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Explaining Long Term Care Insurance

January 19, 2015

The Eager Financial Advisor sat down with you and explained:

  • That the odds of a 65 year old needing Long Term Care (“LTC”) are about 100 times greater than needing car insurance;

  • That needing care and not having LTC Insurance is the fastest way to wipe out your precious Retirement Nest Egg; and

  • That LTC Insurance is not there to replace your Caregiver – just to give your loved ones the ability to perform better and for a longer time.


First, it’s more like your health insurance, car insurance, and homeowners insurance. That is, you pay the premiums and hope you never need to use it.  It’s “Asset Insurance” to protect your Nest Egg. It’s not an “investment” and it was never designed to give you a return if you didn’t make a claim.


That said, insurance companies now offer riders where you can get a return of your premium. Some policies are LTC, with the return of premium rider on it. Other types of policies are Life Insurance policies with LTC provisions attached. Either way, you can get that return of premium if you don’t use the LTC insurance – but it is not free.


When does a policy pay?  When a policyholder can’t perform two of six basic everyday activities (Activities of Daily Living, or ADL’s), such as bathing, dressing and feeding. Also, if there is a substantial mental health issue.


What’s the “Elimination Period”?  It’s a waiting period before your benefits start, for example: 30, 60, 90, 180 days. The longer the elimination period, the less your policy will cost.


Who does a policy pay?  Payments go to whomever provides the care. The amount paid is based on the daily maximum benefit you choose, typically $100 to $250 per day (and now even higher!).  Sometimes payments are based on a monthly bill rather than a day-by-day billing. This can be better for you, but will cost a bit more.


How much should I choose for a daily benefit?  That depends on your budget and whether you want the benefits to cover the potential possible Long Term Care expense. Or do you want to have the LTC Insurance supplement your income already available for the need?


That’s where the budget issue comes into play. You have to consider a spouse at home will and his or her expenses, for example.


What’s all this about a 3 year, or 5 year, or 7 year, or lifetime policy?  Policies will pay the chosen daily or monthly amount for a period of years – or for the life of the beneficiary. Obviously, a 2 year or 3 year term would be less expensive than a 10 year or lifetime policy. Once the term of years is over, and if the beneficiary still needs care, the family must find other resources, or apply for Medicaid. 


How do you choose the length of your policy? That’s a very tough question. The average stay in a LTC situation is less than three years. But you are not average. Almost no one is average. So you have to consider several factors:

  • Budget is a big issue. What can you afford?

  • Family resources, i.e., can the family sustain itself if you choose a shorter, less expensive, policy?

  • And, of course, general health and family history of the patient should be considered.

That’s lots to consider. It’s why it’s a good idea to work with someone who does this every day.


What about increasing health care costs?  Most policies allow you to choose either: (1) no inflation provision at all. (2) a 5% (of the daily benefit) simple increase annually, or (3) a 5% annual compound annual increase.  That means your daily benefit will grow to try to keep up with the health care cost increases.  The Rule of Thumb is that the younger you are when purchasing a policy, the more you should consider inflation protection.


What is covered?  Lot’s of things. Most are part of the policies, but some may be extras. Here is a partial list:

  • Nursing Homes (Care, support, room & board, private duty nurse, and all levels of care – but not drugs),

  • Assisted Care Facility (Facility providing 24 hr care for assisted living and Alzheimer’s dementia care),

  • Home Care (Nurse, Therapist, Home Health Aide, Homemaker Services, Chore Services),

  • Community Care (Adult Day Care & Hospice Care),

  • Respite Care (Short term care so your unpaid caregiver can take a break),

  • Caregiver Training (Pays for unpaid caregiver training to give care in your home),

  • Equipment Installation in Home (Installation costs & fees for supportive equipment, such as medical devices, ramps, grab bars, stair lifts),

  • Bed Reservation Benefit (Continues to pay benefits when you are temporarily absent from the facility and are still charged for it).

  • Alternative Care Benefits (The “catch-all” provision that provides for care, treatment, services, supplies, and other items not specifically covered by the policy, but are part of your Plan of Care).


Do I have to pay for insurance if I’m using the LTC policy? Typically the premiums are waived once the policy is paying for your care. 

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