Part 3 – LTC Insurance

There are many reasons why people buy long-term care insurance. Do any of these apply to you?

• Preserve your independence 
• Guarantee your choice of care and caregivers (allow you to stay at home as long as possible) 
• Protect your assets and standard of living 
• To avoid being a burden to your family 
• To leave more assets to your family, church, alma mater, or other worthy cause 
• Peace of mind 

This section of the web site will help you determine if long-term care insurance is something that makes sense for you and your family. Here you will learn about the standard features and benefit choices in a long-term care insurance policy, as well as what determines the cost of the insurance and what to look for in a carrier. About 7 million Americans have turned to private long-term care plans to protect their assets. – ”Long-Term Care Insurance in 1997-1998, Coronel, Susan, Health Insurance Association of America, March, 2000”

Is long-term care insurance appropriate for you?

Possibly, but it really depends on your specific circumstances. A well-designed long-term care insurance policy may be one of the best financial decisions you’ll ever make. It can play a very important role in giving you and your family the “peace of mind” that you will have all the necessary resources to pay for quality care – where and when you need it.

To Buy or Not to Buy

You SHOULD consider buying long-term care insurance if…

• You have significant assets and income that you are concerned about protecting. 
• You don’t have significant assets and income, but you don’t want to rely on the Medicaid (Medi-Cal in California) program. 
• You want to remain financially independent and not have to rely on family or friends for care. 
• You wish to guarantee you and your spouse will receive quality care, in the setting of your choice.  

You should NOT consider buying long-term care insurance if….

• You currently receive or may soon receive Medicaid benefits. 
• Your only source of income is a social security benefit or supplemental security income.
• You have limited assets and can’t afford the premiums for the life of the policy. 

Because today’s long-term care insurance policies offer a variety of features and benefits, it pays to take your time when choosing your policy. In this section we will help you take a look at what makes up a good policy and the benefit options available to you.

You should consider the following items before considering the details of a long-term care insurance policy.

• The benefits you receive in the future should be substantially more than the premiums you will pay in your lifetime. 
• It should not be a “cookie-cutter” or generic one-size-fits-all plan. The policy should be customized to your specific personal and financial needs. 
• The premiums should be affordable. Not only now, but in the future as well. 

Common Misconceptions

“I don’t need long-term care insurance because my children have promised that they will take care of me!” 

Your children may or may not be willing to take care of you. Regardless, it probably would be unheard of for your children to actually tell you that they would NOT take care of you. In fact, most well-meaning children promise their parents they will NEVER put them in a nursing home. Unfortunately, there is a lot of guilt that children must deal with after making this promise. Let’s look at the reality of this promise. If you are 70 years old right now and your daughter is in her 50’s, that means that if you reach age 90 and need long-term care she will be in her 70’s! Can you imagine a 70 year old trying to take care of a 90 year old? Or, worse yet, what if she needs long-term care before you do? 

Some other questions to consider are: 

• Can your children quit or adjust their jobs to take care of you?
• What about taking care of their families?
• Are you prepared for the humility involved if your children have to bathe or change your diapers? 

“I have a disability income insurance policy so I don’t need long-term care insurance.”

Disability income insurance replaces a portion of your INCOME if you are disabled. It doesn’t also provide you with extra funds to pay for the additional cost of long-term care. A long-term care insurance policy can be, however, an excellent compliment to a disability income insurance policy. 

“All of my assets are protected from being spent on long-term care because they are in a living trust!” 

A living trust only avoids the lengthy probate period in your state. Assets that are held in a living trust are counted as assets when determining Medicaid (Medi-Cal in CA) eligibility. With a living trust, because you have access to the assets, your state would require that you spend down those assets first, before qualifying for Medicaid.

Which Policy & Carrier is right for you?

When you are shopping for long-term care insurance you will find that there are a lot of policies to choose from. Generally speaking, most long-term care insurance policies include similar standard features. Most of the standard features that you will find in the policies that you look at are required by the National Association of Insurance Commissioners. In the next section, we will discuss the benefit choices you have.

Policies

Types of Policies 
There are three main types of policies: Comprehensive, Nursing Home Only, and Home Care Only. Not all insurance carriers offer all three. Some insurance carriers have eliminated Nursing Home Only and Home Care Only policies in favor of just offering Comprehensive policies. Most long-term care insurance policies offered today are “reimbursement” type contracts where benefits are paid only for expenses that are incurred, up to a pre-determined benefit amount. Indemnity contracts typically pay the entire pre-determined benefit on a daily or monthly basis.

The following types of care are standard features found in most comprehensive long-term care insurance policies:

• Nursing Home Facilities
• Assisted Living Facilities (aka: Residential Care Facilities)
• Home Health Care
• Adult daycare
• Respite care
• Care coordination 

Discounts Available
If you are in excellent health, or buying a policy as a married couple, discounts offered by some carriers can cut your premiums from 10-30%. Carriers use different methods to determine who qualifies for a preferred rate. Spousal discounts may be available as well. Some carriers will offer the discount to the insurable spouse, even if the other spouse is declined. Some carriers also offer discounts for multi-lives or employer-sponsored discounts. 

Carriers

Not only should you be researching and picking a policy that best fits your needs, you should look at the insurance carrier underwriting the policy. There are four major areas to look at when choosing a carrier.

1. Underwriting philosophy of the carrier:
   The best carriers are the ones that are responsible with the risk that they insure. If a carrier is insuring people that most carriers would decline, it is possible they would be more likely to have to raise rates in the future. 
2. Pricing of LTC Policies: 
   Beware of carriers that price their policies “below market price”. In other words, their price is far less than the average the other major carriers are charging. If a carrier does this, it is possible that they will need rate increases in the future to pay their claims. 
3. Experience in the LTC Insurance market:
   The best carriers are the ones that are often the largest, have the most policyholders, and have been selling long-term care insurance for a considerable period. These carriers are more likely to have a claim-paying track record. 
4. Financial strength of the carrier: 
   It is wise to check out the financial strength and claims paying abilities from several rating agencies. Below is a list of the five main rating agencies with telephone numbers and links to their websites.
5. 

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Which Benefits Are Best for You?

While the standard features are automatically included in a long-term care insurance policy, you can control the premiums you pay and the benefits you receive when you select the benefit choices in a policy. Below are descriptions of the most common benefit choices in policies, and tips on selecting what is right for you. 

Daily Benefit

The daily benefit you select is the maximum dollar amount that the insurance company must pay for your care on a given day. Some policies pay this benefit out as a weekly or monthly benefit, which allows you to receive benefits for expenses on specific days that are greater than your daily benefit. 

The daily benefit choices may range from $40 to $500 per day depending on the carrier. If you are purchasing a reimbursement policy, most companies will allow the amount of the daily benefit that you did not use to be carried over, which extends your benefit period. For example, if your daily benefit amount was $150 and your expenses were only $100, then the remaining $50 would be carried over to be used later. This could therefore allow a three-year plan to last longer than three years! If you purchase an indemnity policy, the carrier would pay you the entire daily or monthly benefit regardless of the cost of your care. However, some indemnity policies require some care each day to receive any benefit for that day. Also, some reimbursement policies have optional indemnity riders allowing you to convert them to an indemnity policy. 

Tips:

1. Research the average daily cost of care in the area you are planning on retiring to ensure you select the appropriate daily benefit amount. 
2. The more discretionary income you have, the lower the daily benefit you may want to purchase. 
3. Consider the extra cost if you want a private room when selecting your daily benefit, should you move into an assisted living or nursing home facility.

Home Care Benefits

This benefit provides for home health care in your home. This can include skilled professionals like registered nurses and licensed therapists, home health aides and personal care attendants, as well as homemaker services. Adult day care benefits are usually included also. 

The home health care benefit the carrier will pay is usually based on a percentage of the daily benefit. For example, if you choose a 100% home health care benefit, you would receive 100% of the daily benefit you selected for services in your home. The choices vary by carrier, but some other examples are 75% or 50%. 

Tip:

If it is important for you to stay in your home, you will want to choose 100% home health care options. If you do not have a primary caregiver or live alone, home care may not be in your best interest, since you may require around the clock care.

Benefit Period

The benefit period you select is the maximum amount of time that you will receive benefits. When you select a benefit period, it is expressed in years. This can range anywhere from one year to unlimited years (lifetime coverage). Usually, the benefit period is multiplied by the daily benefit you chose to equal a lifetime maximum, or pool of money to pay for your care. For example, if you purchased a three-year benefit period with a daily benefit of $100, this would give you a pool of money (lifetime maximum) of $109,500 (1,095 days X $100).

Tips:

1. The more assets you have, the shorter the benefit length you may need. 
2. If you have a family history of Alzheimer’s or simply longevity, you may want to consider unlimited benefits. Alzheimer’s patients have been known to require care for more than 20 years. 

Deductible/Elimination Period

The deductible is also known as an elimination period. This is similar to the deductibles you are used to in other types of insurance you carry. The elimination period is the length of time you must pay for long-term care services before the insurance policy begins to pay benefits. Examples of deductibles available are: 0, 20, 30, 60, 90, 100, 180, 365, or even 730 days. When you choose your deductible you are agreeing to pay for any charges during those days. Generally, the longer the elimination period, the lower the premiums. But remember, the lowest premium is not always the best purchase. 

Tips: 

1. The more savings/assets you have, the longer the elimination period you can get by with. 
2. The younger you are, the more important it is to consider the FUTURE cost of the deductible, since the cost of long-term care is expected to increase with inflation. It may be more cost effective over the long run, to select a shorter deducible. 
3. Choose a policy that only requires you to meet the elimination period once in a lifetime.
4. Also consider the alternative use of your premium dollars relative to any savings from selecting a longer elimination period. Could your premium savings be reinvested to make up the difference in increased exposure if you have to self-insure for a longer period of time?
5. Usually, the younger you are the smaller the premium savings because of a longer elimination period, but your future exposure could be dramatic 20 or 30 years from the time of purchase if you assume an extra 60 days of risk (the difference between a 30 and 90 day elimination period; for example). 

Inflation Protection

When you purchase long-term care insurance, you will want your policy to stand the test of time. The costs of long-term care are expected to increase just like they have done in the past. In fact, over time, the costs of long-term care can double or triple what they are today. Depending on the state that you live in, you will have several choices of inflation protection options. The two most common inflation protection options in long-term care policies are 5% compound and 5% simple inflation protection. These options increase your benefits over time, but your premiums are designed to stay level for the life of your policy. If inflation for long-term care runs five percent annually, a nursing home that now costs $110 per day could be charging more than twice as much a day in 14 or 15 years. Without this protection, your policy could cover less than half of your care costs at that time. 

Tips: 

1. If you are 70 years or older, 5% simple increases may be sufficient 
2. If you are younger than age 70, compound increases make more sense because it will increase the benefit amount faster and to a greater degree in the long run.

How much does LTC Insurance cost?

Many people have heard that long-term care insurance is expensive. It can be, but may not be nearly as expensive as the actual cost of long-term care. A good rule of thumb is that the annual premium you pay is less than the cost of just one month of long-term care! The good news is that you have some control over what it will cost. If you plan ahead of time, and purchase long-term care insurance when you are younger and when you are in good health, the premiums for long-term care insurance can be very affordable. You also control the cost by the benefits that you choose.

The cost of a long-term care insurance policy depends on the following factors: 

1) Your health
2) Your age
3) Your marital status
4) The benefits you choose
5) Any discounts you may be eligible for

Tip:

Most companies will consider your actual age at the time of your application, while others base their rates on age nearest birthday. So if you have a birthday coming up, now is the time to apply to “save your age” which could save you premiums over the lifetime of the policy! 

The old saying, “you get what you pay for”, applies here. Long-term care insurance is the one insurance product that you do not necessarily want to get the best price on. Most major, reputable carriers price their products similarly. If you find a carrier charging considerably less, that should cause you some concern as to future premium stability. 

“It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do. The common law of business prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder it is wise to add something in for the risk, and if you do that you will have enough to pay for something better.” John Ruskin

Cost of Waiting Example

Many people think that they will save money spent on premiums if they just wait to buy long-term care insurance. This is not necessarily true. The longer you wait, the more you may pay in premiums over your lifetime.

Each year that you wait:

• Increases the annual cost of the insurance because you have to buy a higher daily benefit due to the fact that the cost of long-term care has gone up. 
• You are a year older so your premium will increase. 
• You remain at risk in the event you have a health change and cannot qualify for coverage. 

Example: 
The following example uses a long-term care insurance policy that includes $150 daily benefit, four-year benefit period, 90-day elimination period, and inflation protection with a major carrier. 

Bob is 50 years old and the annual premium is $1,338.75 in this example. If he paid this premium until he was 85 years old, he would have paid in a total of $46,856.25 in premiums. 

If he waited just five years to purchase the same policy the annual premium for the same plan would be $1,974.37. The increased premium takes into account that Bob is now five years older and he should then purchase a higher daily benefit as the cost of care has most likely increased. If he paid until he was 85 years old he would have paid in a total of $59,231.10. 

Waiting five years could have cost Bob an extra $12,374.85 in premiums over his lifetime… it did not save him any money, and he was also uninsured for five years. 

Level Premiums

Many policies are sold as being “level premium” for the life of the policy. Unfortunately, many consumers mistakenly believe that this means that the cost of the policy will not increase. In reality, all insurance companies reserve the right to increase premiums but the increase affects an entire class of policyholders. 

Check with your state insurance department to find out about the premium-rate increase histories of both the company and the specific policy you are considering.

Do I qualify?

We all tend to take our health for granted. We can be healthy and active one minute and in the next have a stroke or be in a car accident and become completely and permanently disabled. Things can change in a blink of an eye. Ask yourself how you would feel if you had a change in your health that made it impossible to get long-term care insurance regardless of any premium you would be willing to pay? 

Your health does not have to be perfect to purchase long-term care insurance, however, there are certain health conditions and combinations of health conditions that can cause you to be uninsurable. 

Small Sample of Generally Uninsurable Conditions 
Alzheimer’s, Dementia, memory loss, Multiple Sclerosis, Parkinson’s, degenerative nerve diseases, AIDS, cirrhosis of the liver, congestive heart failure, dialysis, osteoporosis (with a history of multiple falls or fractures), cancer that has spread, emphysema, inability to perform your own activities of daily living, use of a walker or wheelchair, Muscular Dystrophy, Neuropathy (due to diabetes, alcoholism or polio), organ transplant, schizophrenia, renal insufficiency or failure, tremors, severe osteoarthritis or rheumatoid arthritis, severe chronic pulmonary disease, and cerebral palsy

The chart below shows you the percentages of people that apply that are declined. You can see that the younger you are, the better chance you have of getting long-term care insurance!

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