| HOW DOES LONG TERM CARE INSURANCE WORK? |
| Long term care insurance is designed to fund the costs of long term care after you qualify for benefits (see: WHAT IS LTC). It works very much like medical insurance in that you first must qualify for benefits and satisfy any deductible, then either you or your assigned care provider receives a monthly payment which is a percentage (usually 50%-100%) of the expenses incurred. |
| Who makes the determination of whether or not you... |
| A licensed health care practitioner such as a physician, registered nurse, or master social worker makes the determination of whether or not you need long term care. The insurance company determines whether or not you are eligible to claim benefits using this information. Then an acceptable plan of care must be written which will be used by the insurer to allow them to pay a claim. The claims department needs to see that the expense is an item of the authorized plan of care (similar to a physician’s plan of treatment used in medical insurance). Insurers are much more apt to trust the opinions of well-qualified experienced LTC experts such as RN care coordinators who know both where help can be found and how much help is likely to be needed. Claims are typically paid monthly against last month’s submitted bills. |
| Creating a long term care insurance policy involves... |
| Selecting the benefits of a long term care insurance policy involves choosing the maximum level of benefit payments for each of the settings. In order to purchase an effective policy, you need to know what the current costs of LTC are in each your community, and how much of your income you are willing to spend toward those expenses. At a minimum, whatever your income doesn’t cover should be covered by insurance benefits. Used in this way, the policy is protecting your already accumulated wealth from being drained to cover expenses that exceed your income. It is making sure that family money stays in the family to be used in the future by your spouse or children or grand children. This is one of the fundamental reasons for owning a long term care policy. |
| What you select when you purchase a policy is a maximum... |
What you select when you crpurchase a policy is a maximum benefit level for either a daily, weekly, or monthly claim reimbursement for home care, assisted living, and nursing home care. They can all be the same level, or you can lower the level for the lesser expensive settings, depending on the policy. You also choose a deductible, or “elimination period,” which is the number of initial days after long term care begins that the policy will not pay for expenses. Depending on the policy, these are either days of expenses or calendar days. You usually get to choose from between 20-100 days but some policies offer more than 180 days. The longer the time, the lower the policy premium. But this may not be the best value, due to inflation.
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| You also choose the maximum dollar amount for... |
| You also choose the maximum dollar amount for which the company is liable to pay long term care expenses for you. In most policies you can choose an infinite amount (life time benefit), or, because you wish to lower the premium, you can limit the dollar amount to enough to cover a finite number of years of expenses. A popular choice is insuring for enough money to cover five years worth of expenses because many long term care needs do not last longer than that. But remember that Ronald Reagan had long term care needs from Alzheimer’s for more than 10 years. Persons not willing to take any risk of running out of money would use unlimited. |
| A very important choice is Inflation Protection |
| 5% compounding doubles the befits every 15 years |
| A very important choice is inflation protection. The most popular choice compounds the benefits 5% each year. It doubles the policy benefit amounts every 15 years. A lesser expensive choice is called simple or equal. Each year the same amount of increase is added to the policy (5% of the original amount). This serves to double the benefit in 20 years. The final way to increase benefits is to be guaranteed to be able to buy 5% more benefit every several years regardless of declines in health. This last method causes premiums to go up as you buy more, and you don’t get an increase in benefits until you actually increase your premium. In later life these premium increases can be quite substantial. In the case of compounding and simple, there is a greater premium charged at the outset, but there is no additional premium increase needed to automatically increase the benefits. For policies in force for more than thirteen years, automatic benefit increases tend to offer larger benefits for lower premiums than guaranteed purchase increases. |
| There are several other choices to make... |
| There are several other choices to make about policy benefits including spouses sharing benefits so when one has used up his benefits he/she can use the other’s benefits. Another choice is whether or not you’d like to have increased benefits for home care, and to have the ability to pay family members to be caregivers. Another popular benefit, called Return of Premium, allows for all the premiums to be returned. To your estate when you die minus any claims that were paid. |
| HOW MUCH DOES LTC INSURANCE COST? |
Since you are determining the policy limits, the exact answer to policy cost is that it is infinitely variable and completely up to you. But the average long term care insurance premium in Maryland is approximately $100-200/month for the most common choices by healthy people.
As an example, in 2002, America’s Health Insurance Plans (AHIP) states that a comprehensive policy with a $150 daily benefit, four years of coverage, and 5% compounded inflation protection costs about $1134 per year when purchased for a 50-year-old. The same policy costs about $2346 per year for a 65-year-old and $7572 per year for a 79-year-old.
There are also substantial premium discounts for having a history of good health and/or for being married or having a domestic partner. |
| WHEN IS THE BEST TIME TO GET A POLICY? |
Age and health have a lot to do with it. There is a significant advantage by purchasing at a younger age. Provided that you have chosen an inflation rider, over the course of your lifetime it is much less expensive to pay a lower premium for a longer amount of time than it is to pay a higher premium for a shorter period of time. Even if it seems counter-intuitive, it’s true.
Furthermore, the industry is far from static; carriers are continuously replacing policies with ever expanding benefits and ever increasing premiums. Sometimes, it is better to own the older policy that becomes unavailable when the new one comes out. The best way to purchase LTC insurance is to use an experienced long term care specialist who knows how to use the variables in the industry to create an affordable, reliable and effective policy. Some companies are better suited to some health and age situations than others. |
| More leverage in policies started at younger ages... |
| Additionally, there is much more leverage in policies started at younger ages. Typically for a younger person, all the premium dollars spent over the term of his/her lifetime don’t add up to more than what the policy could pay out in benefits during a four to six-month period. |
| IS IT RIGHT FOR ME? |
| A recent government publication said that, “Generally, financial planners recommend considering long term care insurance if you own assets of at least $75,000 (this does not include your home or car); have annual retirement income of at least $25,000 to $35,000 for an individual or $35,000 to $50,000 for a couple; or are able to pay premiums without financial difficulty, even if premiums increase over time. Long term care insurance is probably not for you if these factors do no apply to you.” Additionally, you must have an insurable medical history to buy a policy and there are many medical conditions that prevent policies from being issued. |
| WHY NOT SELF INSURE? |
Some people may think that because they have saved enough money to pay for long term care they do not “need” a LTC policy. By not insuring, they feel like they gain by not allowing the premium dollars to leave the family wealth. But, remember, the financial purpose of the policy is to protect family wealth from paying big bills that could easily reach over a million dollars during a person’s lifetime (see COST OF CARE GIVING).
Typically, an annual LTC insurance premium costs approximately the same as the annual earnings generated by a $50,000 investment (or the income from an immediate annuity). Also, a wealthy person could keep family wealth in the family without risking premium loss by using the return of premium options. The only expense would be the loss of the interest on the invested $50,000 minus any available LTC tax benefits. The $50,000 itself, plus the rest of your family money, would not be used to pay for LTC expenses. |
| A huge potential loss... |
| Paying for LTC with your own money is simply a huge potential loss which can be avoided by usinga long term care insurance policy. |
| Once LTC is accepted as a real probability, using a policy to deal with it would be the most responsible action to take. |
