What is long term care insurance?
The phrase “long-term care” can mean many things. In its most basic sense, it is defined as the variety of services necessary for someone who requires some form of daily, ongoing assistance.
The needs of an individual can range from requiring around-the-clock care to someone who simply needs assistance performing basic daily living activities such as:
- Getting dressed
- Using the toilet
- Transferring (to or from bed or chair)
- Caring for incontinence
Now knowing what it is, let’s find out, do I need this type of coverage?
What does LTC insurance cover?
In the past, most long term care insurance policies would only cover care that was received in a skilled nursing home facility. This meant that the insured would typically need to qualify, based on a need for medically-necessary care.
Today, however, these policies have come a long way, and the range of coverage on these policies has expanded a great deal. Most long term care policies that are offered now will provide skilled nursing home care, as well as care in a(n):
- Assisted living facility
- Adult daycare center
- In-home care
In addition, long term care insurance policies may also provide additional benefits, such as respite care, so that a primary care provider can take a break, as well as funds for modifying the insured’s home, such as installing grab bars and/or wheelchair ramps.
How Does LTC Insurance Work?
In return for the payment of a premium, LTC insurance will pay out a stated benefit to an insured who qualifies for benefits. In most cases, there are two ways that an individual will qualify. These include:
- Being assessed by a medical professional as having a cognitive impairment, or
- The inability to perform at least two of six “activities of daily living,” or ADLs. (These ADLs include bathing, dressing, continence, toileting, feeding, and transferring).
Benefit Option Explanation
There are several different components that can make up a long term health care insurance policy. These include:
- Dollar Amount of Coverage – One of the key areas of LTC insurance is the dollar amount of coverage. In this case, for instance, there are some insurance plans that pay benefits based on a monthly cost of care, while others will payout based on a daily cost. Policies can be further broken down between “reimbursement” coverage and “indemnity” coverage. Here, an indemnity policy will pay out the set dollar amount that is stated in the policy, regardless of how much the case actually costs. On the other hand, a reimbursement policy will, as its name suggests, reimburse the insured for their long term care costs, up to a set daily or monthly dollar figure. It is important to know whether the long term care plan you are considering is an indemnity or a reimbursement policy.
- Benefit Period – Another key component in a LTC policy is the benefit period. When an individual initially applies for coverage, they can choose how long the policy will pay benefits. For instance, they could choose two years, three years, five years, or in some cases, as long as ten years or more. In the past, some policies even offered a lifetime benefit option, where benefits were paid out for as long as the insured lived. These policies, however, are no longer offered by most insurers, due in large part to their expense.
- Inflation Protection – Because it may be a number of years between the time a long term care insurance policy is purchased and the time that the benefits are needed, it is important that the daily or monthly dollar amount of coverage keep up with the rising cost of inflation. That way, as the actual cost of care, goes up, the amount of benefit that is paid out will also go up on a regular basis. Long term care policyholders can typically choose from either simple or compound inflation. Options that are based on the annual change in the Consumer Price Index (CPI) are also oftentimes available.
- Waiting Period – Just like with many other forms of insurance coverage, long term care policies have a type of deductible. In this case, it comes in the form of a waiting period aftercare begins, but before the policy’s benefits will pay out. Another name for the waiting period is the elimination period. The time of this period can differ, based on what is chosen by the insured. But common long term care policy elimination periods are 30 days, 60 days, or 90 days. Many long term care insurance policies will also offer a 0-day elimination period, where the benefits begin as soon as the insured qualifies for them. As with other insurance policies, the longer the deductible period is, the lower the amount of premium will typically be. It is important to note that, during the time of the waiting period, the insured will have to pay the cost of his or her care. They must also be receiving paid care during this time period.
Cost of Long Term Care
There are several different variables that come into play when determining your long term care insurance cost. These will usually include the insured’s age and health condition.
In addition, other factors that affect the cost of LTC insurance are:
- Dollar amount of coverage
- Length of policy benefits
- Elimination / Waiting period
- Inflation protection
- Insurance carrier
Do I need coverage?
If you are asking yourself, “is long term care insurance worth it?” here are some things to think about.
Contrary to what many people believe, programs such as Medicare and private medical insurance do not pay for the majority of long-term care services that are needed by most people. These needs typically require assistance with personal care activities such as bathing and getting dressed.
So, for many people, planning is essential in order to obtain the necessary funds required to pay for such care. And long-term care insurance is one of the best ways to ensure that you won’t have to dip into savings if you require this important, and expensive, care.
So, if you don’t want to spend your own money for long term care needs, you do need long term health care insurance.
Reasons to buy this insurance
There are a number of good reasons to consider buying a policy, with the primary reason being that this type of insurance can help you to protect assets from the high cost of long term care.
According to Genworth’s 2017 Cost of Care Survey, the average monthly cost of a semi-private room in a skilled nursing home facility (in 2017) was over $7,100. This equates to an annual cost of over $85,000.
Even lower levels of care can be extremely expensive, with the average monthly cost of an assisted living facility at $3,750, and the average cost of homemaker services at nearly $4,000 per month.
With an LTC insurance policy in place, you don’t have to rely on loved ones for your care but rather can choose to receive professional care, either in a facility or at home, without having to rely on adult children for these needs.
Contrary to popular belief, programs like Medicare pay very little, if any, long term care expenses. And, in order to qualify for Medicaid coverage, it is required that you spend assets down to your state’s poverty level.
With that in mind, long term care coverage can provide you with both options and peace of mind.
What it won’t provide*
Although a LTC policy can offer you protection and peace of mind from the high cost of care, there are some areas where this type of insurance may not provide coverage, such as:
- Surgical procedures
In addition, it can be difficult to qualify for a policy if you have been diagnosed with various health conditions, such as Parkinson’s disease, Alzheimer’s disease, or stroke. So, locking in your coverage sooner rather than later is recommended.
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