/or decreases in incomes and resources].
- Of those people who bought insurance and later entered a nursing facility, about half never collected a dollar from their LTC policies.
- No benefits were ever paid to the many people who bought nursing facility coverage but instead received home care or entered a residential facility not covered by the insurance.
- Many passed before the end of the 90 day elimination period the policies have.
- When LTC benefits were paid, they were usually far below the actual cost of care.
- For many of the longest-term residents, benefits were used up before the nursing facility stay ended.
The Truth about Nursing Home stays;
The average length of stay in a nursing home for elderly citizens is not nearly what they suggest when they sell the policy either.
The stats that most insurance companies use are eschewed, they use an average stay of 892 days [2.4 years]… however, those figures are based on the average stay of those who are discharged from a nursing facility [usually for rehab or those you are younger and recover from their stay]. The Elderly or those with Dementia and Alzheimer’s don’t recover and go home. The stats below are for the average stay for the Elderly or those with Dementia and Alzheimer’s
- Most nursing facility stays are brief, according to Morningstar and About Health - 65% of people who enter a nursing home die within 12 months.
- 53% of all nursing facility stays last less than six months.
- Only 10% of all nursing facility residents will stay longer than 2 years.
So, while it may be right for some individuals to purchase Long Term Care Insurance, advisors usually say “those with significant assets”, the average person may not be a good candidate.
What are some alternatives?
- Life Insurance – there are life insurance plans that can be put in place specifically to pay for long term care costs [they have a specific rider attached], upon the need of long term care you can use the funds for any purpose whether in a nursing home or at home care, any additional funds are paid to your beneficiary. [unlike LTC insurance where premiums are lost if not needed or benefits are not fully used]. The premiums are generally considerably lower than LTC insurance and they are fixed and will never increase.
- Medicare will pay the first 100 days in a nursing home following a 3 consecutive stay in a hospital [the first 20 days are paid in full, the other 80 are on a co-pay].
- Medicaid - Consult an Elder Law Attorney and pre-plan for Medicaid. It’s not just for those in poverty. A significant amount of assets can be protected from Medicaid if you start early [prior to the 60 month look back period that Medicaid has], even if it’s less than 60 months, you still have options.
There are other financial products available also, please consult a qualified elder law attorney and/or financial advisor for more information.
Stats are thanks to;
About Health: http://www.about.com/health
Note: the above statements are a combination of research, facts, opinions and statistics. Always consult an elder law attorney and/or a qualified financial advisor when pre-planning for long term care.
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