Long Term Care Insurance: Hey, Who Needs It..?

Most of us will buy health insurance and insurance for home, car and other property replacement, naturally.

However, fewer of us buy long-term care insurance, either not thinking about it or hoping that our savings will be sufficient to meet any associated expenses.

Yep - …And don’t forget the all-too-common, psychological elements of “denial” and “procrastination”.

The sad fact is that long-term care can be very expensive and can deplete a lifetime of savings within a few years. (According to the report LONG-TERM CARE - Baby Boom Generation Presents Financing Challenges, published in Mar 1998, by the United States General Accounting Office, long-term care in nursing homes costs an individual more than $40,000 per year.) Let’s discuss some of the features of long-term care insurance, the benefits and the factors that may affect your choice of an insurance provider.

Who Needs Long-Term Care?

Long-term care is typically needed by the elderly, but it is also required by anyone with a debilitating illness or injury who needs assistance to perform what we consider everyday functions, such as feeding oneself, bathing and getting dressed. Yet, in 1995, 43% of individuals needing long-term care were children and working adults (as reported in Long Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages by the U.S. General Accounting Office in 1995.)
It’s not just for “the elderly” by any means. If I had owned coverage at a younger age, LTC Insurance would have begun paying me at age 50. That is when I started requiring care. Many folks are incapacitated in early or mid-adulthood.

Like other services covered by insurance, long-term care insurance must be purchased before the insured requires the services covered under the policy. This means that many individuals will purchase the policy and never benefit from it.

That’s the whole idea of insurance, right?

The likelihood of this happening is greater among younger individuals, whose chances of requiring long-term care are lower. Consequently, some financial professionals recommend that only individuals closer to ages 50 to 65 purchase long-term care insurance, as these individuals are more likely to benefit from the purchase of a policy.

Wrong. Folks should buy it as soon as they can. Consider Christopher Reeve and Michael J. Fox…and my daughter-in-law who was turned down for LTC insurance at age 25 due to possible MS symptoms.

Cost of Long-Term Care Insurance

The cost of long-term care insurance is usually determined by factors such as the type of policy, the age of the insured and the time period the policy covers. Naturally, policies that provide coverage for an unlimited period will cost more than policies that provide coverage for a limited period. Policies purchased at an early age are less costly than policies purchased later, because a younger person is more likely to pay premiums for a longer time. The cost of the policy may also be affected by the preferred location of the service - whether in-home, at a nursing home or at some other facility providing professional care - and whether the coverage is comprehensive or basic, as defined by the policy.

Things to Look for in a Long-Term Care Policy

When you purchase long-term care insurance, you must pay attention to what the policy covers. For instance, the definition of disability may differ among plans: it can vary from a condition that makes an individual unable to perform simple everyday functions, such as getting dressed, to certain medical problems as defined by the policy. Here are some other features you should consider before you choose your long-term care insurance:

* Inflation protection - Does the policy include an inflation protection feature? This ensures premiums do not increase, or at least limits the rate at which they do increase, even if the cost of long-term care increases.
* Deductible - Does the policy include a deductible, and if so, how does it define it? The definition of deductible may include dollar amounts and/or a period of coverage. For instance, the insured may be required to pay expenses out of his or her pocket for a certain number of days, as defined by the deductible.
* Coverage - Coverage is the amount of expenses covered by the policy. Some policies will pay up to a certain amount per day or per month. This could affect the type of care you choose - whether in-home or at a professionally-run facility - and the care provider you choose, depending on their fees. Higher coverage usually means a higher premium. Whatever the costs involved, you need to be aware of coverage so there are no surprises when you need the benefits.
* Period of coverage - A plan may limit coverage to a certain number of years. Additional coverage may require additional premiums.

Benefits of Purchasing Long-Term Care Insurance

If the need for long term care arises and you don’t have insurance, the associated costs will have to be paid out of personal savings or financed by loved ones. If you are unable to afford the cost of hiring care providers, family members may be required to assist you, which means they may have to take unpaid leave from work. By purchasing long term care insurance, you help to ensure that any costs associated with your care are covered, thereby lessening the financial burden on yourself and your family.

Conclusion

It may be beneficial to purchase your long-term care insurance at an early age, as the premiums are usually lower for younger individuals. However, remember that long-term care insurance is not for everyone - It’s for folks with enough descretionary income to cover their premium, which only makes sense. LTCi is also usually purchased by younger individuals only when they have a history of family illness that are covered under these policies. I’m not sure that is wise, as debilitating accidents can happen to anyone at any age.

Bear in mind that coverage may be denied if the potential insured is already at a stage that requires long-term care.

For example, if someone already has Alzheimer’s disease, he or she may no longer be eligible for long-term care insurance. Finally, remember that paying premiums is less costly than paying long-term expenses out of your pocket. Before purchasing a policy, be sure to compare rates, features and benefits offered by different insurance companies, independent brokers and so on. You may want to consult with your estate or financial planner and/or attorney about the choices that are appropriate for you and your family, but keep in mind that they do not specialize in the area of care and caregiving.

- Commentary (in bold) by Clayborne