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 plans.
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. 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 care.
“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:
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 [it].”
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:
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:
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 preexisting conditions:
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:
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.”
Update: January 2018