Due to the aging population base, there is more and more awareness of the need to protect assets against the devastating costs of long term care. As life expectancy gets longer, the body begins to break down more often and in greater consequences. Sometimes it is necessary to bring someone into the home to assist, and sometimes we need the extended care from a nursing home. Long term care insurance policies offer a variety of benefits, with riders that can substantially improve the level of payout to meet these expenses.
Take a look at the cost of services if you were to require assistance in your own home, or if you were to be admitted to a nursing home for daily care. The cost of care for a nursing home today in most areas is in excess of $75,000 per year and up to $190,000 per year in certain states (such as New York and Alaska). However, these costs are rapidly rising much faster than inflation.
Long term care can become necessary due to many debilitating conditions. For example, many of you know of friends or relatives who have experienced the ravaging effects of dementia or Alzheimer’s disease – these conditions can automatically trigger benefits of a long term care policy. You can also trigger benefits if you were to satisfy two out of the six activities of daily living (ADLs) standardized under most contracts (eating, bathing, dressing, toileting, transferring, and continence).
When we need the services of long term care, we can pay the expenses out of our own pocket, or we can turn to an insurance company to assist. The long term care policy will do just that.
There are a number of factors to consider when determining the benefits and premiums for long term care policies:
- Determine the amount of coverage you would like to consider. If you select $150 per day, for example, you would pay less in premium than if you selected $200 per day.
- Determine if you want the policy to calculate benefits on a daily basis ($150 per day), or if you want the policy to calculate benefits on a monthly basis ($4,500 per month). If you select monthly, you will build more flexibility into your contract for payment of proceeds – e.g., if you select $150 per day, and the cost of services is $200 per day, you pay the extra $50 out of your own pocket for every visit. If you select $4,500 per month, and the services are provided at a rate of $200 per day 10 days out of the month, the policy will reimburse all of the costs (since the total for the month has not exceeded $4,500).
- Determine the number of years you want the benefits to be paid. If you select three years, the premiums will be less than if you select four years. The number of years available for payout differs by carrier – many carriers offer a lifetime benefit, if such a program is desired.
- Be sure to include a cost of living adjustment as a rider to your policy. You have a choice of taking no increases, having the benefits increase by 5% of the initial amount each year (simple interest), or having the benefits increase by 5% each year on a compounded basis. Other choices have been introduced in recent years to help control the cost of benefits, and many times the age of the individual to be insured can help determine whether a simple interest or compounded interest would best serve your needs.
- If husband and wife both purchase a policy, a shared care benefit permits more flexibility in designing the payout available. If a three year payout is purchased for both husband and wife, and four years of treatment are necessary for the husband, for example, one year is added to his coverage and the spouse is left with two years on his/her program.
- Be sure to consider a rider which removes the elimination period for home health care. If, for example, a 90 day elimination period is selected (a most common selection), the first 90 days of treatment are paid out of your own pocket for home health care and for care in a nursing home facility. If you include the rider, and treatment at home is required (vs. admittance to the nursing home), the coverage begins immediately (many contracts also reduce the necessary elimination period for the nursing home by seven days for every week treatment is provided for home health care – even if treatment is provided only one day out of the week).
- If husband and wife both purchase a policy, the purchase of a survivorship benefit rider can save thousands of dollars in the future. If there are no claims for ten years, and one spouse dies after the ten year period has expired, the coverage for the remaining spouse becomes paid up for the rest of his/her life (no further premiums are due).
John Hancock and Genworth, take different approaches to the pool of money available for payout, the waiver of premium for home health care, the share care benefits, and the survivorship benefit. With John Hancock, if you have a three year payout for both husband and wife, you might picture two “boxes” of money with three years each, and the three riders must be added to the policy as an additional part of the contract. With Genworth, the three year payout is included for both husband and wife as one big “box” of 72 months (six years total) – that “box”, if you will, includes the three riders as built-in provisions as a standard part of the policy.
The premiums for long term care will not be guaranteed – insurance companies reserve the right to increase the premiums (if they assign the increase to everybody, and not to an insured based on anyone’s individual health). The survivorship benefit (rider) therefore offers a huge advantage to potentially control costs if a spouse dies after the initial ten years of the program.
There are obviously many variables to consider when purchasing a long term care program. Be sure to read the policy carefully to identify the benefits and to clarify the payment of proceeds – TermInsuranceBrokers can help you design the coverage to be sure you have the coverage that best serves your needs.
Please give us a call at 1-888-972-0024 or CLICK HERE to send us an e-mail to discuss your coverage options in more detail.