Last Updated: April 4, 2013
Retired teacher Anne Schuessler decided to purchase Long-Term
Care Insurance (LTCI) based on the uncertainty of the future. "I
just wasn't sure of what's ahead for me and I felt this was kind of
a safety net," says 66-year-old Schuessler, who lives in Cedar
Rapids, Iowa. "My children live far away. If I needed some extra
help, I could get it without having to bother my children."
Schuessler can't know if she'll ever need long-term care, but
she does know her LTCI plan will help pay for long-term care costs,
lessening the impact a health care crisis would have on her
children. When a person can no longer care for herself, long-term
care helps with the tasks of daily living, such as bathing or
eating. This assistance can be necessary for many reasons: after an
injury or debilitating illness; due to chronic illness or
disability; because of a severe cognitive impairment, such as
Alzheimer's disease; or due to deteriorating physical or mental
LTCI is a relatively new phenomenon, as this arm of the industry
began just thirty-three years ago. Only about 8% of Americans have
purchased LTCI, but as the average life expectancy rate continues
to climb, more people are realizing the need to plan for a long
life. Whether you are researching LTCI for yourself or a loved one,
it is important to know the benefits and potential drawbacks of
purchasing a plan, policy and premium terms, and the nature of LTCI
The Financial Impact of Long-Term Care Costs
Long-term care costs can easily drain one's finances. According
to the Harvard University Study in Compensation & Benefits
Review, 72% of Americans become impoverished after just one year of
nursing home care. Long-term care isn't typically covered by
private medical insurance and major medical insurance plans.
Medicareonly pays for skilled and rehabilitative care after a
three-day hospital stay; this excludes custodial care, the
assistance someone needs for daily living. Medicaid only covers
nursing home bills after a loved one is bereft of assets.
Statistics from the Genworth Financial 2012 Cost of Care Survey
exemplifies why so many elderly Americans lose all their savings
and assets due to healthcare costs. The national average annual
cost for a private room in a nursing home is $70,912, based on the
2006 figures. If someone needs 40 hours of
in-home care for one year, the national average cost is
$56,717. And these average costs are rising every year by about 5
to 8%. Often a person only needs long-term care for a limited
period of time before returning to good health, but even this can
be a catastrophic financial event. An LTCI policy protects against
the risk of large out-of pocket costs associated with this type of
The Benefits of Long-Term Care Insurance
When a person needs long-term care, an LTCI plan can minimize
the financial and emotional impact of the situation, says Wendy
Boglioli, a senior sales specialist for Genworth Financial, the
leading provider of LTCI in the United States. LTCI plans are both
about preserving one's lifestyle and deciding how long-term health
care needs will be met as they arise. Purchasing an LTCI policy
- Preserve savings and assets for family and friends;
- Help maintain one's financial independence from family and
friends, often eliminating the need to borrow money for long-term
- Relieve family and friends of care-giving tasks, as paying for
professional care becomes an affordable option.
- Allow a loved one to choose where he receives care. If Medicaid
pays for care, a nursing home is the only option. People can design
their LTCI policy depending on where they want to receive care: in
a nursing home,
in the community, at home, or in an assisted living
- Expand the range of services a loved one receives, including:
care from visiting nurses, home health aides and friendly visitors
programs; home-delivered meals and chore services; and time in
adult daycare centers and respite services for caregivers.
The benefits a loved one receives from a LTCI policy also
depends on the type of plan she purchases. "It's not a
cookie-cutter policy," says Boglioli. "Educate yourself so you can
make a good informed decision. Know what you want, get what you pay
for, and make sure it covers everything you want or you do not buy
Policy and Premium Terms
There is a vast array of options in LTCI policies. By doing
research and comparing plans, individuals can tailor their plans to
fit their needs and budget. Finding a financial advisor that is
versed in the field is a must. The advisor can determine what your
needs are and how much you can afford in terms of benefits. The
monthly premium a person pays for his LTCI depends on the following
Age and Health: Most companies offer policies to people between
the ages of 18 and 85 (although Genworth Financial only insures
people up to age 79). While it might sound like a good idea to wait
until a person reaches retirement age, the older one is, the higher
the premium will be. For example, a 55-year-old might pay twice or
even three times the amount a 50-year old pays in premium costs.
Also, since a carrier can turn an individual down to due to health
conditions, it's easier to buy LTCI before health issues arise.
After an individual buys a policy, premiums should remain the same
unless the premiums are increased for an entire class of
Daily or Monthly Benefit Amount: This is the amount available to
pay for long-term care costs, either stated in terms of a daily or
monthly maximum. For example, a benefit of $100 a day will pay for
up to $100 of covered care and services.
Benefit Period: This is the length of time a plan will pay the
benefit amount. It is usually stated as a number of years.
Elimination Period: This is similar to a deductible amount, but
is stated as a number of days, usually anywhere between 30 to 180
days. The insured person must pay for her care for this number of
days before any benefits are paid for.
Inflation Protection Option: This is an optional feature that
protects your benefit amount from inflation. It increases the
benefit amount on a yearly basis so coverage stays abreast of the
increase in care costs. Look for an inflation guard that increases
the benefit amount by 5% compounded annually. It is much cheaper to
forego this option, but since long-term care costs go up by at
least 5% (if not more) each year, a $100 daily benefit will not be
a sufficient coverage amount in the year 2030, for example. Most
insurance brokers recommend inflation protection unless the insured
person is 75 or older.
Because of these five variables, there is no average cost for
LTCI policies. But there is one fast rule: The younger and
healthier a loved one is, the less expensive a plan will be. With
more than a hundred companies offering LTCI, it's important to be a
knowledgeable consumer. Learning the following terms can help with
your policy research:
- Financial Strength Rating: Buying from a reputable company is
essential. Check a company's financial strength rating at www.AMBest.com or at www.standardandpoors.com.
Consumer Reports recommends eliminating companies with ratings
below a B.
- Benefit Triggers: Benefits kick-in with a trigger, which is
pre-defined in a policy. Usually the insured cannot perform at
least two activities of daily living, such as using the bathroom or
dressing; or the insured has a severe cognitive impairment, such as
- Reimbursement or Indemnity: Most plans are reimbursement plans,
meaning the insured person pays his bills, and the insurance
company reimburses him for eligible expenses. Indemnity plans,
which are more expensive, pay the full daily or monthly benefit
amount regardless of the insured person's bills.
Things to Consider Before Buying a Plan
LTCI is not a suitable or affordable option for everyone. "I
love tuna fish, but I'm not eating that three times a day to buy a
policy!" says Boglioli. "Clearly, it's not appropriate, financially
or health-wise, for everyone." A person should not need to change
her lifestyle to afford a policy. A financial advisor should be
able to look at an individual's savings and assets to see if a plan
makes sense. Boglioli advises that an LTCI policy shouldn't cost
more than 7% of your annual income.
Qualifying for a plan also depends on health. Most companies
will not insure people with the following preexisting conditions:
Alzheimer's disease, dementia, multiple sclerosis, Parkinson's
disease, or a previous stroke. Sometimes an individual must pass a
physical before he is offered coverage.
Before purchasing a plan, it's important to read and understand
the entire policy. The insurer should present you with an outline
of coverage, describing the policy's benefits, limitations, and
exclusions. Use this to compare plans to each other. According to
theGuide to Long-Term Care Insuranceby America's Health Insurance
Plans (an industry trade association), the National Association of
Insurance Commissioners recommends looking for a policy that
- One year of nursing or home health care coverage, including
intermediate and custodial care.
- Coverage for Alzheimer's disease.
- A guarantee that a policy cannot by canceled, non-renewed, or
otherwise terminated because you get older of suffer deterioration
in physical or mental health.
- The right to return a policy within 30 days of purchasing the
policy, which is called a free-look period.
- No requirement that the insured: first be hospitalized to
receive nursing or home health care benefits; first receive skilled
nursing home care before receiving intermediate or custodial
nursing home care; or first receive nursing home care before
receiving home health care.
Although it is impossible to anticipate the state of health a
person will have years from now, an LTCI policy can help a person
plan for the future and buy some peace of mind. "I am more
comfortable knowing I have [LTCI]. It makes a huge difference,"
says Anne Schuessler. "If people are seriously considering LTCI,
they can tailor something to suit their needs and budget."