Protect more with less
Traditional long-term care insurance protects your health, wealth and independence – and it does not require a large single premium
► Click here for our just-released, complimentary special report: The Consumer’s Guide To Asset-Based Long-Term Care Insurance
The high cost of long-term care represents one of the greatest threats to the retirement security of millions of Americans. To reduce that risk, many people look to private insurance. When it comes to long-term care coverage, there are two types:
- Premium-based, also known as traditional or standalone policies; and
- Asset-based, also known as linked-benefit, or combination policies.
One of the main differences between the two is the way they are funded. A traditional LTC insurance plan is funded with a set premium paid each year for as long as you own the policy. An asset-based long-term care policy, on the other hand, is typically funded with a sizeable, one-time, lump-sum deposit.
While the balance of this website is designed to educate you on the benefits of asset-based long-term care insurance, this section is dedicated to explaining its sister product, traditional LTC coverage. Here is everything you need to know about long-term care and traditional long-term care coverage.
What You Need Know About Long-Term Care and Traditional Long-Term Care Insurance
Q What is long-term care?
A Long-term care is the assistance people need when they can no longer care for themselves. This can be due to an accident, disability, prolonged illness, or the process of aging. It encompasses a wide array of medical, social, personal and supportive services to help people meet health and personal needs. Most long-term care is provided to assist people with basic activities of everyday living, such as bathing, eating and dressing. It can be provided in your home, the community (i.e., an adult-day care center), an assisted-living facility, a nursing home, and/or a hospice facility.
Q How is long-term care different from traditional medical care?
A Traditional medical care — also known as “acute care” — treats physical problems directly in an attempt to permanently cure them. It’s generally administered in a hospital or doctor’s office—and is often short term. On the other hand, long-term care—also known as “chronic or custodial care”—is on-going personal assistance which helps a chronically ill or injured person maintain his or her ability to function, perform normal daily activities and remain independent.
Q What causes a long-term care need?
A Typically, a person needs long-term care when they suffer either a physical or cognitive impairment. A physical impairment is measured by a person’s ability to perform “activities of daily living” (i.e., bathing, dressing, going to the bathroom, getting in and out of a chair and bed, continence and eating). A cognitive impairment occurs when individuals can complete physical activities, but may not remember how or when to complete them. Examples of a cognitive impairment include Alzheimer’s disease, senility and dementia.
The top 10 conditions requiring long-term care are:
- Alzheimer’s disease and related dementia
- Parkinson’s disease and other neurological conditions
- Heart attack
- Other injuries (fractures)
- Emphysema and other respiratory diseases
- Mental and nervous related conditions
Source: Aetna, LTC Claim History, January 2002
Q What are the odds you, or someone close to you, will need long-term care?
A According to the U.S. Department of Health and Human Services, about 70 percent of individuals over age 65 will require some type of long-term care services during their lifetime. Factors that affect your risk of needing long-term care include your age, marital status, gender, lifestyle and health.
Q Is long-term care just for the elderly?
A No. The U.S. Government reports that 40% of all long-term care recipients are under age 65.
Q What’s the average length of time people need care?
A According to the U.S. Department of Health & Human Services, a person age 65 today will need, on average, three years of long-term care services. Women need care longer than men – an average of 3.7 years versus an average 2.2 years respectively. One-in-five Americans will need care for more than five years.
Q How much do long-term care services cost?
A Paying for long-term care can be one of the most costly events in a person’s life. That’s because long-term care services are expensive and getting costlier every year due to inflation. The costs vary widely based on the type and amount of assistance you need, the provider you use and where you live. Here are the national average median costs in the United States in 2009:
- $77,745 per year for a private room in a nursing home
- $70,445 per year for a semi-private room in a nursing home
- $39,132 per year for in an assisted-living facility (for a one-bedroom unit)
- $60 per day for an adult-day care center
- $19 per hour for a home-health aide
- $19 per hour for homemaker services
Source: Genworth 2011 Cost of Care Survey, April 28 2011. Figures have been rounded.
Click here to learn the cost of care in your area.
Q Who pays for long-term care?
A The nation’s largest source of financing for long-term care is Medicaid – the joint federal and state program that helps with medical costs for the poor. Medicaid is followed by out-of-pocket payments by the people receiving care and their families. These are the people who never purchased private long-term care coverage.
Medicare provides very limited coverage for nursing facility or home health care. Of the over 10 million Americans who currently receive long-term care, most rely heavily on unpaid help from family and friends.
While Medicaid is the largest payer of long-term care in America today, keep in mind recipients of this welfare program fall into one of two categories: Those who were already impoverished and those who spent down their income and assets to the poverty level before qualifying for government assistance.
Q If the odds and price tag are so high, why don’t more people have private insurance in place?
A In the combined 50 years that we've been in the long-term care insurance business, we've heard every excuse in the book. Typical ones included: It will never happen to me. My personal savings will be enough to cover the expense. The Federal government will eventually step in and pay for it. My family will take care of me. And last but not least… I’m already covered. I have Medicare, a Medicare supplement policy and major medical. I don’t need any more insurance.
Think you’re already covered? Think again.
Q Do Medicare, Medicare supplement, or major medical coverage pay for long-term care?
A Not to any significant extent. Medicare was designed to cover medical expenses, hospital bills and doctors fees. When it comes to long-term care, Medicare’s coverage is limited and restrictive. It pays only when your care is given in a skilled-nursing facility approved by Medicare and is given pursuant to a physician’s written plan of care. Plus, it must be daily skilled nursing care and must follow a hospital stay of at least three days. Remember, practically all long-term care is custodial, not skilled. And even if you meet all of the above requirements, Medicare will only pay outright for 20 days – and another 80 days with you paying approximately $140 per day of the cost. After 100 days, you’re on your own.
What about Medicare supplement insurance? “Medigap policies,” as they’re called, only cover the smaller deductibles and co-payments in Medicare. They do not cover long-term care.
What about major medical insurance? Again, it won’t help. Your medical insurance, like Medicare, covers acute care prescribed by a doctor and given in a hospital. It generally does not cover low-level custodial nursing care. If it does, it duplicates what Medicare will cover, with the same limitations and restrictions.
Q Will Medicaid cover long-term care?
A The good news is that Medicaid – the joint federal/state program that pays for medical care for individuals with low incomes and limited resources – will cover the costs of long-term care. The bad news is that individuals must deplete virtually all of their savings and assets to be eligible. The rules to qualify for assistance are strict and complicated – and those who meet the guidelines must demonstrate financial need to receive assistance.
To be eligible, you must own minimal assets – usually less than $2,000 – and contribute almost all of your income. If you’re married, your spouse generally cannot have assets exceeding approximately $110,000 (2010 figure) and can’t keep more than a modest amount of your income. Unfortunately, most people today pay for their care out of pocket until they’ve exhausted their savings, and then are forced to rely on Medicaid to pay for their care.
Q Can you hide or gift assets and then apply for Medicaid?
A The short answer is this: Yes, but it’s not easy. If you apply for Medicaid today, the government can look back five years to see if you sheltered assets in an irrevocable trust. If you transfer assets to your family for less than their “fair market value” – or purposely “spent down” to the $2,000 level necessary to qualify for Medicaid – the government can also look back five years. In either case – whether you’ve sheltered or gifted assets in that timeframe – you will not be eligible for at least some time.
Additionally, you could be denied benefits if you have $500,000 or more in equity in your primary home. Worse still, states have the right in some cases to force your heirs to sell your assets – including your home – after you’ve passed away to repay your Medicaid bill. This is called “Medicaid estate recovery.”
Q What are the options to pay for long-term care?
A Basically, you have four options to pay for long-term care:
- Rely on your family
- Self insure through either personal savings or a reverse mortgage
- Spend down your income and assets to poverty and let the government pay your bills through welfare
- Transfer the risk to an insurance company by purchasing private long-term care insurance
In other words, your only options to finance expensive care are family, cash, welfare, or insurance.
Q Which alternative is best for you?
A For most, the cash option will cause a situation where you will quickly deplete all of your assets, both liquid (i.e., easily convertible to cash) and non-liquid (i.e., your home, stocks and retirement plans). Welfare would come into play after your assets are gone since you cannot access state or federally funded programs until your net worth falls below the poverty line. Insurance, on the other hand, helps to keep you in your home or the facility of your choice with the highest quality of care; protects your income and assets; and helps to keep you from becoming a burden to your family.
So, for many Americans, the most sensible, cost effective solution is to secure private long-term care insurance. But not everyone needs it – and not everyone that does need it can qualify for it.
Q Do you need long-term care insurance?
A Not everyone does. To determine if private insurance is the best option for you from a financial standpoint, follow this simple rule of thumb:
If you have a net worth of between $250,000 and $2 million (excluding your house and car), you should seriously consider long-term care coverage. Those with less can spend down their assets and apply for Medicaid. Those with more can usually pay for care using their own financial resources.
To determine if private insurance is the best option for you from a personal standpoint, consider what would happen to your family if they had to care for you on a daily basis for an extended period without outside help. Is it even feasible? And is that something you would want to burden them with?
Q Are your insurable?
A Not everyone is. Each applicant for long-term care insurance goes through a health-screening process called “underwriting.” Underwriters look carefully at your health background and generally consider the following:
- Your ability to perform the activities of daily living
- Your ability to live independently
- Your height and weight
- Your medical history
Since you must be healthy enough to qualify for this coverage from a health screening standpoint, the sooner you apply, the easier it is to secure coverage.
► Action to take: Do you want to find out if you are insurable? If so we strongly recommend you consult with one of our licensed insurance professionals. Simply call us at 800-341-0297. There is no cost or obligation.
Q What is long-term care insurance and what does it cover?
A Long-term care insurance helps pay for the care you need when you can no longer care for yourself. Today’s “comprehensive” long-term care policies cover all levels of care (i.e., skilled, intermediate and custodial) in a variety of settings: your own home, an adult-day care home, an assisted-living facility, a nursing home and/or a hospice facility. This coverage can help protect your family’s financial future and peace of mind – and your own investments and savings.
It has been said that long-term care insurance picks up where your health insurance and Medicare leave off. It’s also been said that, if life insurance is protection against dying too soon, then long-term care coverage is protection against living too long. Remember, one long-term illness or injury may jeopardize your entire accumulated retirement savings.
Q What are the benefits of owning private long-term care insurance?
A Long-term care coverage can help:
- Protect your income and assets
- Maintain your independence and dignity
- Keep you at home where you are most comfortable for long as possible
- Assure access to the highest quality care in the setting of your choice
- Avoid burdening your family with care giving responsibilities
- Avoid going on welfare
In short, it gives you peace of mind. Once this risk is insured, you’re free to spend your money on the things you want.
Q What is the most important thing to consider when researching long-term care insurance?
A Choosing a strong, experienced long-term care insurance carrier is the most important decision you’ll make when you decide to purchase long-term care insurance.
Here are some guidelines for selecting the right company:
- Strength, stability, size and experience
- Ratings for claims-paying ability by independent sources such as A.M. Best, Standard & Poor’s, Moody’s and Fitch
- Ranking by COMDEX, a composite of all the ratings a carrier has received by the above mentioned agencies, with a score of 100 being the best.
- Longevity in the long-term care insurance industry
- Name recognition of the insurance company
- Approved to offer a a "State Partnership Policy"
- History of rate stability versus rate increases
- Reasonable premium rates
- Stringent underwriting process
- A mutual company – especially one that is paying a dividend – versus a stock company.
Fact: At the time of claim, the depth of commitment, integrity and financial strength of the insurance company is what matters most.
► Action to take: To learn about the financial strength, stability and experience of an insurance company you’re considering, we recommend you contact one of our licensed insurance professionals at 800-341-0297.
Q How do individual long-term care insurance policies work?
A You pay an annual premium – which is based on your age, health and the policy benefits you select – and in return, the insurance company gives you access a “pool of money” when you qualify for coverage. When you apply, you can design a plan to fit your needs and budget. To do so, you make four choices. You select:
- A benefit period: This is the length of time, after your claim has been approved, which the insurer will pay for your care.
- A daily or monthly benefit: This is the maximum amount per day or month the insurer will pay for your care.
- An elimination period, or deductible: This is the number of days of covered care which you must pay out of pocket (or wait, depending on the type of elimination period you’ve selected) before the policy will pay benefits. How you satisfy the deductible varies between policies and is important to understand.
- An inflation protection option: Available for additional premium, this will increase your daily maximum amount over time to help keep up with inflation. There are typically three options and it’s important for you to understand how each works.
Q How do you determine your policy’s total “pool of money”?
A Your total “pool of money,” is the maximum amount of proceeds you have available to you throughout the life of your policy. To determine it, you simply multiply your daily or monthly benefit amount by the number of days or months in your benefit period.
Example 1: If you selected a daily benefit of $150 and a five-year (1825 days) benefit period, your total pool of money on day one would be $273,750 ($150 x 1825 days).
Example 2: If you selected a monthly benefit of $4500 and a five-year (60 month) benefit period, your total pool of money on day one would be $270,000 ($4500 x 60 months).
Of course, if you elect inflation protection, your total pool of money will increase over time.
Q What is an inflation protection option?
A An inflation protection option – available for additional premium – will increase your benefit amount and pool of money each year to help cover the cost of inflation. Most policies offer a variety of inflation options, thus allowing you to choose the one that best meets your needs and fits your budget. It’s one of the most important decisions you have to make.
Typical built-in, or automatic inflation protections are listed below in order of most beneficial to least – and also most expensive to least:
- 5%, 4%, or 3% compound increases – Your benefit amount and total pool of money will increase each year by either 5%, 4%, or 3% (your choice) of the previous year’s amount, doubling your insurance every 15 to 18 years depending on your selection.
- Consumer Price Index compound increases – Your benefit amount and total benefit or pool of money will be adjusted each year on a compounded basis according to the increase in the Consumer Price Index – the most widely used measure of inflation.
- 5% simple increases – Your benefit amount and total benefit or pool of money will increase by 5% or your original amount; doubling your insurance every 20 years.
All of these automatic options come with “level-funded premiums,” meaning your premium does not change even though coverage amount increases each year.
Many insurers now also offer a “guaranteed purchase option” (also known as a “future purchase option”) which gives you the opportunity to increase your benefit amount and pool of money at some point in the future – with no health screening. Increases are offered every set number of years (usually three) by a certain amount (usually 5% compounded). For each increase, there’s an additional premium based on your new, advanced age. Also, with most plans, if you refuse the increase two or three times in a row, the insurer will stop offering them.
► Action to take: Want advice on selecting the right inflation protection option? We strongly recommend you consult with one of our licensed insurance professionals who can answer your questions and help you make intelligent decisions. Simply call us at 800-341-0297. There’s no cost or obligation.
Q What other policy features and options are available?
A There is a vast array of additional features and options – some worthy and some not so worthy.
Additional features commonly included at no additional cost include:
- Bed reservation
- Care Coordination
- Informal caregiver training
- International coverage (usually at a reduced amount)
- Alternate plan of care
- Waiver of premium
Optional features generally available for additional premium include:
- Return (or refund) of premium upon the death of the insured (less claims)
- Restoration of benefits
- Dual premium waiver
- Survivorship spouse premium waiver
- Shared care
- Nonforfeiture benefits
► Action to take: Want a complete description of each of these additional features and options? We strongly recommend you consult one of our licensed insurance professionals who can answer your questions and help you make intelligent decisions. Simply call us at 800-341-0297. There’s no cost or obligation.
Q How are your benefits paid to you?
A The answer depends on how your policy is structured. Basically, there are two types: reimbursement and per diem.
Reimbursement policies pay the actual expenses you incur up to your benefit amount. If the cost of care is less than your benefit amount, the remaining sum is left in your policy to cover future care. If it’s more, you pay the difference out-of-pocket. With a reimbursement plan, your coverage is not limited by “time,” but rather by the total dollars in your pool of money. Once the last dollar is spent, your coverage ceases.
Per diem policies pay a fixed-dollar amount (i.e., your full daily or monthly benefit amount) once your claim has been approved. There are two versions; “indemnity” and “disability.” Under an indemnity plan, you must actually be receiving covered care to get paid your full benefit amount. Under a disability, or cash plan, you get paid the full cash amount once you’re certified as needing covered care – whether you’re actually receiving covered care or not.
► Action to take: If you want to learn which policy type is the most cost-effective for you – including the percentage cost difference between the three – we strongly recommend you consult one of our licensed insurance professionals at 800-341-0297.
Q What triggers the payment of your benefits?
A You become eligible to receive benefits once a licensed health care practitioner has certified that you are “chronically ill” and after you’ve satisfied your elimination period. Being chronically ill means either:
- You are certified as being unable – without substantial assistance from another person – to perform at least two of the following six “Activities of Daily Living” (bathing, continence, dressing, eating, toileting and transferring) for a period of at least 90 days. Or…
- You require substantial supervision to protect yourself from threats to health and safety due to severe cognitive impairment, such as Alzheimer’s disease.
Q How do you satisfy your elimination period, or deductible?
A There are various methods for calculating how to satisfy your elimination period – some notably better for you than others. The three most common methods are calendar day, cumulative day and consecutive day. Most newer policies use the cumulative day method, which means every day you pay for your care counts toward satisfying the total number of days required – and the days of service you pay do not need to be met in a row. With most plans, you only have to meet your deductible once in your lifetime. Since this is an amount you have to pay out-of-pocket before benefits begin to be paid, it’s important to understand this requirement.
► Action to take: Want tips and advice on selecting the right elimination period? We strongly recommend you consult one of our licensed insurance professionals at 800-341-0297.
Q How are policies treated from a tax standpoint?
A The majority of long-term care policies sold today are “federally tax-qualified (TQ) plans.” This means your premiums for long-term care insurance can be applied toward meeting the minimum amount required for medical expense deductions contained in the federal tax code. There are limits, based on your age, for the total amount of premiums paid that can be applied toward the deduction. Of course, you should check with your tax adviser to see whether you are eligible to take this deduction.
The real advantage, though, of owning a TQ policy is that your insurance proceeds are paid free from both federal and state income taxes.
Q Are there state tax incentives for purchasing LTC policies?
A In many states, the answer is “yes.” To learn if your state does, contact one of our licensed insurance professionals at 800-341-0297.
Q Are there tax incentives for business owners to purchase LTC insurance?
A Business owners have very compelling reasons to consider having long term care insurance in place – for themselves, their key executives, or even their employees. Employers are able to deduct as a business expense any contributions they may make toward paying their employees premium costs for long-term care insurance. Plus, employer contributions are excluded from their employees taxable income.
To learn more about the tax advantages and financial benefits of long-term care insurance for business owners and their employees, contact one of our licensed insurance professionals at 800-341-0297.
Q What is a State Partnership Policy?
A The long-term care insurance State Partnership Program was developed in the 1980s to encourage people to purchase private long-term care insurance instead of relying on Medicaid. If people who purchase qualifying policies deplete their insurance benefits, they may then retain a specified amount of assets and still qualify for Medicaid, provided they meet all other Medicaid eligibility criteria. The amount of assets you can protect from spend down (and keep in the family) is generally equal to the total amount of benefits paid by your Partnership policy.
Originally, these programs operated in only four states. However, the Deficit Reduction Act of 2005 now allows all states the option to enact Partnership plans. Policies in these new programs must meet specified criteria, including federal tax-qualification, identified consumer protections and inflation protection provisions. To date, over 20 states have introduced Partnership Programs.
► Action to take: If you want to learn which states have approved Partnership Plans (not all have), we strongly recommend you consult one of our licensed insurance professionals at 800-341-0297.
Q What does long-term care insurance cost?
A The actual cost of traditional long-term care insurance varies widely, depending on your age, gender, health, marital status, level of benefits, deductible, options you choose and the insurer’s pricing. The American Association for Long-Term Care Insurance, a respected trade group, conducts an annual price comparison and they found that the average cost for a 55-year old couple is $2,350 (combined), but the range is between $2,085 and $3,970 a year.
► Action to take: Would you like customized premium quotes based on your age, health and policy design? If so, we recommend you consult one of our licensed insurance professionals at 800-341-0297.
Q Will your premiums increase as you get older?
A In general, premiums are projected to stay the same year-after-year. You cannot be singled out for a rate increase due to advancing age or declining health. However, companies do reserve the right to increase premiums in the future but only if they do so for the entire class of policyholders in your state. In nearly all states, insurers cannot increase premiums without approval from the department of insurance.
Q What are some ways to keep your premium as low as possible?
A There are a number of ways to keep your premium affordable. Here are a few:
- Shop around since premiums vary widely for similar coverage.
- Go with a longer elimination period, which can save you 20% or more per year.
- Select a lower benefit amount.
- Pick a shorter benefit period.
- Apply sooner rather than later.
- Lock in all available discounts.
- Consider simple or CPI-based inflation protection versus 5% compound.
- Consider co-insuring some of risk by buying some insurance and, if necessary, pay the difference out-of-pocket. Remember, some coverage is better than none.
- Weigh optional features against cost since some are expensive and unlikely to ever be used.
- Pay your premiums annually (versus semi-annually, quarterly, or monthly, where there is an additional charge).
- Take advantage of tax breaks.
Q What is the best age to apply?
A The sooner, the better. Here are three good reasons not to delay:
- Your premiums are based on your age at the time of application. So the sooner you apply, the less expensive it will be to get coverage over the long run.
- Once you’re approved, your premium cannot be increased based on your advancing age or declining health. (It can, however, be increased if the company does so for everyone with the same policy in your state.)
- The longer you wait, the greater your chance of becoming uninsurable. Approximately one-in-four applicants are declined due to pre-existing medical conditions.
Q At what age can you apply?
A With most policies, you can apply between the ages of 18 to 79. Some insurers accept applications up to age 84. The average age of an applicant today is 58.
Q What is required to apply for a long-term care insurance policy?
A You complete an application and can submit it with one to two month’s worth of premium. There is no physical exam required unless you’re of a certain age and haven’t had a physical in the last two years. The insurer may review your medical records and may have a nurse interview you, either by phone or in person. That’s it. Any premium you submit with your application is 100% refundable to you if you’re declined – or if you change your mind within your 30-day free-look period.
Q Where do you buy long-term care insurance?
A Most long-term care coverage is sold by insurance agents and financial planners. There are two types of agents: “independent” (or brokers) and “career” (or captives). An independent agent represents two or more insurers and, in theory, searches the market for his or her client to find the right plan from the right company at the right price. However, no independent agent represents all available policies.
A career agent is a representative who, by contract, can act for only one carrier and sell only that company’s policy. Some captive agents are allowed to sell other companies policies if their company’s plan does not fit the needs of their client, but they must first try to place the business with their primary carrier.
For free policy comparisons and personalized price quotes on today’s leading traditional long-term care plans, contact one of our licensed insurance professionals at 800-341-0297.
Q How do you find the right policy from the right carrier at the right price?
A That’s easy. Simply consult with one of our licensed insurance professionals who can answer all your questions and help you make an informed decision. We’ll help you determine what type of coverage is most appropriate and how much you can afford. Then, we’ll impartially shop the market. Since rates can vary from carriers by as much as 30% to 50% for similar coverage, it’s paramount you consult with a representative who will take the time to thoroughly compare the leading carriers and policies.
For a free, no-obligation quotes, please complete and submit the FREE Quote form at the top of this page or call 800-341-0297.
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