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Buying Long-Term Care Insurance

Clients often ask me "Do I need LTC?" My answer to that questions centers upon these statistics:

  1. One in every three people over 65 will need nursing care at some time in their life.
  2. Neither private health insurance, Medicare, nor your Medicare supplement will pay for long-term "custodial care."
  3. Only 9 percent of older baby boomers, ages 43 to 52, have thought about preparing for the need for nursing care.
  4. The cost of long-term nursing home care today in the Metropolitan area averages approximately $240 per day or $86,000 per year, per person.

The risk of long-term care and its potential financial impact on you and your family must be considered for complete financial and estate planning. LTC policies that pay for care at home are an excellent way to help you stay in your residence of choice. Many different insurance carriers are offering LTC policies. Because all policies are not the same, I have prepared this guide for helping you understand long-term care insurance and obtain the coverage that best fits your individual needs. Although the answers to these questions do not cover every possible issue, they are a guide for helping you evaluate long-term care policies and making the decision that's best for you.

What Is Long Term Care Insurance ("LTC")?

Long-term care insurance is a contract between an insurance company and a policyholder to pay for certain types of coverage under certain conditions. LTC policies provide coverage for skilled, intermediate and long-term "custodial" care.

Insurance agents sell LTC policies to policyholders, although group policies are becoming increasingly available from large employers, membership organizations like AARP and health maintenance organizations.

What Does LTC Insurance Pay For?

Standard individual LTC policies pay for skilled, intermediate or custodial care, including "homemaker services" — cooking, cleaning, shopping, laundry, etc. — wherever the care setting is appropriate. Not all policies do provide coverage for homemaker services, and some require that they be specifically included in a plan of care. You should consider LTC policies that clearly define these services and provide you with a choice.

LTC policies reimburse custodial care expenses incurred in your own home, someone else's home, assisted living facilities, adult day care or nursing homes. In addition, the better policies will pay non-licensed individuals — even adult children in some cases — to help with home care for a parent or loved one. Policies that pay only for care in a facility, or only for home care, are also available.

As with any insurance product, it is important that you carefully read the policy to ensure what "services" are covered by the LTC policy before you purchase it.

What Is "Care Coordination?"

If a policy utilizes "care coordination," it often means that the insurer, through a designated or approved individual, will play a "gatekeeper" role in the choice of services and care providers. Some group policies require that the insurer or group representative approves all services. (Carefully compare low-priced group policies!) The best LTC products rely on a licensed health care practitioners' plan of care for proof of need for, and reimbursement of, care expenses. Look for a policy that offers a liberal choice of care providers and minimal carrier involvement.

Is There a Maximum Lifetime Benefit Amount?

LTC policies can pay the daily benefit amount for lengths of time — two years to unlimited — or draw from a designated "pool of money" — say, $200,000. You can make choices based on your own individual goals and what you are willing to pay for "peace of mind."

How Much Coverage Do You Need?

If you want to ensure that your assets will be preserved for your heirs, you might consider a higher benefit amount and "unlimited" protection. If you are single, or are a couple with a larger "safe income" (i.e., Social Security, pensions, annuity or conservative investment income, required minimum distributions, etc.) and choose to "spend your kids' inheritance," consider a lower benefit amount and limited maximum coverage. Further, you must make sure you factor in the living expenses of the healthy spouse remaining at home.

Does Your Current Health Matter?

Your personal health history can make a difference in both coverage and premium cost. Most LTC insurers require a health review that often includes a physical, blood tests and reviewing medical records. Each company has different medical underwriting criteria. Companies can choose to offer coverage, or not, depending on an applicant's health history. Applicants with health challenges should consider applying to two companies, particularly when an upcoming birthday could increase the cost of coverage. When health is an issue, submitting an application is the only way to verify insurability. It's essential that your insurance agent has access to a broad selection of insurance carriers to provide you with options.

When Are the Benefits "Triggered" Under the LTC Policy?

A benefit "trigger" is the inability of the policyholder to perform specified Activities of Daily Living (ADLs), such as transferring, toileting, bathing, continence, dressing and eating. Ask your insurance agent for a copy of the actual policy in order to see for yourself how the benefit "triggers" and ADL performance is described. The policy you want must include coverage for ADL standby assistance. Otherwise, you will own a policy that is harder to qualify for benefits at claim time. Don't make the mistake of focusing your comparison of companies on less important details like a 21-day vs. 31-day bed reservation benefit. Moreover, check policy language to be sure pre-existing conditions are covered.

What Is the "Daily/Weekly Reimbursement Benefit" Amount?

You will select this amount when applying for coverage. Coverage maximums generally range from $50 to $250 per day (or the daily amount times seven for a weekly cumulative total). When reviewing daily coverage amounts, remember to consider your safe income, which can be used to offset potential care costs and thus reduce your premium.

What Is the Elimination/Deductible Period?

The Elimination/Deductible Period is the number of days you must pay for care yourself before your LTC coverage kicks in. Depending on the policy and personal choice, the deductible can range from zero days up to a full year. In deciding what Elimination/Deductible Period to select, you should consider:

  1. Medicare pays up to 100 days in a "Skilled Nursing Facility" only if your condition meets Medicare criteria.
  2. In 15 years, the cost of nursing home care could double.
  3. Are the days that count towards satisfying the deductible required to be "consecutive days of service" or simply calendar days? How long do you have to satisfy the deductible days?
  4. If a couple chooses a deductible, remember that it must be satisfied twice — once for each spouse. Since most couples have only one "nest egg," consider the financial impact if each spouse had to pay for professional care for the full deductible period.

Does the LTC Policy Have Inflation Protection?

In general, the premium remains the same, and the daily benefit amount is guaranteed to increase over time. Policies might offer simple, compound or Consumer Price Index (CPI) increases to protect against inflation. Applicants should consider compound inflation up to their mid-60s, and simple inflation from the mid-60s to mid-70s. Applicants in their mid-70s and older should consider altering the daily benefit amount rather than buying a built-in inflation factor.

How Much Coverage Should You Buy?

It is difficult to provide an ironclad answer because each individual has a different comfort level with risk tolerance and how much of his or her income and assets he or she is willing to spend to avoid risk. The amount of coverage depends in part on what you need and in part on what you can afford. As a general guide, you should not spend more than 5 to 10 percent of your income (both earned and unearned) on long-term care insurance premiums. In terms of the size of the daily benefit you purchase, it should make up in the shortfall between your income and the average cost of nursing home care in your area.

For How Long of a Period Should I Insure Myself?

There is no one right answer for everyone. Most people buy what gives them peace of mind and is affordable. Here are some general rules to consider:

  • If you are between the ages of 50 to 65, consider lifetime benefits with compound inflation options.
  • If you are between the ages of 65 to 75, consider a six-year or lifetime benefit period with simple inflation options.
  • If you are older than 75 years old, consider buying more daily benefit for as long a period as you can afford.

What Is the Difference Between a Group Certificate Type and an Individual Policy?

The difference between a group policy and an individual is significant even though the distinction may not be obvious. In some states, individual policies are regulated while group ones are not. Individual policies, however, are guaranteed renewable for life, and premium increases for a class of insureds must be approved by the state.

Is the LTC Policy Tax Qualified?

Under the provisions of the Health Insurance Portability and Accountability Act of 1996 (commonly known as the Kassebaum-Kennedy bill), which went into effect on January 1, 1997, long-term care premiums may be deducted from your Federal income tax within certain limits and to the extent you have medical expenses (including these premiums) that exceed 7.5 percent of your adjusted gross income. Any benefits received under a tax-qualified policy are not taxable if the policy meets certain guidelines. Employers may treat long-term care insurance premiums paid on behalf of their employees just like health insurance and fully deduct the cost. Moreover, the employees do not have to include the premium as income, and the benefits when received will be tax-free.

Is Your Agent or Broker Certified in Long Care (CLTC)?

Many insurance agents are now selling long-term care insurance since it has received so much media attention. Because the purchase of this type of protection is so important, we recommend that you do business with an agent or broker who is knowledgeable, experienced and has an established reputation in this area of insurance. Long-term care insurance is a complex product. Look for a CLTC specialist. ) Also, you want an agent who represents a number of insurance carriers so you can choose from a variety of policies.

Should I Request a Form Policy Before I Purchase It?

Although sales literature can be helpful to give you a general overview of policies, it's in your best interest to request a sample policy so that you and a family member, friend or adviser can review it with you before you buy. Be sure the sample policy matches the policy quoted by the agent; look for a policy series number.

The information presented in this article is not legal advice and does not create an attorney-client relationship with Joanne M. Sarubbi, Esq. No one should rely or act upon any information contained in this article without seeking individual professional counsel. If you have any questions regarding this article, please contact Joanne M. Sarubbi, Esq., 100 Morris Avenue, Suite 301, Springfield, New Jersey 07081. Phone: 973-671-1430 Fax: 973-218-0065

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