Long Term Care Insurance

Long term care (LTC) insurance is a complex issue with few perfect answers.  What is right for one person may be inappropriate for another.  The optimal way to handle it is to meet with your financial advisor or someone who specializes in elder care issues.  The cost of nursing home care currently ranges from approximately $36,000 to $100,000 per year and will likely triple over the next 20 years.  When purchasing a policy, consider these guidelines:

-Long term care insurance is most suitable for people with assets between $200,000 and $1,500,000 (excluding your home).  If your assets are less than $200,000, LTC premiums may be unaffordable, especially if you’re over age 65.  Furthermore, you would soon become eligible for Medicaid.  With assets greater that $1.5 million, you can probably afford to pay for services out of your assets.  If you are age 50 today, the cost of a comprehensive LTC policy ranges from about $1,000 to $1,500 per year for a $150-per-day benefit.  Premiums increase about 50 percent every five years so that by the time you are age 60, this same coverage would cost you $5,000 or more per year.

-Shop for coverage.  Coverage provisions vary widely from policy to policy and company to company.  You should be able to tailor a policy to your specific needs and desires.  Also, policies available today provide much more complete and liberal coverage than those written just a few short years ago.  If you own an older policy, have your agent compare it to a new one.  Some companies will allow you to upgrade or exchange your coverage. 

-If you are married, you should purchase coverage on both you and your spouse.  You don’t want to be in a position where the spouse without coverage goes into a nursing home and depletes family assets that may be needed by the healthy spouse to cover his or her living expenses and subsequent long-term care needs.

-The younger you are, the more important it is to buy an inflation rider.  Consider a 5 percent compound inflation rider if you are under age 60.  If you are over age 60, consider a 5 percent simple inflation rider.  Beyond age 75, it may be wiser to spend your premium dollars on additional daily benefit rather than an inflation rider.

-Today, approximately 80 percent of long term care is received in the home rather than in a nursing care facility, and more than 22 million Americans are providing unpaid care for a parent.  The value of these unpaid services exceeds $20,000 per year per caregiver.  If home care is important to you, be sure your policy includes a rider that covers this benefit.

-Most policies provide a waiver of premium benefit that waives further premium payments once you begin receiving benefits.  Many polices waive the premiums only during nursing home stay, not home health care.  Because 80 percent of the care is in the home, be sure your policy waives premiums for home health care as well.

-The probability of staying in a nursing home for more than five years is less than 10 percent.  Therefore, the best buy in long term care insurance is usually a policy with a five-year benefit period.  Lifetime coverage is available, but it is much more expensive.

-If you can afford to self-insure the first 90 days of a nursing home stay, you will reduce your premiums 5 to 10 percent or more.  Be sure to choose a contract that requires you to satisfy your elimination period only once.  Because you may go through several phases of need and recovery, you want to avoid having to satisfy the elimination period several times.

-The daily cost of nursing home care varies widely depending on where you live.  Also, depending on your sources of income and assets, it may only be necessary to insure a portion of the daily cost of care.  Consult with your advisor regarding the costs in your area.  He or she can advise of the appropriate amount of daily benefit you should purchase.

-How the insurance companies determine and calculate how benefits are paid can vary widely.  The more liberal policies (called indemnity model) pay full benefits directly to you without regard to actual expenses incurred, once you qualify.  For example, if you purchased a $100-per-day daily benefit but the actual services you received from a home healthcare provider costs only $40 per day, you’re insurance company would send you a check for $100 per day.  More restrictive policies (called reimbursement model) provide reimbursement of actual expenses incurred, paid either directly to you or to your healthcare provider.  This latter method requires you to be responsible for record keeping.  Generally, the indemnity type policy is preferred.  This puts you in a better position to negotiate and control costs as well as the quality of your care.

-Over the past few years, come innovative policies have been created that combine long term care with other insurance products.  With these policies, if the benefits you receive do not exceed the premiums you paid, your beneficiary will receive a portion or all of the difference in the form of annuity payments or a survivorship benefit.  The merit of these type of deals varies widely, so be sure to consult with your financial advisor or life insurance agent.

-As with all insurance products, you will want to make certain that you choose an insurance company that is financially sound.  Select a company that is rated AA or better by one of the major rating companies such as Standard & poor, Moody, or Best.  Also over 130 companies sell LTC policies.  Not all of these companies specialize in this type of coverage.  Be sure you are buying your LTC policy from one that does.  Some of the major players are: Prudential, John Hancock, Metlife, Lincoln Benefit Life and GE Capital Assurance.  We can help you with any of these.