Long term care insurance is something important to think about when it comes to planning for your retirement. You may feel you’ve done everything you were supposed to. You worked hard, contributed to your 401k and prepared yourself for retirement. Unfortunately, all of that may not be enough. 70% of Americans 65 or older will require some long-term care before they die. This can become extremely expensive, and you need to know what is covered by your existing insurance and what you will be expected to pay.

The best time to make plans for this part of your life is now when you’re physically and mentally capable of making your wants and needs known and financially able to prepare for them.

What is Long-Term Care Insurance?

Long-term care insurance provides coverage for home services and assistance performing activities of daily living (ADLs). It doesn’t provide medical care, instead assisting you with basic day to day activities like:

  • Housework and meal preparation
  • Dressing and bathing
  • Medication management
  • Shopping and managing money

Policies will pay to have an aide or nurse come to your home. They also help cover the cost of a variety of other programs like adult day care, memory care and assisted living facilities or nursing homes.  Having an active policy protects you from the natural pitfalls of aging and allows you to continue living your life without undue impairment.

Most plans allow you to begin receiving care after losing the ability to perform two to three ADLs. They have elimination periods, a predetermined length of time in which you are responsible for 100% of the costs of care. These vary from as few as 90 to as much as 180 days.

Plans cover impairment from a number of different conditions. Alzheimer’s, disabilities, long-term illness and general aging are some of the most common reasons they will be needed. To begin using your coverage, you will need to visit your physician and have them certify that you are no longer capable of caring for yourself physically.

Why Do You Need Long-Term Care Insurance?

Medicare and other insurance plans do not provide for this kind of care. They only cover medically necessary care on a limited basis. Medicare will pay for skilled nursing home care, but only on medical advice from your doctor and only for up to 100 days per illness. Being unable to cook, clean or care for yourself is not considered a medical issue by Medicare.

Medicaid will cover basic care in your home or a care facility but is only available if you meet fairly strict financial requirements. Relying on Medicaid to pay for your long-term care is not a practical option for most people. Generally, you will qualify for Medicaid only after you have exhausted the majority of your retirement savings paying for care.

The care itself is hugely expensive. The average stay in a nursing facility with a private room will run you $92,378 a year. A home health aide will cost about $46,000. Without proper coverage, you will be forced to cover these expenses out of pocket. Imagine what  recurring costs like that will do to your nest egg.

Buying a policy well before you need it helps protect your assets. All of these costs will be on top of your usual living expenses. You may find that you have to drastically curtail your usual spending.

Long-term coverage allows you to maintain your independence longer. You can stay in the comfort of your home and receive the care you need. It also helps relieve a potential burden from relatives or children and provides you with peace of mind.

How to Decide

The first step in deciding if you want to buy long-term care insurance is looking at your own situation.

How much did you save for your retirement?

Find out what the average cost for care in your state or the state you plan to retire in is and see what portion of your retirement money it would take to cover it. This is one of the most important metrics to use when deciding how much you should be willing to spend on long-term care coverage.

Do you have children? Do they live close to you? How willing are they to become a caregiver?

While many children will be prepared to help care for an aging parent, you have to talk about it with them. Don’t assume you’re taken care of without going over all the possibilities. Another major consideration is what kind of strain this could place on your relationship with them. For many people being seen as weak or unable to take care of themselves is something they would never want.

What is the current status of your health?

There will usually be a review before you can purchase a policy. Any preexisting conditions may be excluded from coverage and affect your premium. Most states have limited insurer’s ability to restrict coverage for specific conditions, such as Alzheimer’s or Dementia. Finding a policy early can save you significantly over the life of your plan.

How do you want to live your life?

This is one that doesn’t come up as often as it should. Most people would prefer not to spend their final years in a nursing care or other group facility. Putting off this decision until it reaches you all but guarantees you won’t reach the most optimal solution. By making decisions early and providing the financial means to cover them you make sure your emotional and physical needs are being met.

Long-term care insurance can be expensive, with average policies running $3,100 a year, but it costs much less than the alternative. Even if you spend 25 or 30 years paying premiums before using your coverage, a single year of care can recoup almost every penny spent. Buying long-term care insurance is a lot like buying life insurance. It’s something you hope you never need but are desperately glad to have when you need it.