Long-term care can be hard to plan for — logistically, emotionally and financially. If you're injured in an accident, ill or disabled, you may need help with day-to-day tasks like eating, bathing and dressing. Family members and others can help to some degree, but they're probably not equipped to meet the physical and scheduling demands required for quality care.
For some, insurance can be one piece of the solution. But while the benefits of long-term care insurance can be helpful, it's also important to understand the alternatives and potential downsides.
What Is Long-Term Care Insurance?
Long-term care insurance can help fill a gap for individuals of all ages. Health insurance and Medicare help pay for medical treatment, but they do not cover extended long-term care events. Long-term care insurance, on the other hand, provides a pool of money for support services like in-home care, relevant home modifications and nursing home care.
You can customize some long-term care insurance policies with a variety of features. For example, some allow you to choose how long payments last, how long you need to wait before receiving benefits and optional inflation-protection provisions. To qualify for payments, you generally must lose the ability to perform two activities of daily living (ADLs), which include personal hygeine, dressing, eating, maintaining continence and mobility, or meet cognitive-decline criteria.
Standard long-term care policies may be expensive — and you might never use them. Because of that, it's important to evaluate the advantages and potential drawbacks of standard policies, along with other alternatives.
You can pay for long-term care in several ways in addition to long-term care insurance, however. To help you determine which options best meet your needs, you may want to evaluate some of the more common alternatives. (And keep in mind that although Western & Southern does not issue long-term care insurance, several third-party insurance companies offer long-term care and other products through the institution.)
Hybrid Life Policies
It may be possible to use life insurance to help pay for long-term care. Some "hybrid" life policies include a long-term care rider, which allows you to access a portion of the death benefit if you have a health condition that's covered by the policy. These funds can be spent on any purpose, including long-term care expenses. These riders can accelerate payment of the death benefit to help potentially provide tax-free funds.
Hybrid policies do not provide everything available in standard long-term care policies, however. Some lack inflation riders, which could be problematic if costs rise before you need care. What's more, as you use that money, the death benefit on your life insurance policy decreases. That could cause problems if you're relying on that death benefit to help protect family members or for other planning needs.
The money from an annuity could be used to help pay for long-term care or other expenses, but there may be charges, fees or tax implications to consider. Money in an annuity has growth potential and therefore could help increase the amount of funds available to help pay for long-term care expenses. Generally, most annuities don't require underwriting, helping to make them a potential option for those with health issues.
With annuities, the amount available typically depends on how much you contribute and accumulate, so you might not have enough to pay for significant care needs. What's more, if you plan to use only an annuity to help cover long-term care, it's possible you'll use all of those available funds for that purpose — so you may want to consider saving for other financial needs separately.
Short-Term Care Policies
Short-term care covers the same types of care as long-term, but for shorter periods of time — usually up to one year. There may be little or no elimination period (or waiting period), and premiums for short-term care policies are typically more affordable than for long-term care insurance.
By paying less, you save money, but you may also be less protected. If you were to need care for more than one year, you'd need to come up with additional funds. Plus, short-term policies may not offer inflation protection or a guarantee that you can continue to renew coverage year after year.
Critical Illness Coverage
Critical illness insurance is usually less expensive than a standard long-term care policy. Instead of triggering benefits by losing ADLs, you generally become eligible after a specific diagnosis.
Unfortunately, qualifying for benefits under a critical illness policy may be difficult. You need to meet specific criteria, such as a diagnosis resulting from a particular condition or event. Losing two ADLs (and paying long-term care expenses) may not be sufficient to trigger any payment.
Is Long-Term Care Insurance for You?
Long-term care can be expensive, and long-term care insurance can provide protection specifically designed to help reduce risk. Standard policies may feature various benefits and inflation protection. To find the best option for you, you might want to consider evaluating the benefits of long-term care insurance, the alternatives, and how everything fits in with your overall resources and goals. Then speak with your financial representative.