What Do I Need to Know About Long-Term Care Insurance?

When you’re young you don’t always think about long-term care. That is a mistake you can avoid, but only if you take action early to avoid finding yourself in dire financial straits down the road.

Long-term care (LTC) encompasses medical and non-medical services for those who are seriously ill or disabled. It is often thought that LTC is only for the elderly, but the reality is that someone can become disabled at any age, and it’s never too early to prepare for the unknown.

LTC costs are generally covered by individual savings, insurance, public funds (such as Medicare and Medicaid) and group insurance. LTC life insurance policies are designed to assist individuals with activities of daily living (ADLs) such as bathing, getting dressed and going to the bathroom. So who’s buying LTC?

The majority of long-term care policyholders have purchased policies through individual insurance agents. In addition, 50 percent of those policyholders have an income that is above $75,000 annually. Those who earn less than $35,000 annually make up 16 percent of all long-term care policyholders, according to a June 2009 study by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured, in partnership with health advisor Avalere Health.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), says potential policyholders should check the insurance company ratings before they apply for long-term care insurance.

“You need to know that the insurer will still be around in 20 years when you are ready to make a claim,” said Slome.

If you’re shopping for long-term care insurance, you can also check insurance company ratings at the AALTCI website. You should also work with an agent who has access to a number of rates from leading long-term care providers.

Slome recommends shopping around with different companies to find the best rate and buying as much protection as you can afford. After all, some protection is better than no protection at all.

“A policy that pays benefits for 3-years will cost between 40 to-55 percent less than one that pays for an unlimited number of years,” said Slome.  “While some people do need care for many years, our studies show that a limited duration policy is not just more affordable, it is sufficient for the vast majority of individuals needing care.” 

To stay competitive, many long-term care providers have introduced customized policies that are designed to better meet the needs of policyholders and make long-term care insurance more affordable. LTC policyholders might want to consider taking advantage of available discounts for couples. Some long-term care insurers extend these benefits to unmarried couples, such as Mass Mutual, MetLife and Prudential.

“This applies even when only one qualifies for coverage,” advises Slome.

Couples can reduce costs of long-term care is by purchasing a shared-benefit policy.  A shared-benefit policy is shared by a couple and is generally offered as an optional rider. For example, if one spouse runs out of benefits for long-term care, they can use the remaining benefits from their spouse’s policy. Now you might be wondering, what about Medicaid and Medicare?

Medicaid is a form of government medical insurance for low-income families and people with certain disabilities. Funding for Medicaid/Medicare is provided through state and federal partnerships. Medicare is medical insurance for those who are over the age of 65. Medicare doesn’t pay for ADLs, but it does pay for nursing and home health care, according to Medicare.gov.

While you may think Medicaid or Medicare will cover most of your long-term care costs, there are certain strict criteria you have to meet to be eligible, which varies by state. Medicaid is primarily in place for needy folks who lack financial resources to fund long-term care.  Recent statistics show that Medicaid pays for 70 percent of the costs for nursing home care and 12 percent of services for assisted living residents, according to The Kaiser Commission on Medicaid and the Uninsured, but with increased statewide budget cuts, nearly all services covered have been dramatically reduced.

In fact, long-term care accounts for 32 percent of total Medicaid spending. Also, Medicaid is generally 50 to 75 percent less than the private pay rate of long-term care insurance. Since Medicare or Medicaid cannot be relied upon to pay the full amount required to fund long-term care, having a long-term care insurance policy can alleviate any additional costs.

When it comes to premiums, most experts suggest getting a policy that does not exceed 10 percent of your annual income, otherwise there is a chance of the policy may lapse because the policyholder cannot afford the premium.

When considering a long-term care insurance policy there are several key factors you should consider, according to the Kaiser Family Foundation. How much will your policy pay in benefits per day of care? What is the total amount of coverage? Is the amount of time you will be covered enough? To assist you in your search for the best insurance, here are a list of components you should understand about your LTC policy:

Maximum allowable daily benefit amount.

 On average, most insurance experts recommend a maximum daily benefit amount of $100 to $200 per day. Keep in mind, the higher the benefit amount, the higher the premium.

Benefit period. 

Most policies provide a benefit period of three to five years. If you choose to pay for services that are less than $100 per day, the benefit will last longer.

Services covered.

 How comprehensive is your policy? Most policies cover services at nursing homes, assisted living facilities, home aide care  and adult day care. Other services you might want to consider include transportation and services not provided in a standard LTC policy.

Elimination period. 

How long will it take before the policy begins to pay benefits? You have the option to select an elimination period when you purchase the policy. A good percentage of the policies sold on the market today have elimination periods of 90 days or more.

Inflation protection options. 

Inflation can eat away at the amount of benefit because LTC policies are purchased for future use. Fortunately, policyholders can purchase a number of inflation protection options. Under an inflation protection option, the benefit generally increases by a percentage of three to five percent of the original daily benefit amount, while maintaining a level premium.

Buy early when you are in good health.

“You should never wait too long to purchase,” says Slome. “If you buy after your mid-fifties there’s a likelihood you may have developed pre-existing medical conditions in that time and are going to lose any health discounts you may have and the rate would increase significantly.”

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