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Long Term Care Insurance Manual: What You Need to Know

Updated on October 27, 2014

Introduction

It is estimated that 7 out of 10 individuals aged 65 and above will need long term care. However, that doesn’t mean that long term care is merely an issue for retirees and seniors. In fact, 40% of people between the ages of 18 and 64 are expected to need long term care as well. These figures show that long term care is an issue for everyone and it’s crucial to have a plan for it.

For the past five years, the cost of care has been increasing continually. People need to recognize that the rates of different care settings and services are high and can easily deplete their savings. This is the reason why it’s important to plan and create a financial strategy for long term care.

Buying long term care insurance is a smart way to get protected for possible care expenses in the future. Though buying it is a good move, make sure that you understand the different aspects of this insurance product—from what it is, what it covers to how much it costs.

What is Long Term Care Insurance?

Long term care insurance is a policy that’s specifically designed to pay for care expenses that the policyholder incurs. It could cover different care services administered in different settings such as the home, assisted living facilities, adult day care centers and nursing home facilities.

Long term care insurance is not a health insurance policy and what it covers is generally not included in the benefits of a healthcare plan. Benefits of long term care insurance are not necessarily triggered by sickness, but it is prompted by the inability to perform simple daily tasks. Inability to perform Activities of Daily Living (ADL) is usually caused by cognitive decline, illness or simply old age.

The main objective of an insurance policy is to cover your losses due to an unforeseen event. Long term care insurance works the same. However, some people have a hard time seeing its importance because its benefits will likely be claimed decades from the time it is acquired. This is because the need for long term care usually arises in old age.

Though this is the case, you need to realize that long term care insurance is highly recommended to have. It is because it can protect your assets, provide you with peace of mind and help you leave a legacy for your loved ones.

What are the Factors to Consider before Buying?

Long term care insurance is an important product and once you know its importance, it’s normal to have the urgency to get coverage. However, this purchase requires careful planning and is not something that you should rush into. Prior to buying this policy, here are factors that you must consider.

Age and Health

Insurability is high for those who are young and healthy. That’s why it’s advised to purchase this insurance policy during your 50s. At this time, most people are financially stable enough, yet not too old to have developed severe health complications.

Applying early provides you a higher chance of qualifying. In fact, only 13.9% of applicants between the ages of 50 and 59 have been declined while 44.8% of those who applied in their 70s are denied coverage.

Apart from a low premium, some insurers may offer a health discounts for people who apply in good shape. Discounts may range from 10% to 20% and continue to be in effect even if the insured gets ill or sick along the way.

Cost

Long term care insurance is not a cheap product. Even if you can reduce its cost, you need to consider that premiums may cost thousands of dollars each year. Make sure that you have the financial capacity to fulfill premium payments on time.

Financial Strength

Look at your savings, assets and estate and see how much of it you want to protect. This will give you an idea on how much coverage you need to sign up for. Meanwhile, it will also help you determine if long term care insurance is actually right for you.

For 2010, 59 is the average age of most buyers. They are found to have substantial income and assets. 57% are earning $75,000 per year while 79% have more than$100,000 in liquid assets.

If your social security benefits and retirement savings totals $50,000 or less, buying long term care insurance is probably not the best choice for you. Meanwhile, if you have millions in assets, you can easily pay out of pocket for care services, but you can use long term care insurance as a safety net for your wealth. However, those who have a moderate income and modest assets that exceeds the Medicaid requirement—meaning, the majority—needs to buy long term care insurance.

To determine if your financial strength requires long term care insurance, you can ask the advice of a financial advisor.

Possible sources of care

Look at your support group (family and friends) and see if they can provide some of the care that you may need. If they can, you can streamline your coverage and save on premiums. Meanwhile, if they’re not available to care for you, you need to make sure that your policy will cover a comprehensive scope of care settings.

So what does long term care insurance cover? It pays for care administered in the following settings:

  • Home
  • Assisted living facilities
  • Adult day care center
  • Nursing homes

What Does Long Term Care Insurance Cover?

“Long term care insurance will only pay for long term care.” This is a common misconception about this policy. Since entering a nursing facility is the last thing on most people’s minds, this perception alone causes them to be discouraged from getting coverage. However, it is important to note that this insurance covers different care settings apart from nursing homes.

Some policies not just pay for in-home skilled care but also provide compensation for the care given by a family member. Likewise, it can also pay for modifications should adjustments need to be made in the home to make it more suitable to the care recipient’s needs and situation.

People need to understand that long term care is not just about nursing homes. In fact, 73% of long term care insurance claims were spent for in-home care and assisted living facilities with only 37% for nursing home care.

Where Will I Find Long Term Care Insurance?

You can get long term care insurance through three different ways. You can get it from an insurance company or agent, your employer or organization or through the state partnership program. Let’s look at each of them to know how they work.

Insurance Company or Agent

You can acquire long term care insurance privately through an agent. The insurance can either represent only one company or multiple insurers. Regardless, their aim is to help you secure a policy that best matches your requirements. Make sure that you’re working with an agent has the certification and training. Above all, make sure to work with someone who prioritizes your welfare above his commission.

Employer or Organization

If you’re an employee or if you belong to an organization, long term care insurance may be part of your benefits. Employers generally don’t pay for its cost, but acquiring this policy as an organization may mean a cheaper rate as opposed to getting an individual policy.

Group insurance is cheaper because the insurer sees the risk collectively, not individually. Since this is the case, people who have medical conditions can easily qualify because group plans don’t have underwriting. More so, family members and relatives can also get coverage from this. On the other hand, coverage from a group plan may be limited and not as comprehensive as that of an individual policy.

Should you leave the organization or company, you may still retain coverage as long as you continually pay for its premiums.

State Partnership Programs

Should your care expenses exceed your policy’s benefits, you can easily qualify for Medicaid without spending down your assets. That is, if your policy is under the state partnership program.

A policy that’s under a state partnership program works this way. For instance, your policy’s maximum benefit amount is $100,000. Should you exhaust your policy, you can keep a portion of your assets amounting to $100,000 and can easily receive benefits from Medicaid.

If a partnership policy is appealing to you, check with your state if they offer this kind of long term care insurance and see how you can qualify.

How Much does it Cost?

Quick answer: It depends. There is no uniform price tag for long term care insurance because policies are typically custom-fitted to the needs and requirements of the policyholder. How much you’ll have to pay will depend on a number of factors such as:

Age and Health

Age and health play an important role in long term care insurance because they are the main determining factors of whether you’ll qualify or not. More so, they will be the basis of the rate class that you would fall under.

If you are young and healthy at the time of acquisition, you’ll likely fall under the preferred rate class and will be imposed a lower premium compared to older applicants and those who already have health conditions.

Location

Cost of care varies from state to state, thus, premiums are also dependent on the policyholder’s location or the state where they intend to receive care. Before you even talk to an insurer, you can research on the cost of care services in your chosen state so that you’ll have an idea on how it would factor in your premium.

Coverage

As mentioned, no policy is the same because coverage depends on the preference of the policyholder. Apart from your age and health, your premium will also be based on the extent of coverage you intend to buy. How long your policy will last, how much it will pay, how long the elimination period will last and the extent of inflation protection you choose will affect the cost of your policy.

Clearly, a lifetime policy with 5% compound inflation protection and 0-day elimination period is more expensive as opposed to a plan that will only last for 5 years with 5% simple inflation protection and elimination period of 90 days.

Insurance Company

Your choice of insurer can also affect the cost of your policy. Insurance companies can have different rates for an identical policy. As you shop around, make sure that you look at rates from several insurers in order to get the best deal. See to it that you’re looking at identical policies to have a clear comparison.

How Much Coverage Should You Buy?

The coverage needed for long term care varies from person to person. This is because needs and financial strengths are different. However, before you get insured for long term care, one of the things that you need to decide on is the extent of coverage that you will buy. In order to determine this, you can look at several factors.

First, look at your assets and determine how much of it you intend to protect. You can sign up for benefits equivalent to it or only a portion of it. It depends on the risk you’re willing to take and how much your nest egg can handle in terms of out of pocket payments.

More so, you can look at your health. Will you likely be a candidate for a medical condition in the future? Have your health evaluated and see how much long term care you will likely need in the years to come. Though not an accurate picture, it’s better to have an assessment or a sort of forecast than nothing at all.

Duration

The average need for long term care is 3 years. Though this may not be true for you, you can use this as a basis. From here, you can sign up for exactly 3 years of coverage or if you want extra room for contingencies, you can sign up for a duration of 5 to 10 years. In fact, majority of long term care insurance buyers (26%) sign up for a 5-year benefit period.

Inflation Protection

Riders can be included in your policy for more flexibility. One of these additional features is inflation protection. This rider protects your benefits against inflation by increasing its value annually by a certain percentage. Usually, a policyholders claim their long term care insurance benefits decades after they acquired the policy. Since this is the case, it’s very imperative to keep your benefits at pace with the rising cost of care.

Though inflation protection increases a policyholder’s premium, it is found that 79% of those whose incomes are $75,000 and above have bought this rider. More so, it is also found that younger policyholders are more likely to include this in their policies as opposed to older individuals. 82% of people between 55 and 64 years old have purchased inflation protection. Meanwhile only, 22% of those who are 75 years old and older have included this feature.

Elimination Period

One area of coverage that you need to decide on is the elimination period. This refers to the time that you have to wait before benefits start to kick in. This period will only begin to roll once your benefits are triggered.

Elimination periods can range from 0-100+ days. Determining how long it should be will depend on how much you can pay for your initial periods of care. 83% policyholders go for a 90 to 100-day elimination period.

How Can You Receive Benefits?

Before you can receive benefits from your long term care insurance policy, you must first satisfy your elimination period and meet your insurer’s eligibility criteria. Once these two are met and assessed, your benefits from your policy will start trickling in and paying for you care expenses.

Benefit Triggers

Benefit triggers will determine if you’re already qualified to claim benefits from your policy. These criteria are set by your insurer. In order to justify your claim, your condition needs to be assessed by a nurse or doctor. Generally, if they proved that you are unable to perform at least two activities of daily living (ADL)—such as bathing eating or getting dressed—or that you are cognitively impaired, your claim will be easily granted.

Once you are qualified to make a claim, a plan of care needs to be created. Make sure that it matches your coverage. For instance, if your policy will only pay for care provided by a licensed caregiver; make sure that your care provider is certified. Otherwise, your insurer may deny your claim.

Elimination Period

Elimination period refers to the time that you have to wait before you can receive benefits. This period will begin once you have triggered your benefits. It can last from 0 to 100 or more days. During this period, you will have to shoulder your own care expenses. At the end of this timeframe, your policy will start paying for your care expenses.

Tips for Buying Long Term Care Insurance

Apart from knowing what long term care insurance is about, here are tips that can help you as you acquire this policy.

Buy early

It’s true that you shouldn't’t buy long term care insurance in haste; however, you shouldn't wait too long because your chances of qualifying gets slimmer as your years add up. More so, purchasing this policy while you’re young will mean savings on your end because younger applicants are usually imposed a lower rate and may even qualify for health discounts.


Shop around

Companies have varying rates. In fact, two companies may have a 60-90% difference in rates for an identical policy. To avoid overpayment and to get the best deal, make sure that you take time in comparison shopping. An easy way to do so is asking several quotes online.


Buy from a reputable insurance company

Typically, claims for long term care insurance are made decades after the policy was bought. Since this is the case, make sure that your insurer is financially strong enough to continually stay in business.

You can check an insurer’s credibility through your state insurance department and other independent ratings companies such as Standard and Poor’s, Moody’s Investors Services and A.M. Best.


Take advantage of the free-look period

Take time to review your policy during the free look period which usually lasts for 30 days after your long term care insurance was delivered to you. During this time, you can cancel your and get your money back should you realize that your coverage is not suitable for you.

What’s Next?

As you plan for the future, consider how long term care insurance can help you secure the years ahead. If you decided that it’s the best choice for you, you can start requesting for long term care insurance quotes online to begin your comparison shopping. Meanwhile, if you already have a policy in place, review your coverage to see if it’s still in sync with your current situation.

Long term care insurance is a fool-proof way to get protected from possible care expenses in the future. That’s why it’s one of the insurance policies that are essential to have. Remember that its cost will never equate to the peace of mind that comes from knowing that your quality of life will be preserved.

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