Long Term Care Insurance 101 - Do you know the facts? 

• What is Long Term Care (LTC)?
• Why is there a need for Long Term Care?
• What Do Long Term Care Services Cost?
• Who Pays for Long Term Care expenses?
• What is Long Term Care Insurance?
• What to look for in a quality Long Term Care insurance policy
• Who should consider Long Term Care insurance?
• Self funding the cost of Long Term Care

What is Long Term Care (LTC)?

Long Term Care includes a wide range of medical and support services for people with a degenerative condition (e.g. Parkinson's, stroke, etc.), a prolonged illness (cancer) or cognitive disorder (Alzheimer's).

Long Term Care is not necessarily medical care but rather "custodial care." Custodial care involves providing an individual assistance with activities of daily living or supervision of someone who is cognitively impaired.

To better understand Long Term Care, think of the activities that you performed when you woke up this morning.

•  Climb out of bed
•  Walk to the bathroom
•  Use the toilet
•  Use the bath or shower
•  Get dressed
•  Eat breakfast

While we are healthy it is easy for us to take for granted the above Activities of Daily Living (ADL's). However, when you or a loved one is stricken with a degenerative condition such as a stroke or Alzheimer's, performing these ADL's becomes impossible without the assistance of another person.  This is generally considered custodial care.

This type of care is what is referred to as Long Term Care. It is the same type of care that a parent must provide for their new baby. This type of care is chronic (full-time) and thus becomes very expensive and time consuming for your care-giver who is generally your spouse or child.  Long Term Care can be provided in many settings including nursing homes, your own home, assisted living facilities and adult day care.  Medicare and Medicaid do not cover this type of care. 

Why is there a need for Long Term Care?

People are living longer. Due to advances in modern medicine and life-style changes, the number of people over the age of 85 is the fastest growing segment of the population.

Unfortunately, as people are more likely to live a long life, they are more likely to need care due to a chronic illness such as strokes, heart attacks or Alzheimer's. Statistically, Americans over the age of 65 face a 40% risk of entering a nursing home for Long Term Care services and couples over 65 face a 70% chance of one needing care.

Another reason for the recent public focus on Long Term Care is the changes impacting families. Years ago, most elderly depended upon their family to care for them as they aged. Family members lived close by or even under the same roof.

Today, many women are in the work force, children have moved away and divorce rates are approaching 50%. All of these factors contribute to the inability of families to meet the needs of their aging parents. Thus the elderly must rely on professional assistance, which comes at a cost.

What Do Long Term Care Services Cost?

"A year in a nursing home now averages more than $75,000 and can exceed $100,000 annually in many parts of New York.

Obviously Long Term Care services are very expensive. Quality nursing homes may no longer be filled to capacity, but they are still consequently charging a hefty fee for services which are not covered by Medicare after the 100^th day and not covered by Medicaid unless you have spent almost all of your assets.   

Home care is not as expensive unless you need 24 hours care. Bringing a home health aide into your home every day for a 4 hour visit can easily cost $3,000 per month. When the home care approaches 8 hour visits every day, the costs rise to an average of $7200 per month. At this point, the care recipient begins to receive facility based care simply for economic reasons.

Who Pays for Long Term Care expenses?

There are 4 main ways in which to pay for long term care; Individual’s Assets, Medicare, Medicaid, or private insurance. Before you begin paying for long term care insurance it is critical that you plan early so you make the best decision possible…

Learn More on Paying for Long Term Care

What is Long Term Care Insurance?

Long Term Care Insurance (LTCi) has had yet another face-lift in 2006.  LTCi pays for custodial or skilled care…Nursing Home – Assisted Living  - Adult Day Care - At Home.  LTCi benefits are payable regardless where the care is given.    Since the Deficit Reduction Act of 2005 was signed on Feb. 8, 2006 by President Bush, transferring assets to qualify for Medicaid has become a non-solution for the vast majority of individuals since “half-loaf” planning is no longer effective. 

Like any insurance product, Long Term Care insurance allows the insured to pay an affordable premium to protect an unaffordable catastrophic event. We insure ourselves against certain risks because of the serious consequences that the need for care will place on our family and friends.

What to look for in a quality Long Term Care insurance policy

Financial Strength
A long-term care policy is for the "long-term." It is important to keep this in mind before purchasing a policy from a carrier with inferior financial strength. Many policyholders do not receive benefits from a Long Term Care policy for 10 to 20 years after issue.

Adequate Daily Benefit
Long Term Care services can be expensive. They may easily exceed $250 per day in most parts of the New York and in excess of $300/day in metropolitan areas, while the average cost at home is about half.  Exploring various benefit combinations with a Long Term Care specialist with access to all of the major insurance companies is essential.  Take a close look at purchasing a higher initial daily benefit with no cost of living increase.  At some ages, this approach has been very effective at significantly reducing premiums.   It is important to be aware of the costs in your area when selecting a daily benefit.  

Inflation Protection
Over time, the cost of long term care services will increase. For example, a nursing home that charges $260/day today will charge $520/day in 14 years assuming a 5% growth rate. Inflation options range from 3% - 5%, simple or compound.  The New Indexed inflation option increases each year based on the CPI index.  Each option should be compared to determine the inflation option that fits your budget. 

 DESIGN YOUR LONG TERM CARE PLAN

Comprehensive Coverage
At the time the policy is issued, we do not have a crystal ball to determine where we will end up receiving Long Term Care services (nursing home , home care, adult day care.) It is comforting to know that your policy will provide benefits in a variety of settings.

• Claims
  Ask your Long Term Care representative about the company's claims process. This is the most important aspect of a Long Term Care policy and yet the most ignored.

Stable Premiums
Long Term Care carriers have the right to raise premiums. The policies are "guaranteed renewable" which prevents a carrier from singling out individuals for rate increases, but they may raise premiums for a "class" of policyholders. Be careful of carriers that are priced substantially below the competition. Again, ask your representative if the proposed carrier has ever increased in-force premiums.

Who should consider Long Term Care insurance?

Many planners refer to Long Term Care insurance as "asset and income protection." Individuals need to have assets or sufficient income that is worth protecting in order to justify the purchase of a policy. Medicaid eventually pays for Long Term Care services once an individual “spends down” his/her assets, but Medicaid still requires you to use all of your income on your care. So, although you may “spend down” your assets and qualify for Medicaid, you will still be required to spend all of your income on care.

Simply stated, if you are able to pay Long Term Care insurance premiums without having to change your lifestyle, then you should transfer that risk to the insurance company.  Interest and dividends that are being re-invested or a required minimum distribution are common sources for the funding of Long Term Care Insurance.

Health is another important consideration. The state of one's health is a determining factor in one's ability to secure Long Term Care protection. This sometimes poses a problem as people don't often consider Long Term Care insurance until an unfortunate event has affected their health or the health of a loved one.   Pre-qualify then compare premiums.

Long term care may be required by anyone, not just seniors. 40% of all Long Term Care effects people under the age of 65.  Care is usually required as a result of the effects of aging, either because a person has become physically unable to carry out everyday activities or because they experience cognitive impairment, such as Alzheimer's disease. Other times, long-term care may be needed because of chronic disease or while recuperating from an accident or serious illness.

Self Funding the cost of Long Term Care