Term Care Insurance Is Insurance to Protect Your Nest Egg.
Life expectancy is on the rise today and there is a major need for Long Term Care Insurance. There are many people who will live much longer than their parents or grandparents did in the past. Having a long life span can have many great benefits. Unfortunately, though, not everyone will live those additional years in the best of health.
Over the past decade or so, the need for long term care services has increased exponentially – and this care can be expensive. In fact, according to Genworth’s Annual Cost of Care Survey findings, the average price tag for just one month in a private room in a skilled care facility (in 2016) was nearly $7,700 dollars. That equates to over $92,000 per year!
The cost of home health care is also quite high. Homemaker services and home health aide services average out to more than $3,800 per month across the United States.
A care need for even the most basic of daily living activities can quickly deplete savings and assets. Oftentimes, these savings were already earmarked for other things. So, how can you (and/or your spouse) pay for necessary long term care related expenses? One way to do so is through long term care insurance.
What is Long Term Care Insurance?
Long term care insurance is a type of coverage that can help pay for some or all of a person’s care needs – typically at home or in a facility. Regular health insurance policies don’t usually cover long term care needs. And, Medicare pays for very little – if any – long term care costs.
A long term care policy can help you to keep savings and other assets in place. That way, other living expenses can continue to be paid while the insured receives the care they need.
What Does Long Term Care Insurance Cover?
Long term care insurance covers a wide array of services. For example, it typically pays for one’s room and board in a skilled nursing care facility, as well as in an assisted care living facility. Most long term care policies today will also cover certain types of care that is received at home. This may include assistance with bathing and dressing, as well as preparing meals and doing chores.
How Does Long Term Care Insurance Work?
Long term care insurance can provide funds that are needed for a whole host of services. These can include necessary “skilled” care that requires the supervision of a doctor or RN. It can also pay for assistance with “activities of daily living” at one’s home. These include bathing, eating, transferring (from bed to chair, for example), continence, toileting, and dressing.
In some cases, long term care insurance will provide funds for home modifications, such as the installation of grab bars in a shower and / or a wheelchair ramp. Likewise, there are policies that will reimburse some or all of a loved one’s expenses related to providing care for the insured.
How Do the Benefit Options Work on Long Term Care Insurance?
Most stand-alone long term care insurance policies include several components. These include the following:
The benefit period is the amount of time (such as the number of years) that the policy’s benefits will pay out. Many long term care policies offer 6 years, 5 years, 4 years, 3 years, and 2 years. The longer the benefit period, the more the premium will typically be.
The daily benefit is usually expressed as a dollar figure. For instance, the plan may pay out up to $200 or $300 per day in benefit. (The daily benefit is chosen at the time of application for long term care coverage). The higher the daily benefit amount, the more the premium typically is.
Inflation protection will allow the daily benefit on a long term care policy to increase over time. Typically, you can choose from several options, such as a simple or a compound increase. Some policies offer the option of increasing the daily benefit, based on the annual change in the Consumer Price Index. Having inflation protection can be advantageous, particularly if you don’t anticipate needing the coverage for many years.
The waiting period on a long term care insurance is the number of days that the insured must pay for his or her own care before the policy’s benefits begin. This is similar to how a deductible works in other types of insurance coverage. Common waiting periods on long term care insurance can be 90 days, 60 days or 30 days.
In some policies, there is a 0 day option. This means that once an insured qualifies for benefits, the policy will start to pay out. The shorter the waiting period is, the higher the premium will usually be.
Who Should Have Long Term Care Insurance?
So, why would someone want to have long term care insurance? There are actually several good reasons. One is that this type of insurance can help to protect assets. In turn, it can allow a healthy spouse or other loved one to continue paying his or her regular living costs.
Long term care insurance can also help to avoid reliance on Medicaid. This, too, can be beneficial, as Medicaid requires you to “pay down” your assets in order to qualify. In addition, long term care insurance allows you to have much more control over where you receive the care you need.
What is a Linked Benefit Policy?
Today, there are some coverage options that “link” two types of benefits. These include life insurance and long term care, and annuity with long term care. For instance, with the life insurance / long term care plan, an insured would receive a certain percentage of the death benefit each month for their long term care benefit.
As an example, if the death benefit is $100,000 and the insured can receive 2% of that amount each month for qualifying long term care expenses, then he or she would get $2,000 per month in LTC coverage.
In doing so, the amount of the death benefit will gradually be depleted. However, if the insured never needs long term care, then the death benefit would pay out fully at the time of their death.
Likewise, a linked annuity / long term care policy would work in a similar manner, by paying out a certain percentage of the account value each month for long term care. However, if no long term care is required, then the full amount of the annuity is available for future income needs.
In some instances, individuals choose a linked benefit policy so as to ensure at least one or the other benefit (or a portion of each). It may also be easier to qualify for a linked benefit policy (as versus a stand-alone long term care plan), depending on your health situation.
Taking the Next Step
How do you know which plan will be right for you? We can help. We work with more than 40 of the top insurance carriers in the industry. So, we can work with you in finding the plan, the carrier, and the premium that works the best for you and your specific needs.
The amount of long term care insurance you need can differ from one person to another. For example, some people may want to cover most or all of their anticipated needs with long term care insurance, thus protecting more of their personal assets.
Others, however, may opt to cover only a portion of their needs with long term care insurance coverage, while using income from Social Security and / or other savings and assets to pay the balance.
It is typically best to purchase a long term care insurance policy when you are young (i.e., in your 50s or 60s) and in relatively good health. This can help to ensure that you lock in your protection, as well as a lower amount of premium.
However, if you are older and / or you have certain adverse health conditions, you may still be able to qualify for a combination annuity / long term care plan if you are unable to qualify for stand-alone long term care insurance coverage.
According to the Genworth 2016 Cost of Care Survey, just one month of home maker services averaged more than $3,800 across the U.S. (Home health aide services were also in excel of $3,800 per month).
This comes in at roughly $45,600 per year for home health care. However, in some areas, the cost can be much more. For example, the 2016 Genworth figures show that in New York, these home health care expenses are closer to $4,200 per month (or over $50,000 per year).
Although the actual figure may differ from state to state, and even area to area within each state, according to Genworth’s 2016 Cost of Care Survey, the average monthly cost for a semi-private room in a skilled nursing home was $6,844 in 2016. This equates to more than $82,000 per year. In some states, however, the cost of just one month in either a private or a semi-private room can be more than $10,000.
For a private room (in 2016), the monthly cost came in even higher, at $7,698 – equaling an average yearly expense of over $92,000. For many people, just one year (or less) could deplete most or all personal savings.
While many people believe that Medicare will cover the cost of long term care, this isn’t the case. For instance, Medicare will not pay for custodial care (such as assistance with basic daily living activities), if that is the only type of care that is needed. (Statistically, though, most people only require custodial care services, such as assistance with bathing and dressing).
Provided that someone qualifies for skilled care services, Medicare will only pay for some or all expenses for up to 100 days (less than 3 ½ months in total). After that, all costs are up to the patient (or his or her loved ones).
If you qualify for Medicare’s skilled nursing home benefits, this program will only pay for:
- The first 20 days in full
- The next 80 days in part (for these 80 days, a copayment of $164.50 per day (in 2016) is required by the patient).
After 100 days have passed, Medicare’s skilled nursing home benefits stop. So, even if you qualify, you would owe a copayment amount of $13,160 (in 2016).
Medicare will not pay for care that is received in an assisted living facility. While it may pay a limited amount for skilled nursing home care (up to 100 days), assisted care living is not covered.
Medicare may provide some benefits for home health care. However, in this case, the patient would need to be considered home bound, and only able to leave his or her home for a brief period of time, such as for church services and / or doctor visits.
The underwriting criteria for long term care insurance can differ somewhat from that of life insurance. For instance, life insurance underwriters will typically consider an individual with conditions such as heart disease a large risk, whereas long term care underwriters usually consider those with longer term disabling conditions such as stroke or Alzheimer’s disease more of a risk.
That being said, it can be quite difficult to qualify for long term care insurance if you have a disabling health condition – and therefore, it is important to apply while you are in good health. If you already have certain health issues that could deem you as unqualified for long term care insurance, you may be able to obtain some long term care protection by applying for a combination life insurance / long term care policy or a combination annuity / long term care plan.
A long term care insurance policy will typically provide coverage for care in a skilled nursing facility and an assisted care facility, as well as for care in the insured’s home. Depending on the policy, however, there may or may not be coverage available if a non-licensed individual (such as a family member) incurs care giving expenses.
In addition, most long term care insurance policies will require that the insured pay for their initial care needs during an elimination or waiting period. This refers to a certain number of days that care must be paid for out-of-pocket before the benefits begin. (This is similar to how a deductible works in other forms of insurance coverage).
Today, most long term care insurance policies will cover care that is received in an assisted living facility. In some cases, the amount of assisted living that is covered will be a certain percentage (such as 80%) of the skilled nursing home coverage amount.
In other cases, however, an insured may receive a set dollar amount of coverage – regardless of what type of coverage he or she is receiving. They may then use these dollars to reimbursement themselves for their care costs.
Just like with other types of insurance, the cost of a long term care policy can vary considerably. The factors that can have an impact on a long term care insurance policy’s cost include the amount of daily benefit (or monthly benefit) that is purchased, as well as the elimination period, and how long the policy’s benefits can be received. The insurance company that the policy is purchased through can also impact the amount of premium that is due.
In addition, the age of the insured at the time he or she applies for coverage will also be a key factor. In some cases, if a married couple applies for long term care insurance at the same time, they may be eligible for a premium discount.