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Secure Your Future with Extended Care Insurance

Updated: Sep 26, 2023

Extended care coverage, also known as long-term care insurance, is a type of insurance designed to cover the costs of long-term care services. These types of services include things like nursing home care, home health care, and assisted living. It is intended to help individuals cover the expenses associated with extended care that may not be covered by traditional health insurance or Medicare.

Experts recommend individuals begin planning for long-term care as early as in their 40s. Consider it as one step in your financial planning and estate planning.

Here's a list of questions to ask that may help you better understand the costs and benefits of long-term care policies.

in-home traveling care nurse grasping the hands of elderly woman wearing pearls
People of all wealth and income levels underestimate how many years they’ll live and, by extension, the likelihood that they will eventually need long-term care.

What types of facilities are typically covered by extended care insurance?

Extended care policies can cover nursing home care, home health care, respite care, hospice care, personal care in your home, assisted living facilities, adult daycare centers, and other community facilities. Many policies cover some combination of these. Ask what facilities are included when you're considering a policy.

What is the daily, weekly, or monthly benefit amount?

Policies normally pay benefits by the day, week, or month. You may want to evaluate how (and how much) eldercare facilities in your area charge for their services before committing to a policy.

What is the maximum benefit amount of extended care insurance?

Many policies limit the total benefit they'll pay over the life of the contract. Some state this limit in years, others in total dollar amount. Be sure to address this question.

What is the elimination period of the extended care insurance?

Extended care policy benefits don't necessarily start when you enter a nursing home or assisted living facility. Most policies have an elimination period – a timeframe during which the insured is wholly responsible for the cost of care. In many policies, elimination periods will be either 30, 60, or 90 days after nursing home entry or disability.

Does the extended care policy offer inflation protection?

Adding inflation protection to a policy may increase its cost, but it could be very important as the price of extended care may increase significantly over time.

When are long-term care benefits triggered?

Insurers set some criteria for this. Commonly, extended care policies pay out benefits when the insured person cannot perform 2 to 3 out of six activities of daily living (ADLs) without assistance. The six activities, cited by most insurance companies, include bathing, caring for incontinence, dressing, eating, toileting, and transferring. A medical evaluation of Alzheimer's disease or other forms of dementia may also make the insured eligible for benefits.

Is the extended care policy tax qualified?

In such a case, the policyholder may be eligible for a federal or state tax break. Under federal law and some state laws, premiums paid on a tax-qualified extended care policy are considered tax-deductible medical expenses once certain thresholds are met. The older you are, the more you may be able to deduct under federal law. You must itemize deductions to qualify for such a tax break, of course.

How strong is the insurance company?

There are several firms that analyze the financial strength of insurance companies. Their ratings can give you some perspective.

There are many factors to consider when reviewing extended care policies. The best policy for you may depend on a variety of factors, including your own unique circumstances and financial goals. Your financial advisor can help you with selecting the right coverage.

Final thought.

Extended care coverage is an important consideration for individuals who want to cover the costs associated with long-term care services as part of their retirement planning. By asking the right questions and doing research, individuals can find a policy that meets their long-term care needs and provides financial protection, particularly if you are planning to leave a legacy.

Do you need help identifying risks that might impact your family? Have you evaluated long-term care policies and how you will cover this cost? Are you certain your risks have been adequately transferred with insurance? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist.

Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.

Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.


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