Long Term Care Insurance - Overview


Besides paying out of your own pocket you can purchase long term care insurance. This insurance must be purchased prior to needing long term care. The eligibility for the insurance is based on your current health. Therefore if you are already ill, you may not be insurable. Check here for general insurability guidelines.

Long term care insurance evolved from Income Disability insurance. There are no "cash values", and one pays a periodic premium to renew coverage for the specific period of time.

Most financial planners recommend that LTC insurance be purchased in your late 50's or early 60's. In this range the cost is quite affordable and your health is probably still pretty good. The premiums are based on your age, health, and the type of plan that you purchase.

You can buy LTCi privately or through a group plan that may be provided by your employer or an association, such as AARP. You can also buy policies through various State Partnership Programs.

Click the blue bars below to read more about Long Term Care insurance policies.

  • Reimbursement - pays your actual expenses up to, but no more than your daily, weekly or monthly benefit limit. Depending upon your policy's wording, if the long term care services don't eat up your entire benefit amount, the left over amount may be carried carried over to subsequent periods, similar to roll-over cell phone minutes. Some plans may require you to ay first, then reimburse you once you send them the invoices, but most will pay the long term care provider directly. Reimbursement polcies are the most frequently sold, but may not be the best for you.

  • Indemnity - pays a fixed amount. Once your claim has been approved, you will be paid your entire daily benefit amount for every day that you receive covered LTC services. If the care you receive costs less than your daily amount, you get to keep the difference.

  • Disability - pays your pre-determined, fixed daily benefit once you have your met your policy's disability wording criteria. You'll get paid whether you are receiving a form of paid care or not. This may be good if you have family or friends who are willing to be caregivers, because you can give them some financial support in exchange for their loving and devotion.

Caution: People can "pocket" money with both Indeminity and Disability type policies by getting less expensive care and keeping the remainder of the benefit pay-outs. This can expose insurance companies to higher claim amounts. If the insurance company is not pricing their indeminity or disability products higher than their reimbursement products, they may have to raise policy holders' premiums in the future.

There is another important choice: Tax Qualified or Non-Tax Qualified. Even though they have stricter wording, we prefer the Tax Qualified policies only because the IRS has not decided whether or not to tax LTCi benefits. We'd hate to see people stuck owing back taxes on all their past benefits simply because the IRS says it needs money.

 

  • Daily Benefit - the amount of money you will receive from the insurance company on a daily basis for your care. You usually can select up to $400-500 per day. Find out what the current cost of care is in your area to help you decide what daily benefit you want (also see inflation protection below).

  • Benefit Period - the length of time you will receive payments from the insurance company once you need care. You usually can select a specific number of years (2,3,4,5,). Some companies still offer lifetime plans. The average length of stay in a nursing home is 2 1/2 years, but can be many years longer, especially if dementia or Alzheimer's is the main health issue.

  • Elimination Period or Deductible - the number of days that you will be responsible for paying for your care before the insurance begins to pay. This works like most insurance deductibles, except it is stated in a number of days instead of dollars. Most plans have a variety of options like 0 days, 20 days, 60 days, or 100 days. Be sure to check if this deductible is once in a lifetime or if it might repeat if you go in and out and back into a facility.

Other optional benefit decisions that can affect your long term care insurance plan:

  • Inflation Protection - This ties back to your daily benefit allowing it to grow on an annual basis to help keep your plan in step with inflation. It is built into your original premium and therefore will increase your annual premium. You may have choices of 5% simple or 5% compounded. You do not have to add this to your plan, but it is certainly recommended if you are younger than 70 when you buy your policy.

  • Home Health Care Coverage - Some policies will also give you the option of receiving insurance benefits in your own home. This option will allow you greater choice as to where you receive your care. It may cover community care like Adult Day Care Centers and Assisted Living Facilities as well as care in the home. This option will increase your premium.

  • Nonforfeiture - This option provides some form of paid-up benefit if the policy should lapse. It increases your base premium.

You can read more about what to look for in a Long Term Care insurance policy, cost-cutting tips and how to make your LTCi policy fit like a glove.