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 can't afford the premiums
- You have limited assets
- Your only source of income is a Social Security benefit or Supplemental Security Income (SSI)
- You often have trouble paying for utilities, food, medicine, or other important needs.
You should CONSIDER buying Long-Term Care Insurance if:
- You have significant assets and income
- You want to protect some of your assets and income
- You want to pay for your own care
- You want to stay independent of the support of other
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.
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.
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.
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
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.
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