Caregiver's Guide to Long Term Care Insurance

The U.S. Department of Health & Human Services reports that more than 70% of today's 65 year olds will develop a disability that requires long-term care services and nearly half will receive some paid care over their lifetime. Long-term care insurance (LTCI) is one option for ensuring that you will be able to afford long-term care should you need it. This product provides coverage for types of care that Medicare, Medicaid, and traditional health insurance policies do not cover, such as in-home care, assisted living, nursing homes, adult daycare, and respite care.

Qualifying for Long-Term Care Insurance

Preplanning is especially important when it comes to obtaining LTCI, since the lowest premiums and widest range of products are available to those candidates who are healthy and middle-aged. Insurance companies have established strict eligibility guidelines for these policies. Ideally, companies are looking for healthy people to buy coverage, and do not offer policies to individuals older than 84. Most individuals must pass a physical examination to be eligible for coverage.

For those who are concerned about Alzheimer's or have a family history of chronic disease, purchasing a LTCI policy before you begin experiencing symptoms can make a world of difference in how you pay for care down the road.

How Much Does LTCI Cost?

According to the American Association for Long-Term Care Insurance, a healthy 60-year old couple will pay an average of $2170 per year for a policy that provides a benefit of $150 per day for three years of care.

According to Tom Riekse Jr. of LTCI Partners, LLC, many of the clients he works with are in the pre-retirement planning stage who are looking for an effective way of preserving one's assets, while also planning to pay for future care needs. Rather than dip into lifelong savings, long-term care services are covered when the need arises.

Riekse says another benefit of LTCI is having a third party that can take some of the planning and financial burden off your shoulders. The money is accessible, in one place, and meant specifically to be used for long-term care. In this way, LTCI is less complicated than trying to decide how much money to pull from which account in order to finance care.

Furthermore, like any other plan for aging, LTCI can help to keep family turmoil at a minimum. If aging parents have a LTCI policy, this can take a great deal of burden off of their children when it comes to deciding who will fund and manage their care. Riekse says that LTCI can help to safeguard sibling relationships from the squabbles that are so common within families struggling to establish a viable care plan for a loved one.

LTCI is a Use-It or Lose-It Policy

Riekse urges potential buyers to be smart about financial priorities. If you are unsure whether or not you will be able to continue paying LTCI premiums, then this coverage is not ideal. For example, for individuals whose sole source of income is a Social Security benefit or Supplemental Security Income (SSI), LTCI would not be a wise investment. If a person chooses to discontinue paying premiums, the money paid in cannot be paid back. Additionally, any person who does not use the benefit in a stand-alone policy (for example, a policy holder dies before the benefit pays out) may not get anything back.

Long-Term Care Insurance Benefit Triggers

In order to pay a long-term care benefit, the insurance company will verify the need for long-term care. Policy holders who find themselves needing assistance with activities of daily living (ADLs) should file to trigger payout of their benefit. Most companies require the need for assistance with at least two activities of daily living in order to receive benefits. Additionally, care services must be required over a longer-term, so acute care needs are not covered. Oftentimes, a 90 day elimination period is assessed in order to determine if a senior will recover from illness or injury before payout of the benefit begins.

Types of Long-Term Care Insurance Policies

There are a number of different LTCI products with variable amounts of coverage, methods of payment, premium rates, benefit limits, and customizable options. "It is best to find an experienced and endorsed insurance adviser or wealth manager with access to multiple carriers (TransAmerican, Mutual of Omaha, Genworth, etc.)," Reikse says. It is crucial to conduct adequate research in order to choose the policy that is the best fit for you.

LTCI products each have their own advantages and disadvantages:

  • Stand-alone LTCI
    Standard long-term care insurance policies pay a fixed amount per day for a limited period of time. These policy variables are calculated into determining the premium amount. The down sides of the stand-alone policy are that your rates may increase over time, and if you don't use it or you end up unable to make the payments, you don't get your money back. (However, we don't think about auto or home insurance in this way. It's important to realize the benefits of having coverage for something that millions of Americans are projected to need someday.)
  • Linked Life and LTCI Policies
    These products include whole, universal, or variable universal life insurance and LTCI in one package. This kind of policy tends to be more expensive, since a death benefit is part of the plan. If you end up needing long-term care services, your coverage comes out of the policy's death benefit. However, if the care benefit has not been fully used at time of death, your beneficiary receives whatever is left over.
  • Annuity and LTC plan
    Annuities can be purchased (fees usually apply) that are earmarked to pay for Long-Term Care. Instead of taking withdrawals, a long-term care rider is attached to the contract that pays for long-term care services. It may be cheaper than a traditional stand-alone LTCI policy, you can sometimes avoid health eligibility requirements, and you may receive some tax benefits.

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