Surprisingly, the words “Long-Term Care (LTC) Insurance” mean different things to different people.
Some confuse LTC with Long-Term Disability Insurance, which is intended to replace earned income in case of disability. Some equate LTC with “expensive”, but may not know why. Still, others think LTC is a form of medical insurance.
Long-Term Care Insurance is not designed for disability income replacement, nor is it a medical insurance. And, because “expensive” is a relative term, it may or may not be expensive. LTC insurance may be costly but well worth it. Think of LTC insurance as strictly custodial, covering the very important varied personal needs of persons who are ill and (even temporarily) incapacitated–things like feeding, clothing, bathing, along with mundane housing-related issues, such as driving to appointments or doing the extra washing.
Some will recognize LTC insurance as the old “Nursing Home Insurance”. Back in the day, regular folks would take care of incapacitated family members at home. When that became absolutely impossible, families might have tried to preserve the assets of the incapacitated family member by transferring them to another family member. Then, after waiting three years (the look back period), the government, through Medicaid, would pay for the nursing home for an indefinite period of time. When the government changed the “look-back period” to five years, that tactic became much more difficult. In addition, even though incapacitated, more and more folks just wanted to stay in their own home anyway. But staying at home became more and more difficult to achieve with families that are more and more geographically distant. For these folks, the solution became LTC insurance, which evolved to include either care at home or care in a rehab or nursing home facility.
Married couples are especially vulnerable when one spouse takes ill, because the extra costs of long-term care can use up all their savings and bankrupt the spouse who is the caregiver.
Folks in their 50’s should begin to explore and initiate LTC insurance for a few reasons: (1) The annual premiums will be lower at younger ages and will not tend to escalate overtime and (2) Aging may bring health issues in the future, which may preclude LTC insurance coverage altogether. As you can see below, there are a few different ways to tailor LTC coverage to make it affordable, keeping in mind that some LTC coverage might be better than none at all.
The most important components of an LTC insurance policy are the following:
- Time period of coverage: The average period of need for most folks is 3 years.
- Daily amount of coverage: This varies by geographical area, but a lesser amount might be selected to reduce premiums.
- Home Care: This coverage should be the same as that for care in a facility.
- Waiting Period: This specifies when the coverage actually kicks in from the date the incapacity began. Stretching out the waiting period will reduce premiums.
- Married Persons: They can obtain a combined policy with a discount, in that the insurance company rightfully believes that couples will care for each other, delaying the need for turning to the LTC insurance.
- Inflation Rider: The daily cost of coverage will naturally increase over time with inflation, selecting a rate of inflation will ensure keeping up with rising costs in the future. However, reducing the stated inflation percentage will also reduce premiums.
LTC insurance may or may not be expensive – but it is not cheap either. Expect to shell out a few thousand dollars a year for LTC insurance coverage. Couples in their 50’s whose children are grown and educated may find that certain life insurance is no longer needed, and those life insurance premium dollars might be better spent on LTC coverage for themselves.
LTC insurance is evolving with lots of bells and whistles. The latest offerings from the insurance industry are a combination of life and LTC insurance. However, this combination usually means immediately transferring a large sum – such as $100,000 – to the insurance company.
Regardless of whether or not LTC insurance is the right answer, every family should have a very frank discussion concerning potential illness or incapacity of family members. Although it is a difficult subject to broach, everyone should have some plan in place that is well understood in advance by all concerned. When adversity strikes – many times without warning – those decisions will have been already made with no surprises.