Last Updated: February 20, 2014
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 health.
LTCI is a relatively new product, as this arm of the industry
began just 33 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
home care. Long term care isn't typically covered by private
medical insurance and major medical insurance plans. Medicare
only 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 of their savings
and assets due to healthcare costs. The national average annual
cost for a private room in a nursing home is $83,950, based on the
2012 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 can:
- 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 caregiving 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
Researching 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
well 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 premium terms:
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.
This is the length of time a plan will pay the benefit amount. It
is usually stated as a number of years.
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.
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
hundreds of 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 Alzheimer's disease.
- 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
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. Often companies
require an individual must pass a physical before he is offered
coverage. Most companies will not insure people with the following
- Alzheimer's disease
- Multiple Sclerosis
- Parkinson's disease
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 the Guide to Long-Term Care Insurance by America's
Health Insurance Plans (an industry trade association), the
National Association of Insurance Commissioners recommends looking
for a policy that includes:
- 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."