Long Term Care Insurance

Long-term care is made up of many different support services aimed at helping people who have lost some capacity for self-care because of a cognitive or chronic condition or illness. These patients require the help of others to perform what are referred to as "activities of daily living" (ADL), which include eating, bathing, toileting, dressing, transferring and continence. A comprehensive long-term care insurance policy pays for care at the patient's home, in an assisted living facility or in a nursing home. Tax qualified long term care insurance policies will pay a claim if you are expected to need substantial assistance for at least 90 days with at least 2 ADLs, or require substantial supervision due to severe cognitive impairment such as Alzheimers Disease or dementia.

The time to plan for elder care is while a person is healthy and independent. No one wants to be dependent, but it is important to prepare early and well for the possibility. The premiums for a long-term care insurance policy will depend on your health status, the amount of coverage you purchase and your age (you will never be younger than you are now!).

Long-term care insurance allows you to customize your own plan by selecting when, where, how much, and what type of care that will be covered by the policy. The National Association of Insurance Commissioners (NAIC) has written "A Shopper's Guide to Long-Term Insurance" to help consumers understand long-term care insurance options. The Shopper's Guide to Long Term Care Insurance asks the consumer the following question:

Is Long-Term Care Insurance Right for You?

You should NOT buy Long-Term Care Insurance if:

You should CONSIDER buying Long-Term Care Insurance if:

Federally Tax-Qualified Long-Term Care Insurance Policy

A federally tax-qualified long-term care insurance policy, or a qualified policy, offers certain federal income tax advantages. For example, benefits paid by a qualified policy are generally not taxable as income. Also, you may be able to add premiums, subject to certain limitations, to your other medical expenses if you itemize deductions (the federal government also provides tax benefits for employers and self employed individuals). Check with your tax advisor to find out if, and how much you can deduct.

Guaranteed Renewal

Most long-term care policies sold today are guaranteed renewable. Therefore, the companies guarantee the consumer the chance to renew the policy. However, it does not mean that the insurer guarantees that the policyholder can renew at the same premium. The premium may go up over time as the insurance company pays more and larger claims.

Sharing The Risk

There are many steps you can take to design a long-term care insurance policy to fit your own budget, goals and needs. One way to reduce your premium is to share the risk with your insurer.

Elimination Period

The elimination period, sometimes called a deductible or waiting period, represents the number of days that you elect to pay before your policy begins to pay. If you chose an elimination period of 100 days, you pay a lower premium than if you were to choose an elimination period of 50 days.

Daily Benefit

Long-term care insurance policies usually pay benefits by the day, week or month. Insurance companies let you choose the benefit amount. If a policy covers home care and assisted living, the benefit is usually a percentage of the nursing home benefit. It is important for consumers to know how much skilled nursing homes, assisted living facilities, and home health agencies charge for their services before they choose a benefit amount for their policy. These costs vary among different regions, therefore it is important to check the prices in the area where you think you might need care.

Maximum Benefit Limit

Most long term care insurance policies limit the total amount of benefit they will pay over the term of the policy. This is often referred too as the available pool of money. For example, if you purchase a policy that covers $100 per/day for three years (1,095 days), the total dollar value of the benefits this policy would pay out would be $109,500.

$100 x 1,095 (days) = $109,500

Inflation Protection

Since long term care insurance is usually considered a future benefit, inflation protection can be one of the most important features of a long-term care insurance policy. Keeping up with the rising costs of nursing homes and other long-term care services is important, because you may not need the benefits for many years. If the time comes when you do need long term care, you want be sure that the daily benefits you purchased have increased along with the cost of care.

Although inflation protection increases the premium for long-term care insurance, it is often a worthwhile choice. For example, the daily benefit will double in fifteen years for a long-term care insurance policy with 5% compound inflation protection. This is a considerable feature, since the actual cost of providing care in the future is expected to be higher than it is today.

Partnership Programs

Some states (and I wish it were all states), have insurance programs that provide incentives for people to purchase long term care insurance policies. These states form a partnership between a consumer, an insurer and the state Medicaid program. These plans require participants to purchase a certified long-term care insurance policy for the opportunity to protect their assets when they enroll in Medicaid.