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About Long-Term Care Insurance

Long-term care insurance coverage is available on an individual or group basis to provide medical and other services to patients who need constant care in their own home or in a nursing home..

People are most often living longer but many need assistance in their later years. Long Term Care services can be provided in your home, in an assisted living facility or in a nursing home. In many cases the family is no longer able to provide such care around the clock. Family members may not live nearby, they may have other pressing family commitments, or simply cannot get the time off work or away from the home

Many people need help with activities that many of us take for granted - eating, bathing, dressing, and so on. The Health Insurance Association of America says that 48.6% of people age 65 and older may spend some time in a nursing home and 71.8% of people age 65 and older may use some form of home health care. Below 2% of nursing home costs are paid by Medicare and the national average nursing home cost is estimated at $40,000 per year.

Some can afford Long Term Care costs out of pocket, others will qualify for Medicaid (welfare), but the majority of us will fall somewhere in the middle. We have worked hard all our lives and now could spend it all on a nursing home.

A Long Term Care Insurance Policy can help protect your assets from the rising cost of care, allowing you to remain financially secure and independent. Long Term Care can help secure not only your financial future, but also that of those you love.


Buying Insurance

Buying any form of insurance can be a very intimidating process, but a little help can make purchasing a long term care insurance policy easier. Always discuss insurance purchases with a trusted advisor.

One of the most important considerations is the choice of insurance companies. The financial strength of an insurance company is very important and a good indicator of a company's ability to pay it's claims. Several well known companies that rate insurance companies are:

Duff & Phelps
Standard and Poors
A. M. Best
Weiss Research


Daily Benefit and Elimination Period

The daily benefit of a long term care insurance policy is the money benefit that the insurer will pay to the nursing home expresses as a daily amount of coverage. Long Term Care Insurance policies can typically be designed with this figure ranging anywhere from $50 to $300 per day. Naturally choosing a larger daily benefit will cause the policy premium to be higher.

The elimination (or 'waiting') period of a LTC policy is essentially used as a form of a deductible. A normal waiting period is either 0, 7, 20, 50, 60, 90, or 100 days. Choosing a longer waiting period is an easy way to lower the premiums of a policy.

To design a good long term care policy you should determine how much cash or semi-liquid reserves you have or are willing to apply to long term care. At this writing the nation's average cost of long term care is close to $138 per day and inflation runs between 3% and 5% each year. Hypothetically, an average 4% inflation rate increase each year means that daily LTC care costs will be:

  • $167 per day in 5 years from now
  • $257 per day in 15 years from now
  • $357 per day in 25 years from now

After estimating how long before it may be before you need long term care, determine the assets you have to pay for long term care. You must decide how much you are willing to spend for this care. Using this figure and the information above you can intelligently decide how long a waiting period and how much daily benefit your long term care insurance policy should provide.


Benefit Period and Determination

The benefit period is the maximum amount of time that the insurer will provide the daily LTC benefit. It can range from 2 years, 3 years, 4 years, 5 years to a lifetime. The lower the number of years the lower the policy premium. It's usually best to choose as long a benefit period as you can realistically afford.

One major consideration in Long Term Care policies is how the insurer determines when benefits start. Most insurers use an "ADL" or Activities of Daily Living method. ADL's are things like bathing, dressing, eating, and toileting. Using ADL insurers will pay benefits after it is medically documented that the insured cannot perform a predetermined number of ADL's but each insurance company may have a different set of ADL's. Each policy also requires assistance with a specific number of ADL's before the policy benefits will be paid. Consider choosing a LTC policy that provides coverage when aid is needed with only 2 ADL's so that the insured receives the necessary treatment. Some policies allow benefits to begin if a cognitive impairment exists, such as Alzheimer's disease.


Optional Policy Riders or Provisions

There are several optional riders available for long term care policies.

Inflation Protection compensates for typical cost increases in long term care by increasing the daily benefit amount. There are several methods in which the benefit can be increased: yearly simple 5% increase, yearly compounded 5% increase, or even an increase based on the consumer price index. This rider is recommended.

Non-Forfeiture provides for partial return of premiums or a reduced paid-up policy in the event of policy lapse due to nonpayment.

For home health care, adult day care, or assisted living centers, consider a Home Health Care rider. Normally the benefit is a percentage of the daily nursing benefit ranging from 50% to 80% to a full 100%.

For obvious reasons Waiver of Premium riders are fairly common, allowing the policy to remain in force as if premiums were being made once a patient is receiving the benefit.

Although this guide is intended to aid in the purchase of a long term care insurance policy, there are possibly issues that may not have been addressed. Please consult with a trusted advisor prior to the purchase of a policy.

 

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