People are living longer today than they used to. In fact, this phenomenon has been called one of the most significant social transformations of the 21st century. But, with this newfound longevity comes new challenges.
According to recent research, more than half of people over the age of 65 will need long-term care services, such as in-home care or a stay at a nursing home, at some point in their lives. But this care comes with a high price tag that can quickly drain your assets and put a significant financial strain on the other members of your family.
What is Long-Term Care Insurance?
Long-term nursing care insurance is designed to help you afford the best care possible when you are the most vulnerable while sparing your family the financial burden of paying for these services. Private long-term care plans cover part or all of the costs associated with assisted living, in-home care, or a stay at a nursing home – expenses that aren’t fully covered by government-sponsored programs both in here in Israel and in many countries abroad.
Though each country has its own slightly different version of long-term care plans, for the purpose of this article, I’m going to focus on the market in Israel, where I live. The situation in your country might be different and I think you’ll get valuable information from this blog even if you live elsewhere.
In Israel, private long-term nursing care insurance is called “Bituach Siudi.”
The Real Cost of Long-Term Care
Let’s start by getting a little financial perspective…
Just how expensive is long-term nursing care? The cost for in-home care is currently around 7,000 to 10,000 NIS per month in Israel ($1,950-$2,750), whereas care in a nursing home or a hospital can cost between 15,000 to 20,000 NIS per month depending on the quality of care.
Many individuals simply do not have the assets in place to cover such costs and are unable to rely on their children or family members to cover these expenses. And, even for those who technically can, they may feel uncomfortable doing so.
Regardless, in Israel by law, a person who is considered to have “financial means,” and who does not take care of a family member in need of long-term nursing care has actually committed a criminal offense!
Bottom line, having a financial plan in place for your potential long-term care is not a luxury.
How Does Long-Term Nursing Insurance Work?
Nursing care insurance offers added financial assistance to help cover the cost of care if you cannot care for yourself. This coverage is primarily for individuals above the age of 65. People who have a chronic or disabling condition that needs constant assistance or supervision. Generally, this is defined as being unable to autonomously perform basic functions, such as standing up or sitting down, getting dressed and undressed, eating and drinking, and bathing.
Although all of the health services organizations (kupat cholim) in Israel offer some form of long-term care insurance, the coverage is pretty limited. With private insurance policies, you get much more flexibility, bigger payouts and many coverage options to choose from. There is actually a range of private policies on the market today which can suit very different needs and circumstances. For example, you can buy a plan to cover long-term care throughout your life, choose a plan for a limited amount of time, or a plan that kicks in after a predetermined number of years, when assistance from a kupat cholim has dried up.
Most long-term nursing care plans, however, provide monthly payouts that can be used towards the cost of long-term care. In order to access those payouts, you will be required to undergo a professional medical assessment to certify that you are indeed eligible.
If the policy goes unused, then premiums are not returned unless there is something called a “return of premium” rider. In that case, a death benefit will be paid to a beneficiary if the benefits received under the policy are less than the premiums you received.
When Should You Buy Long-Term Care Insurance?
Long-term care coverage tends to be one of those things that get considered too late in life when disqualifying medical issues crop up and the premiums are prohibitively expensive. It is recommended that you look into long-term care policies already in your 40s and 50s.
If you can afford it, there is certainly an incentive to purchase coverage early on. Long-term nursing care insurance comes with fixed premiums that do not increase as you get older. And as a rule, the younger you are when you sign up the cheaper those premiums will be. As part the insurance review we did for our family last month, we gifted each of our children a policy for long-term care insurance. We locked in today’s low fixed premium and we’re grateful that we can support our kids in this way.
Most private long-term nursing care plans in Israel also have the added benefit of “paid up values.” This means if premiums were paid for a number of years and then the policy is subsequently canceled, there may still be some percentage of value in it. When it comes time to receive long-term care, you may still receive a percentage of the original payout. This is despite the fact that the policy has been untouched for years.
Do You Need Long-Term Care Insurance?
Now that you have greater awareness about what is long-term care insurance, what should you do?
Here are four key points to keep in mind as you make your decision:
- How much can you afford? Are you saving for retirement? Do you have other major forms of insurance, such as life insurance? If you are financially well off, then it may make more sense to create a separate investment account dedicated to the long-term care you may need.
- Do you have other forms of equity? An example would be a home equity or a life insurance policy that you could tap?
- Do disabling conditions run in your family? Is there a family history that can put you at a higher risk of needing long-term care services later on?
- Do you know your options? There is actually a wide range of “hybrid” policies currently on the market, such as life insurance with built-in long-term care benefits, that may be better suited to your needs. Keep in mind that these hybrid policies are usually two to three times more expensive than regular long-term care insurance.
In short, unless you are financially well to do, long-term nursing care insurance isn’t something that should be pushed off or forgotten until it’s too late. Remember the earlier you can start, the more you can end up saving. With that, I’ll conclude my series on insurance plans. And hopefully, by now you are aware of what is long-term care insurance and why you would need it.
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