What You Need to Know About Long Term Care Insurance

by Emily Guy Birken · 6 comments

Anyone who has had to take over care of a declining family member knows that helping someone who is unable to perform basic daily activities can be both exhausting and expensive. According to the website medicare.gov, “this year, about nine million men and women over the age of 65 will need long-term care. By 2020, 12 million older Americans will need long-term care.”

Medicare.gov goes on to point out that the majority of these older Americans will be cared for by family members, but many individuals are concerned about the strain that would put on their families. One alternative available for those worried about burdening their families is Long Term Care Insurance (LTC). While there are many benefits to purchasing an LTC policy, there are also several pitfalls to be careful of. Here is what you need to know about Long Term Care Insurance:

What Is It?

This insurance covers any type of care that is necessary when the policy-holder can no longer perform daily activities. This care can include in-home care, nursing home facilities, adult day care, hospice care, assisted living, and Alzheimer’s facilities.

Most of those who require the type of long term care that this insurance pays for do not have a “traditional” illness. Moreover, they are simply no longer able to go about their regular daily activities, including dressing, bathing, eating, and walking, among others. Generally, you become eligible for benefits when you are expected to require care for at least 90 days and/or are unable to perform two or more daily activities.

How It Works

Unlike health insurance, where the insurance company directly pays the care-giver, LTC insurance generally requires that the policy-holder pay out-of-pocket for the care, and then submit proof of service in order to be reimbursed. In addition, there is usually an elimination period — that is, a period of time where you will have to pay for care before you can submit a claim. These elimination periods can span anywhere from 20 to 120 days — and the longer your elimination period, the lower your premiums.

The Costs Involved

The cost of LTC insurance can vary widely from insurer to insurer, and from one policy to the next. As with any insurance, you can pay less in premiums if you choose to purchase less coverage. For example, if you only purchase a policy that covers three years of long term care — which is about the average length of stay in a nursing home — you will pay a great deal less than if you insure for any and every possible contingency.

Often, individuals are encouraged to purchase LTC Insurance when they are relatively young—in their 40s or 50s—and “lock in” the lower premium rates. Unfortunately, as Kathy Kristof reported on CBSNews.com, the promise of locked in rates is not necessarily true. While the insurance company cannot raise your individual rate, they can raise the rate of blocks of policy-holders. This means that you will often end up paying more as you age and become more likely to file a claim.

The Bottom Line

Ultimately, if you plan to purchase LTC insurance, it pays to also have a healthy emergency fund — both so you can “self-insure” and avoid paying expensive premiums now, and so that you have the money on hand to pay for care prior to receiving your benefits as reimbursements if you ever need to use the insurance.

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{ 6 comments… read them below or add one }

JAL June 1, 2012 at 1:15 pm

There’s a new type of long-term care policy that can protect your assets from Medicaid even after the policy runs out of benefits. These government-approved policies are like a traditional long-term care policy with additional consumer protection features.

The Long-Term Care Partnership programs provide dollar-for-dollar asset protection. Each dollar that your partnership policy pays out in benefits entitles you to keep a dollar of your assets if you ever need to apply for Medicaid services.

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Deborah Peterson June 1, 2012 at 3:28 pm

More important than premium cost, the reason we recommend that you secure this coverage in your 40′s or early 50′s is health qualifying. Most health changes occur during your 50′s. 23% of people applying for coverage between the ages of 60 and 69 are declined because of a health issue, according to the American Assoc. of Long Term Care. The percentage gets higher at age 70.

Also consider hybrid plans, which are qualified life insurance or annuities with LTC riders, allowing you to “self insure” using tax free dollars.

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Bob T June 1, 2012 at 6:34 pm

I agree with Deborah. The policies are becoming harder and harder to qualify for from a health perspective, its often in your early to mid 50′s that you have some sort of health change which could cause you to pay a higher rate or be uninsurable forever. Its best to purchase when it is affordable and does not affect your lifestyle. Ive had policy holders endure rate increases but there are options to mitigate those somewhat. There are limited pay policies(10-pay, pay to 65) which at the end of the payment cycle cannot be increased and are considered “paid up” . Some companies offer hybrid Life/LTC coverage which is often paid in full upfront.

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Thad P @ thadthoughts.com June 12, 2012 at 4:51 am

Thanks for a concise treatment of a difficult topic. I am surprised the number needing LTC is not much higher than reported. It seems like everyone I know has a parent or grandparent needing LTC.

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James July 20, 2012 at 10:38 am

The only problem is that it’s super hard to convince somebody to get long term care insurance… especially to somebody in their 40s. The younger you are, the cheaper the policies are. But young people would never even consider buying a policy. The older people find it to be too expensive.My dad is nearing 60 right now. He still thinks he is too young for it.

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BobT July 20, 2012 at 10:46 am

Yes James…the biggest issue most professionals have is not losing business to other professionals but denial and procrastination of the public at large. Its not super sexy to talk about but its reality for many so…sometimes you are not going to be successful in having someone secure coverage. I think the clients and agent’s personalities have to uniquely mesh and for there to be a lot of trust built on both sides for this to be achieved sometimes. Its funny because almost nobody blinks and eye at life insurance, why because the consequenses are so severe if a loved one dies premeaturely that they really cant sleep at night until they get covered. Its also super cheap. Long term care insurance for a young person is probably not a heck of a lot more for basic coverage. The industry and the financial planning industries have done a very poor job in educating the public about this. But given where we are with the boomers…we are going to see a fairly substantial influx of inquiries in the next several years.

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