Understanding Long Term Care Insurance
- Preserve your independence
- Guarantee your choice of care and caregivers (allow you to stay at home as long as possible)
- Protect your assets and standard of living
- To avoid being a burden to your family
- To leave more assets to your family, church, alma mater, or other worthy cause
- Peace of mind
This section of the web site will help you determine if long-term care insurance is something that makes sense for you and your family. Here you will learn about the standard features and benefit choices in a long-term care insurance policy, as well as what determines the cost of the insurance and what to look for in a carrier.
Long-Term Care Insurance Is Not For Everyone
To Buy or Not to Buy
You SHOULD consider buying long-term care insurance if --
- You have significant assets and income that you are concerned about protecting.
- You don't have significant assets and income, but you don't want to rely on the Medicaid (Medi-Cal in California) program.
- You want to remain financially independent and not have to rely on family or friends for care.
- You wish to guarantee you and your spouse will receive quality care, in the setting of your choice.
You should NOT consider buying long-term care insurance if --
- You currently receive or may soon receive Medicaid benefits.
- Your only source of income is a social security benefit or supplemental security income.
- You have limited assets and can't afford the premiums for the life of the policy.
The benefits you receive in the future should be substantially more than the premiums you will pay in your lifetime.
It should not be a "cookie-cutter" or generic one-size-fits-all plan. The policy should be customized to your specific personal and financial needs.
The premiums should be affordable. Not only now, but in the future as well.
|"I don't need long-term care insurance because my children have promised that they will take care of me!" Your children may or may not be willing to take care of you. Regardless, it probably would be unheard of for your children to actually tell you that they would NOT take care of you. In fact, most well-meaning children promise their parents they will NEVER put them in a nursing home. Unfortunately, there is a lot of guilt that children must deal with after making this promise. Let's look at the reality of this promise. If you are 70 years old right now and your daughter is in her 50's, that means that if you reach age 90 and need long-term care she will be in her 70's! Can you imagine a 70 year old trying to take care of a 90 year old? Or, worse yet, what if she needs long-term care before you do?Some other questions to consider are:
Which Policy & Carrier Is Right For You?
PoliciesTypes of Policies There are three main types of policies: Comprehensive, Nursing Home Only, and Home Care Only. Not all insurance carriers offer all three. Some insurance carriers have eliminated Nursing Home Only and Home Care Only policies in favor of just offering Comprehensive policies. Most long-term care insurance policies offered today are "reimbursement" type contracts where benefits are paid only for expenses that are incurred, up to a pre-determined benefit amount. Indemnity contracts typically pay the entire pre-determined benefit on a daily or monthly basis. The following types of care are standard features found in most comprehensive long-term care insurance policies: Nursing Home Facilities Assisted Living Facilities (aka: Residential Care Facilities) Home Health Care Adult daycare Respite care Care coordination Discounts Available If you are in excellent health, or buying a policy as a married couple, discounts offered by some carriers can cut your premiums from 10-30%. Carriers use different methods to determine who qualifies for a preferred rate. Spousal discounts may be available as well. Some carriers will offer the discount to the insurable spouse, even if the other spouse is declined. Some carriers also offer discounts for multi-lives or employer-sponsored discounts.
CarriersNot only should you be researching and picking a policy that best fits your needs, you should look at the insurance carrier underwriting the policy. There are four major areas to look at when choosing a carrier.
- Underwriting philosophy of the carrier: The best carriers are the ones that are responsible with the risk that they insure. If a carrier is insuring people that most carriers would decline, it is possible they would be more likely to have to raise rates in the future.
- Pricing of LTC Policies: Beware of carriers that price their policies "below market price". In other words, their price is far less than the average the other major carriers are charging. If a carrier does this, it is possible that they will need rate increases in the future to pay their claims.
- Experience in the LTC Insurance market: The best carriers are the ones that are often the largest, have the most policyholders, and have been selling long-term care insurance for a considerable period. These carriers are more likely to have a claim-paying track record.
- Financial strength of the carrier: It is wise to check out the financial strength and claims paying abilities from several rating agencies. Below is a list of the five main rating agencies with telephone numbers and links to their websites.
|Standard & Poors
Which Benefits Are Best For You?
Which Benefits Are Best for You?While the standard features are automatically included in a long-term care insurance policy, you can control the premiums you pay and the benefits you receive when you select the benefit choices in a policy. Below are descriptions of the most common benefit choices in policies, and tips on selecting what is right for you.
Daily BenefitThe daily benefit you select is the maximum dollar amount that the insurance company must pay for your care on a given day. Some policies pay this benefit out as a weekly or monthly benefit, which allows you to receive benefits for expenses on specific days that are greater than your daily benefit. The daily benefit choices may range from $40 to $500 per day depending on the carrier. If you are purchasing a reimbursement policy, most companies will allow the amount of the daily benefit that you did not use to be carried over, which extends your benefit period. For example, if your daily benefit amount was $150 and your expenses were only $100, then the remaining $50 would be carried over to be used later. This could therefore allow a three-year plan to last longer than three years! If you purchase an indemnity policy, the carrier would pay you the entire daily or monthly benefit regardless of the cost of your care. However, some indemnity policies require some care each day to receive any benefit for that day. Also, some reimbursement policies have optional indemnity riders allowing you to convert them to an indemnity policy.
Home Care BenefitsThis benefit provides for home health care in your home. This can include skilled professionals like registered nurses and licensed therapists , home health aides and personal care attendants, as well as homemaker services. Adult day care benefits are usually included also. The home health care benefit the carrier will pay is usually based on a percentage of the daily benefit. For example, if you choose a 100% home health care benefit, you would receive 100% of the daily benefit you selected for services in your home. The choices vary by carrier, but some other examples are 75% or 50%.
|Tip: If it is important for you to stay in your home, you will want to choose 100% home health care options. If you do not have a primary caregiver or live alone, home care may not be in your best interest, since you may require around the clock care.
Benefit PeriodThe benefit period you select is the minimum amount of time that you will receive benefits. When you select a benefit period, it is expressed in years. This can range anywhere from one year to unlimited years (lifetime coverage). Usually, the benefit period is multiplied by the daily benefit you chose to equal a lifetime maximum, or pool of money to pay for your care. For example, if you purchased a three-year benefit period with a daily benefit of $100, this would give you a pool of money (lifetime maximum) of $109,500 (1,095 days X $100).
Deductible/Elimination PeriodThe deductible is also known as an elimination period. This is similar to the deductibles you are used to in other types of insurance you carry. The elimination period is the length of time you must pay for long-term care services before the insurance policy begins to pay benefits. Examples of deductibles available are: 0, 20, 30, 60, 90, 100, 180, 365, or even 730 days. When you choose your deductible you are agreeing to pay for any charges during those days. Generally, the longer the elimination period, the lower the premiums. But remember, the lowest premium is not always the best purchase.
Inflation ProtectionWhen you purchase long-term care insurance, you will want your policy to stand the test of time. The costs of long-term care are expected to increase just like they have done in the past. In fact, over time, the costs of long-term care can double or triple what they are today. Depending on the state that you live in, you will have several choices of inflation protection options. The two most common inflation protection options in long-term care policies are 5% compound and 5% simple inflation protection. These options increase your benefits over time, but your premiums are designed to stay level for the life of your policy. If inflation for long-term care runs five percent annually, a nursing home that now costs $110 per day could be charging more than twice as much a day in 14 or 15 years. Without this protection, your policy could cover less than half of your care costs at that time.
How Much Does LTC Insurance Cost?
1) Your health 2) Your age 3) Your marital status 4) The benefits you choose 5) Any discounts you may be eligible for
|Tip: Most companies will consider your actual age at the time of your application, while others base their rates on age nearest birthday. So if you have a birthday coming up, now is the time to apply to "save your age" which could save you premiums over the lifetime of the policy!
|"It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money - that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do. The common law of business prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder it is wise to add something in for the risk, and if you do that you will have enough to pay for something better." John Ruskin
Cost of Waiting ExampleMany people think that they will save money spent on premiums if they just wait to buy long-term care insurance. This is not necessarily true. The longer you wait, the more you may pay in premiums over your lifetime. Each year that you wait:
- Increases the annual cost of the insurance because you have to buy a higher daily benefit due to the fact that the cost of long-term care has gone up.
- You are a year older so your premium will increase.
- You remain at risk in the event you have a health change and cannot qualify for coverage.
|Example: The following example uses a long-term care insurance policy that includes $150 daily benefit, four-year benefit period, 90-day elimination period, and inflation protection with a major carrier. Bob is 50 years old and the annual premium is $1,338.75 in this example. If he paid this premium until he was 85 years old, he would have paid in a total of $46,856.25 in premiums. If he waited just five years to purchase the same policy the annual premium for the same plan would be $1,974.37. The increased premium takes into account that Bob is now five years older and he should then purchase a higher daily benefit as the cost of care has most likely increased. If he paid until he was 85 years old he would have paid in a total of $59,231.10. Waiting five years could have cost Bob an extra $12,374.85 in premiums over his lifetime - it did not save him any money, and he was also uninsured for five years.
Level PremiumsMany policies are sold as being "level premium" for the life of the policy. Unfortunately, many consumers mistakenly believe that this means that the cost of the policy will not increase. In reality, all insurance companies reserve the right to increase premiums but the increase affects an entire class of policyholders. Check with your state insurance department to find out about the premium-rate increase histories of both the company and the specific policy you are considering.
Do I Qualify?
|Small Sample of Uninsurable Conditions Alzheimer's, Dementia, memory loss, Multiple Sclerosis, Parkinson's, degenerative nerve diseases, AIDS, cirrhosis of the liver, congestive heart failure, dialysis, osteoporosis (with a history of multiple falls or fractures), cancer that has spread, emphysema, inability to perform your own activities of daily living, use of a walker or wheelchair, Muscular Dystrophy, Neuropathy (due to diabetes, alcoholism or polio), organ transplant, schizophrenia, renal insufficiency or failure, tremors, severe osteoarthritis or rheumatoid arthritis, severe chronic pulmonary disease, and cerebral palsy
|Below Age 50
|80 and over
|Source: American Association for Long-Term Care Insurance. Industry Averages Analysis. Report,LTCi Sourcebook 2011