Based on the most recent data from the US Census Bureau, over 1.25 million Americans over the age of 65 live in nursing homes, and that number is expected to rise over the coming years. Yet, surprisingly few people buy long term care insurance. Despite the fact that this product tends to be overlooked by many people approaching retirement age, it is an excellent addition to almost any retirement plan.
What is Long Term Care Insurance?
Originally introduced in the 1980's as "nursing home insurance," long term care insurance (LTC or LTCI) has changed over the years to cover a variety of services. This is good since many seniors find that they need long-term care as they get older, develop disabilities, cognitive impairments, or have a prolonged illness. Unlike traditional medical care that seeks to solve health problems, long-term care assists people who need help with daily life based on their current health condition.
Although it was initially developed to do just that, long-term care is no longer limited just to that which occurs inside a nursing home. In fact, there are many services that fall under the category of long-term care, such as: adult day care, help with daily living activities, home health care, hospice care, respite care, and assisted living facilities. Since many of these services are required around the clock, long-term care tends to be quite expensive as time goes on. Because of this, many people cannot afford long term care services without the help of insurance.
How it Works
Generally speaking, long-term care insurance policies have three different ways of distributing benefits: the disability method, the indemnity method, or the expense-incurred method. To make sure your long-term care policy suits your needs, be sure to review your policy before you buy.
The first distribution method, the disability method, simply requires you to meet the benefit's eligibility criteria as described in the policy in order to receive the full daily benefit amount. It is not even necessary to receive long-term care services to receive the daily benefit amount under this distribution method.
However, the indemnity method uses a very different model. Under this method, there is a specific dollar amount available. Once the insurer has determined your eligibility and the policy's compatibility with the services you are currently receiving, the insurance company will pay out that amount to you directly.
The third method, which is based on expenses incurred, only pays for benefits when eligible services have been performed. First, your insurer will determine whether or not you are eligible for covered benefits. Then, they will decide whether or not your claim qualifies as an eligible service. Only after both factors have been found to meet eligibility requirements will your insurer cover either the dollar limit of the policy or the service's expense. The majority of insurance policies available use this method of benefit distribution.
Joint Policies and Pooled Benefits
Like other forms of health care, it is possible to include more than one person on a long term care insurance policy. Typically, these policies allow married couples or multiple related individuals to purchase just one policy that can provide coverage for everyone, even though each person may need a different type of long-term care.
The available benefits provided under these joint policies are known as "pooled benefits." Essentially, there is a total amount of benefits available to everyone on the policy. When one person uses part of those benefits, the remaining balance is left for the other person. In other words, a married couple's policy with a benefit limit of $200,000 that pays out $50,000 for the husband's stay in a nursing home will still have $150,000 available for the wife to use for any covered services. Benefits may be paid out on a daily, weekly, or monthly basis depending on limit for the provided service.
Covered and Excluded Services
Long term care insurance covers many types of services, but there are exceptions. Let's take a look at what is and what is not covered by this type of policy.
- Assisted Living Facility Services
- Respite Care
- Nursing Home Services
- Adult Day Care
- Other Community Facilities
- Home Health Care (may include care provided by licensed home health agencies or licensed health providers not connected to an agency)
- In-Home Personal Care
- Services for substance abuse addiction and alcoholism
- Treatment provided by government facilities
- Nervous and mental disorders excluding dementia and Alzheimer's
- Injuries and illness caused by acts of war
- Injuries that are self-inflicted including those that result from suicide attempts
How it Helps
As people age, they often need assistance in their daily routines. With long term care insurance, there is no need to worry about who will take care of you in your golden years. This product is not intended solely for invalids, rather it is available to help seniors with a wide range of abilities, including those who are still able to live at home but not quite capable of attending to all of their own needs.
Additionally, as the risk of heart attack, broken hip, and stroke increases with age, so does the possibility of needing in-home care or nursing home services. With long term care, seniors who need assistance getting dressed, taking baths, eating meals, and doing other daily activities can get the help they need without going bankrupt.
But for many individuals, the most important thing long term care insurance provides is peace of mind. There is no more concern about the unknown and fear of how future care will be provided, who will provide the care, how much it will cost, or where the services will be performed. By purchasing a long term care policy, you can make many of those decisions now and free yourself and your family of the stress of worrying about those situations later.
Who is Long Term Care Insurance For?
Unfortunately, no one can definitively predict whether or not they will need long-term care as they get older. Much like life insurance, long term care insurance is a product that you must buy before you need it. So who can best benefit from this type of policy? Here are just a few situations that may indicate that long term care insurance is right for you:
- You have income other than SSI or Social Security- In order to buy a long term care policy, you must be able to afford the premiums. Many people who live off fixed incomes are not able to pay for this additional expense to their monthly budget.
- You don't have any health conditions that will necessitate long-term care in the immediate future- Although many chronic health conditions will be approved by underwriting, more serious illnesses or disabilities may result in a rejection of coverage.
- You are not on Medicaid- Since Medicare is intended for low-income individuals who have already spent the majority of their assets, these people typically cannot afford long term care insurance.
Tips for Buying a Policy
When you begin to research long term care policies, there are a few things to remember to ensure that you purchase the best policy to suit your needs and not get overwhelmed in the buying process. Each person is different and the majority of long term care insurance policies are designed to suit different circumstances, so keep that in mind as you review the various policies available.
- Consider your current and future needs.
What if you sustain a traumatic injury and need to go into a nursing home or hire an in-home health aide in the immediate future? If your savings are significant and can support the additional cost for an extended period of time, you may not need a long term care policy at all. However, this is not the case for most people.
- Buy sooner rather than later.
Much like life insurance, buying a policy when you are young will save you money in the long run. Prices increase exponentially with age, so if you can afford a policy now, do not wait until your health is waning to buy a long term care policy.
- Look for good health discounts.
If you are in excellent health, look for companies who provide discounts for policyholders in good health. Some insurers may offer a rate reduction of up to 10% if you have a clean bill of health.
- Buying a policy through your employer may or may not be a good investment.
Since these plans get group rates and are typically more affordable than the policies available to individuals, it can be tempting to jump at the opportunity. However, these policies are not always transferable and may end when you leave your job. Be sure to check for transferability before buying.
- How often are benefits paid?
Be very careful to compare daily, weekly, and monthly benefit amounts among policies. A policy provided by one insurer may have benefits lower than they seem because you are not comparing them to a similar product.
- Do you want coverage for a spouse or relative?
Although most carriers offer policies for couples and related adults, some plans may have better benefits or higher shared limits than others. Pay close attention to how joint or pooled benefits are distributed if you plan on purchasing a plan to cover someone other than yourself. Plus, you may be eligible for a discount if you buy a policy as a married couple.
- Never buy a policy from a company without a decent reputation.
If you cannot find out much information about a potential insurer, it is safe to assume that you should probably go with another company.
- Do not get sucked in by celebrity endorsements.
Just because a big name star says a product is great does not mean it really is. Alternatively, that does not make it the right product for you. Always research before buying.
- Consider the premium.
Once you have found a policy that meets all of your needs, you must be sure that it is something you can afford. Do not be upset if you need to make a few changes to make the policy affordable. You may be able to update the policy later in order to provide more coverage when you can afford it.
- Check with multiple carriers before buying.
Even if the first product you find is great and seems like a perfect fit, it is hard to know if this is the case if you have nothing to compare it to. As a general rule of thumb, the more policies you compare, the more likely you are to find a suitable policy for you.
- Review the available policy riders.
See if there is any coverage you may need to add to your policy. Some common riders include: shared care, future purchase option, return of premium minus claims paid, and joint waiver of premium.
- Read everything.
When you receive your policy from the company, be sure to read through everything and make sure you understand it. If you have any questions, reach out to your agent and ask for clarification. It is much better to get an explanation up front rather than finding out later on that your policy does not have coverage you thought it had.
Where to Buy Long Term Care Insurance
Many licensed health insurance brokers sell long term care insurance and may work as exclusive or independent agents. Exclusive agents will sell products for just one company while an independent agent can provide options from several carriers. Additionally, after buying the policy, the agent can assist you with service in the future. So if you need to make changes like adding or removing coverage, he or she can help walk you through the process. Do not worry about added service charges; these agents work on commission paid by the company so there is no extra strain on your wallet.