Guide to Buying Long-Term Care Insurance for Aging Parents

Updated

You make many decisions in your lifetime concerning insurance. What should my deductible be? How much coverage do I need? Who’s the best carrier? These are all necessary questions concerning some of the different types of protection we all need.

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But what about long-term care insurance? You may have been approached about it by an insurance agent or read about it in a periodical. You probably learned about the aging population and how many baby boomers are turning 65 every day, as well as the average cost of staying in a nursing home — $7,700 per month for a semi-private room.

This guide to buying long-term care insurance for parents can help you understand long-term care insurance better and be a smart consumer if you’re buying long-term care insurance for your parents.

Can You Buy Long-Term Care Insurance for Your Parents?

Yes, you can purchase long-term care insurance for your parents. Your parents would be named as the insured on the policy and you would be listed as the payor. Payment can be made by having a bill sent directly to you each month or automatically debited from a bank account.

The benefits would go directly to your parents when and if they needed to use the long-term care insurance benefits. You can only be listed as a named beneficiary on a policy with your parent’s consent, and if the policy is a life insurance policy with a long-term care benefit rider. 

Your parents will need to be able to answer the questions printed on the application for the insurance and sign the application. Since there are health questions on the application that will affect their eligibility for coverage, it’s best to buy this coverage when they’re younger and in good health.

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How Do You Know If Your Parent Does (Or Doesn’t) Need Long-Term Care Insurance?

Just about anyone may need long-term care during their lifetime. There’s no way to tell if you will or not. But there are factors that increase your risk of needing long-term care insurance.

They may need long-term care insurance if…

Your parents may be in need of long-term care insurance for any number of reasons. However, these are some of the major factors at play that can require long-term care insurance.

  • Age: As people age, the risk increases
  • Gender: Because women statistically live longer than men, they’re at a higher risk
  • Marital Status: Single people, whether they are widowed or without a close loved one living at home, are more likely to receive care from a paid provider
  • Lifestyle: Poor choices concerning diet and exercise increase the risk
  • Health and family history: both of these are factors as well

Long-term care is often needed when someone has a serious, ongoing disability or condition. Someone may not need it one day but need it the next, such as after they suffer a heart attack or stroke. Usually, however, the need comes on gradually as a person gets increasingly frail or as their physical condition worsens from an illness or disability.

They may not need long-term care insurance if…

Your parents may not need long-term care insurance if they’re in excellent health and all of the other factors listed above are not applicable to them.

The most appropriate age to purchase long-term care insurance is between the ages of 40 to 65. As it is with life insurance, the longer you wait, the more expensive it will become because the likelihood of your parents using the coverage increases as they get older.

What’s the Process for Getting Parents Signed Up for Long-Term Care Insurance?

Getting your parents signed up for long-term care insurance isn’t difficult. If you follow these steps you’ll be well on your way:

Step 1: Talk with your parents about getting covered 

It all starts with your initial conversation with your parents about getting the insurance for them. Some tips on how to do this effectively are given below.

Step 2: Meet with an agent

It’s always best to work with a specialist, so make sure you’re working with someone who specializes in long-term care insurance. You’ll also want to be sure your parents are at the meeting so they understand the coverage and get comfortable with it.

Step 3: Complete an application

Make sure your parents provide complete and accurate answers to the questions in the application. If you file claims for coverage later on, your payment could be denied if erroneous answers were given on the application.

Step 4: Put the policy in a safe place

You’ll want to have the actual policy in hand if you begin to submit claims to the insurance company. Put your policy in a safe place that you can easily access when you need it.

How Does Long-Term Care Insurance Work?

Sometimes people need help, both in the short-term or long-term, to meet their personal needs. Long-term care delivers services that meet a person’s health and personal care needs. It helps any aging adult to live as safely and independently as possible if they aren’t able to perform everyday activities by themselves.

Depending on a person’s needs, long-term care can be provided by different caregivers in a variety of places, including at home by family members, neighbors, and friends (who are unpaid), facilities such as a nursing home, and in the community in places like adult daycare centers.

The most common type of assistance someone requiring long term care receives is help with daily activities, which includes:

  • Bathing
  • Dressing
  • Grooming
  • Using the toilet 
  • Eating
  • Moving (like from a bed to a chair)

Long-term care also includes the provision of meals, adult daycare, and transportation. These are usually provided for a fee.

Tips for Talking to Your Parents About Long-Term Care Insurance

Being covered by long-term care insurance can be a stark reminder that you’re getting older, so your parent may be a bit reluctant at first to discuss getting coverage.

1. Come prepared

After setting a time to talk with your parents about long-term care insurance, you will want to have some information at the ready for any questions any of you might have.

Part of this includes financial costs, like discussing monthly payments, premiums, realistic budgeting for long-term care, their medical history, as well as any expectations regarding caregiving. Review a potential application for long-term care insurance if it helps.

2. Cost of care

Unfortunately in many cases, neither Medicare nor their health insurance will cover long-term care costs, so it is important to share this information with them. Once they are made aware of the costs and opportunities for financial help, they may be more open to talking about it. 

The majority of people end up paying out-of-pocket to cover the cost of care, which is no minor expense. According to a study by Genworth, these are some of the median costs for various types of care:

  • Adult daycare: $1,674/month
  • Home health aide: $4,517/month
  • Assisted living: $4,173/month
  • Semi-private room in a nursing home: $7,738/month
  • Private room in a nursing home: $8,773/month

Considering these prices, even a short stay in a nursing home could be financially devastating to a family.

3. Discussing caregiver burnout

Presenting the financial implications of long-term care can make some people feel uneasy, and some resort to asking family members and close loved ones to help with caregiving. However, this can be a difficult thing to ask as many family caregivers often spend long hours caring for a family member at a great cost to their own financial and emotional stability.

No matter what your stance is on caregiving for a parent, it is important to be transparent and compassionate. Be honest with them about the possibilities of even providing care as they age, and what expectations they have regarding your role as a caregiver.

Perhaps this may be a larger conversation for your immediate family, especially if you have other siblings. Sharing your concerns and listening to your parent’s needs as well can help you all find a compromise.

4. Medical needs

Do your parents have any current medical conditions that require daily care? Talking about their medical needs now and any anticipated medical issues down the line can help you all become better prepared for potential situations down the line.

Consider meeting their primary care physician together to talk about what medical situations could arise in the future. Make sure to be sensitive to their medical concerns, fears, as well as any objections they might have.

Being aware of their fears can help you better understand how long-term care insurance can fit in their life.

Are There Any Good Alternatives to Long-Term Care Insurance?

Yes, there are alternatives to provide funds for future custodial care bills. They aren’t much less expensive than long-term care insurance, but they can be of some future value to you if your parents end up not needing care. Here are five to consider:

1. Life insurance with a long-term care rider

If you do some checking, you’ll find that there are permanent life insurance policies out there that offer a long-term care rider.

The rider lets you use your death benefit while you’re living to pay for your long-term care costs, but the amount you use will be deducted from your death benefit. This may not be something you want to have affect your beneficiaries.

2. A long-term care annuity

A standard annuity is another insurance product. With an annuity, you give a lump sum of money to the insurance company and they provide you with payments for a fixed period of time. Hopefully, you’ll get back more over your life than what you gave them.

A long-term care annuity is a bit different. This annuity splits your payments received from the insurer in half. One part is totally for you to use for anything you choose, and the other part is earmarked for future long-term care expenses. If you never use the long-term care part, you can designate a beneficiary who will receive it when you pass away.

3. Critical illness insurance

Yet another insurance product, this policy will pay you a lump sum of money when you are diagnosed with an illness named in the policy. Some of these are heart attack, stroke, cancer, and renal failure. Benefit amounts range between $10,000 - $50,000 and you can use the payout for anything you’d like. 

But, be careful to read the fine print. There are some policies that reduce your benefit as you age, making them an undesirable substitute for long-term care insurance.

4. A life settlement

Unknown to many people, you can sell your life insurance policy to a third party since it’s legally property that you own. If you’ve had the policy for a while, this can be a good option since you typically receive more money than the cash value you’ve accumulated in the policy. It’s a nice backup plan to have.

5. Self-insure 

Instead of paying the insurance company premiums for long-term care insurance you may not need, pay yourself the premium by depositing it into a savings or investment account. If you have a Health Savings Account (HSA) at work, you can put it there. HSA contributions carry a tax advantage as they’re paid with pre-tax dollars, and any withdrawals you make for medical costs are tax-free.

What does a good long-term care policy look like?

Not all long-term care insurance policies are created equal. There are three major things to consider before you purchase long-term care coverage.

  • The benefit period – how long your policy will cover you. The longer the benefit period, the higher the premium.
  • The waiting period – how long you’ll need to wait before the insurance company starts paying benefits. The shorter your waiting period, the higher the premium.
  • Inflation protection – Since you’re buying a policy you may not need for a couple of decades; you’ll want to protect your benefit from the negative financial impact of inflation. A policy you buy today is going to be of much less value to you if you need it in 25 years. Inflation affects everything, including long-term care costs.

With the inflation rider, you’ll select the assumed inflation rate and whether you want simple or compound inflation protection. The greater the inflation percentage you get, the more valuable your policy becomes, which means a higher premium. Most people select a rate of three percent, though many insurers offer up to five percent.

The Bottom Line Regarding Long-Term Care Insurance

If you’re thinking about buying long-term care insurance for parents, there are two things you need to consider. 

One, do you understand long-term care insurance and how it differs from Medicare and health insurance? Two, can you afford to self-insure, and do you know how much your policy is going to cost you compared to saving a targeted amount?

Answering both those questions can help you sort out whether long-term care insurance is for you. Hopefully, you now feel better knowing all of your options and you feel good about deciding what’s best for you and your parents concerning long-term care insurance.

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