What is Long Term Care Insurance?
As the population base gets older, and baby boomers move into retirement, there is more and more concern about the ability to maintain a reasonable lifestyle without being financially destroyed by changes in health. People are living longer in today’s world, and, the longer you live, the more the body changes into more serious conditions. At some point, you may need help to perform functions needed on a daily basis. That help costs money – sometimes that cost can be devastating.
Long term care insurance helps you shift the risk of expensive costs to the insurance carrier. The products pay benefits when a person cannot perform what’s defined as activities of daily living (ADLs) – bathing, dressing, eating, toileting, incontinence, and transferring (help moving from a bed, chair, etc.). Two of the six ADLs must be satisfied in tax-qualified plans to trigger the benefits – or a person may suffer from Alzheimer’s, Dementia, or organic brain disease.
Premiums for long term care policies may be tax-deductible (check with your tax advisor), and payments for benefits received will generally remain tax-free.
What services does a Long Term Care policy cover?
Policies may be purchased for nursing home services only, or for nursing home and home health care services. Try to include home health care benefits with the program you purchase – most people prefer treatment outside of a nursing home facility, and the costs for such services can be very substantial.
The amount of coverage purchased can be structured as a daily benefit (i.e., $150 per day) or as a monthly benefit (e.g., $4500 per month). A monthly benefit can be more flexible and a more valuable option when services are needed. When a higher benefit is selected, the premium will be higher for the program.
The length of time benefits are to be paid will determine premium as well. You might select a 2 year payout, a 3 year payout, a 4 year payout, a 5 year payout, or a payout guaranteed for life (unlimited payout).
What should I look for in a Long Term Care policy?
Several options can prove to be extremely valuable when purchasing a policy. A cost of living adjustment may be secured that increases benefits at 5% simple interest based on the original amount of coverage (e.g., $100 goes up to $105 in the second year, $110 in the third year, $115 in the fourth year, etc.). Or, a cost of living adjustment may be secured that increases benefits at 5% compound interest based on the original amount of coverage. The compound interest feature will do a better job of keeping pace with inflation over a long period of time.
The cost of living adjustments increases are generally added to the original amount of coverage, with most carriers, whether you are on claim or not on claim. Many carriers will offer the COLA features without increasing the premium on the amounts added to the original benefit – other carriers offer the opportunity to purchase more coverage, but at a higher cost as you get older.
Another option that may be secured provides an extension of coverage with the spousal benefit (shared care). If you purchased a 3 year benefit with the spouse, and you required four years of services, you can use up your own 3 years plus one of the 3 years from the spousal program – you would then have 2 years remaining for the future use by the spouse (instead of 3).
A zero day elimination period for home health care is helpful as well. If you require a nursing home facility, you might have a 90 day elimination period to satisfy before benefits are paid. If you require home health care services, but do not need to go into a nursing home, the rider permits immediate coverage for those services. The use of home health care services may reduce the elimination period required for the nursing home facility if that function is required at a later date.
A survivorship option can save huge amounts of funds over the years. If there is no claim in an initial ten year period, and a spouse dies, the premiums become paid up for life for the remaining spouse.
Are premiums for Long Term Care insurance guaranteed?
Premiums for long term care policies generally will not be guaranteed – companies can increase the premiums for the group (block of business) as a whole (not based on individual considerations). LTC policies can also be structured to pay premiums in a single lump sum, or for a limited number of years (usually 10 years), if desired, and the policies will then be paid up for life – a process that takes away the risk of potential rate increases by the carrier at a future date.
Long term care policies remain a critical part to the planning process to protect against devastating expenses that can destroy your financial security.
If you would like a quote for a long term care insurance policy, please click here and fill out the form or give us a call at 1-800-571-2980 from 9 AM to 9 PM Eastern Standard Time – we look forward to hearing from you!