How to Shop for a Long-Term Care Insurance Policy

The last few weeks, we have discussed the basics of long-term care insurance and taken a deeper dive into why everyone needs long-term care insurance.   Now that you’re convinced of the necessity of long-term care insurance, the question is: what do you need to know when buying it?

The first question to answer in shopping for long-term care policies is: what type of policy should you buy?  There are two types of policies one should evaluate:

1. Indemnity policy.  An indemnity policy is a policy that will pay a predetermined amount for your cost of care regardless of the expenses you incur.

For example, if you have an indemnity policy that covers the predetermined amount of $300 per day, but you only incur $232 in costs, you still receive the full amount of $300 per day, despite the excess of $68 per day.

The benefit of an indemnity policy is that any excess payment you receive can be used to offset expenses that may not be otherwise covered under the policy.

2. Expense reimbursement policy.  An expense reimbursement policy pays the actual long-term care expenses, up to the daily benefit amount.

For example, if your daily cost of care is  $232, with an expense reimbursement policy, the policy will pay exactly $232.

The advantage of this plan is that excess benefits remain in the policy and extend the benefit period.

Once you have determined which type of policy will be best for you, there are several options that must be decided for each specific plan.  When looking to purchase a policy, the key points to look for are:

1.  The daily benefit amount.  The daily benefit amount is the fixed dollar amount that is payable from a long-term care insurance policy.  You want to make sure that you choose a sufficient daily benefit amount to protect yourself from spending down your assets if you need long-term care.  Your cost of care range will be determined by where you live, which should be tied into evaluating how much of a daily benefit one should purchase.

According to the Genworth Financial 2013 Cost of Care survey:

  • In New York, the annual cost for
    • Private room in a nursing home: $125,732 (requiring $350 of benefit per day)
    • Home health aid: $50,336 (requiring $140 of benefit per day)
  • Compare this to the annual cost in the state of Alabama
    • Private room in a nursing home: $69,543
    • Home health aid: $36,608

2.    Inflation protection.  Most long-term care policies offer inflation protection, which is a valuable way to plan for the ever-increasing cost of long-term care.  Inflation protection allows you to purchase premiums at a fixed cost; in other words, you can increase your coverage over time without increasing your premiums.  Inflation protection gives you peace of mind tomorrow with prices today. The younger you are, the more important it is to have inflation protection.

For example, as noted above, the 2013 cost of a home health aid in New York was $50,336.  Assuming a 5% rate of inflation, in 15 years, that same care now costs $144,575.  With inflation, long-term care can become costly quickly; it is important to hedge against inflation.

There are several rider options for consumers including: no inflation, compound inflation, and simple inflation.  Inflation protection is the costliest rider for long-term care policies.

 3. The elimination period. The elimination period refers to the waiting period before the policy coverage kicks in.  Some people view long-term care insurance as catastrophic coverage; therefore they purchase a long-term care policy with an elimination period.  You can determine the appropriate length of an elimination period based on how much out-of-pocket cost you are willing to pay.

For example, if you put a 100 day elimination period into your policy, and something happens wherein you incur $300 a day in care costs, you will be liable for that $30,000 out-of-pocket until the elimination period ends (on day 101).

4.    Length of coverage.  To determine the length of coverage, many people look at the average stay in a nursing home.  Determining the length of coverage on your policy – whether it’s 3 years, 5 years, or a lifetime benefit – is a function of how much money will be used up over what period of time.  Of course, the longer the period of time, the more expensive the policy is.  It is important to note that most long-term care premiums are not guaranteed; insurance companies generally can increase the cost of premiums.

 

For more information on long-term care policies and retirement planning, contact us.

Long Term Care 101

Long-term care 101: What is it? Why plan for it? Who pays for it? Important recent changes.LTC word bubble

What is Long-Term Care?

Long-term care is a form of healthcare that assists patients in carrying out necessary activities of daily living; among other activities, this includes bathing, dressing, transferring to a toilet, and eating.

Additionally, long-term care assists those who have suffered from severe cognitive impairments requiring substantial supervision such as Alzheimer’s disease or dementia.

Other examples of conditions that may require long-term care include: a fracture from a fall, arthritis, a stroke, cardio vascular disorder, severe diabetes, multiple sclerosis, or a car accident.

Commonly used long-term care facilities include: home health services, assisted living facilities, physical or occupational therapies, adult day care, and personal care.

Why Plan for It?

Clients often ask us when they should start planning for long-term care.

Here’s how we think about it:

  • When you buy a car, you buy auto insurance
  • When you buy a home, you buy home insurance
  • When you plan for income replacement you buy disability insurance

And so the comparisons continue.

When you plan for retirement, you should start planning for long-term care insurance.  Long-term care insurance is a critical part of retirement planning.  Consider these statistics:

  • Probability of loss from a fire: 0.0008 %
  • Probability of a major auto accident: < 1%
  • Probability of needing hospitalization in your lifetime: 10%
  • Probability of developing Alzheimer’s: 11-15%
  • Probability of needing long-term care: >75%

In fact, at age 65, there  is a lifetime change of more than 40% of entering a nursing home (of which 10% of the population will stay longer than 5 years).  At age 65, women have a 1 in 2 risk of entering a nursing home and men have a 1 in 3 risk.

Given those odds, failure to properly plan for long-term care can be a costly mistake.  Think about the projected average costs of long-term care in New York City: a home health aid costs ~$150 per day and a good nursing home can cost upwards of $450 per day.  When you multiply that out with a cost of living factor, it becomes very expensive very quickly.

Why plan for long-term care?  There are both financial and non-financial reasons:

1. Protect your family from being the primary care givers.

2. Ensure that your family has enough income and can maintain their lifestyles without eroding it to pay for long-term care.

3. Protect financial assets and create a planned gift or legacy.

4. Pay for care with insurance money, not your own.

Who Will Pay for Long-Term Care if You Don’t?

  • Private health insurance? No! Private health insurance is designed only for preventative and rehabilitative care, not long-term care.
  • Medicaid? No!  Medicaid is only a viable option after you have spent your income and assets down to the poverty level.
  • Medicare?  No! Medicare only pays for skilled care under specific conditions and under a limited basis (for only up to 100 days).
  • So who does that leave to pay for it?  You – or an insurance carrier!

Important Recent Changes

Change is coming.  More and more companies are exiting the long-term care insurance marketplace.  The importance of obtaining long-term care is more critical as one gets older.  The longer you wait, the higher the probability of being denied coverage.

If you’d like to learn more about long-term care, contact us.

Long-Term Care Insurance – Do You Need It?

“There are 4 kinds of people in the world.  Those who have been caregivers, those who are currently caregivers, those who will be care givers, and those who need care givers.” – Roslynn Carter

Which one will you be?

Financial planning focuses on building and accumulating wealth for your retirement and, ultimately, the transferring of your wealth to the people that you love.

When people think about the challenges and threats to their retirements, the most commonly thought of culprit is financial losses in the stock market.  However, people typically fail to consider the risks of other types of ‘retirement invaders’ such as health care costs and long-term care costs.  Both of those situations can cause costly problems, often much more so than volatility in the stock market.

Planning for long term care is more than just more than simply planning for how to pay your bills.  From a financial planning perspective, long term care insurance planning determines how much of the monetary risk a client wants to assume versus how much they are willing to shift to an insurance company.

So what does Long-Term Care Insurance do?

1. Long-Term Care Insurance is a tool that protects your lifestyle as well as your retirement nest egg and savings.

2. Long-Term Care Insurance provides and preserves the freedom of choice as to how and where care is to be received.

3. Long-Term Care Insurance gives your loved ones peace of mind to care about you and not care for you.

One of the greatest myths about Long-Term Care is as it relates to Medicare.  Generally, Medicare does not pay for Long-Term Care.  Under limited circumstances and for a limited period of time Medicare will pay for medically necessary skilled nursing facilities or home health care. You must meet the rigorous conditions to be eligible for Medicare to cover the costs.  Most Long-Term Care is to assist people with support services, for example: activities of daily living like dressing, bathing, or using a bathroom.  Medicare does not pay for this type of care called custodial care.

4.  Those who purchase qualified Long-Term Care Insurance can take a tax deduction for part of the premium.  The tax deductibility limits for 2013 and 2014 are:

Screenshot 2014-01-28 14.06.10

For those who live in certain states (for example, New York), your state may provide a special tax deduction or special tax credit.

Why is it important to consider Long-Term Care Insurance now?

“Old age is like everything else, to make a success of it, you’ve got to start young.” – Theodore Roosevelt

1. Eligibility for the purchase of long term care insurance: any change in health, can impact your ability to obtain Long-Term Care Insurance.  Waiting to apply could be a very costly mistake.

2. Potential $ Savings: The younger you start Long-Term Care Insurance, the more you can save on premiums.

If you want to learn more, contact us.