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Long-Term Care Insurance

from Pepper, Johnstone & Company

Long-term care insurance (LTC or LTCI) is a type of insurance designed specifically to cover the costs of long-term care services, most of which are not covered by traditional health insurance, disability insurance, Medicare, or Medicaid. Long-term care is needed when supervision is required due to a severe cognitive impairment, such as Alzheimer’s disease, or when a person can no longer perform essential Activities of Daily Living (ADLs):

Bathing
Dressing
Eating
Toileting
Incontinence
Transferring - help moving from a bed, chair, or vehicle

Most policies cover services such as nursing home care, home health aides, assisted living, laundry, and housekeeping, and long-term care insurance typically covers the costs of long-term care services, including personal care like help with bathing and dressing. Most long-term care policies cover the same types of costs, from nursing home stays to home health aides, but they also have limitations and exclusions, so it's important to review these before purchasing. The average use of long-term care services is about 3 years, and most long-term care claims begin with care at home, rather than in a nursing home.

Long-term care insurance provides coverage to pay for services provided in nursing homes, assisted living facilities, adult day care centers, and in the comfort of your own home. There is considerable flexibility and numerous coverage options that allow you to select a range of benefits so you can obtain the services you need in the settings that suit you best. Daily benefit and daily/monthly benefits define the maximum payout the policy will cover for care services. The duration of long-term care insurance benefits can vary, with many policies covering costs for two to five years. Most long-term care insurance policies have a waiting period, also known as an elimination period, before benefits begin. To be eligible for long-term care insurance benefits, you must be chronically ill and unable to perform at least two activities of daily living for at least 90 days, and a licensed health care practitioner must certify your eligibility and prescribe a plan of care. Long-term care benefits are triggered when these conditions are met, and most policies require medical underwriting, meaning eligibility can be affected by pre-existing conditions.

The cost of long-term care insurance is based on the type of services you choose to have covered, the benefit amount, the benefit period, your age at the time of purchase, and any optional benefits you select, such as inflation protection. The average annual cost of long-term care insurance for a 55-year-old man is approximately $900 for $165,000 of coverage, while for a woman it is about $1,500 for the same coverage, and women typically pay higher premiums due to longer life expectancy. Higher premiums are associated with older age, poorer health, and for women, the cost of long-term care insurance increases as they age. Selecting more coverage or a longer benefit period will increase premiums. Long-term care expenses tend to increase over time, so planning for long-term costs is essential. It's important to assess how much care you may need when choosing a policy. Certain long-term care insurance premiums and medical expenses may be tax-deductible, and qualified policies offer tax advantages. Some life insurance policies offer a long-term care rider as an add-on for additional coverage, and hybrid insurance policies combine long-term care insurance with life insurance or an annuity, providing a death benefit if care is not utilized. Some people use a life insurance policy with a long-term care rider to help fund long-term care. In some states, partnership policies allow individuals to protect assets when they qualify for Medicaid after using LTC insurance benefits. Government programs may provide long-term care assistance for veterans and low-income individuals, and Medicaid covers long-term care costs, but eligibility is based on income and asset tests. Using personal savings to pay for long-term care costs can provide greater flexibility, but it is important to consider the impact on your retirement plan. LTC insurance is mainly designed for individuals with significant assets that they wish to protect from being depleted by care costs. You face a crucial decision as you get older: Should you rely on your retirement nest egg and other savings to effectively 'self-fund' your costs or should you consider the up-front cost of long-term care insurance? The best time to purchase long-term care insurance is typically between the ages of 50 and 65.

When considering long-term care insurance, individuals should evaluate their eligibility for government programs and the financial stability of insurers. Insurer reliability can be assessed through financial strength ratings from agencies like A.M. Best. Authoritative sources such as the National Association of Insurance Commissioners and the American Association provide reports and guides for consumers, including the National Association of Insurance Commissioners' 'A Shopper's Guide to Long-Term Care Insurance' as a valuable resource.

Introduction to Long-Term Care

Long-term care encompasses a broad spectrum of services designed to support individuals who need help with daily living activities due to chronic illness, disability, or aging. These services can include personal care, such as assistance with bathing, dressing, and eating, as well as health-related support like medication management and therapy. Long-term care can be provided in various settings, including at home, in assisted living facilities, or in nursing homes, depending on the individual’s needs and preferences.

Understanding the scope of long-term care is essential for anyone planning for the future. With nearly 70% of Americans turning 65 expected to require some form of long-term care services, preparing for these needs is more important than ever. Long-term care insurance offers a way to manage the financial impact of these services, ensuring access to quality care and helping individuals remain independent for as long as possible. By planning, you can secure the support and services you may need, while protecting your health, assets, and peace of mind.

Why You Need Protection

Most of us understand the importance of insurance, which is why we pay premiums to ensure that our car, home, and personal belongings will be repaired or replaced when damaged. Given this, it should also make sense to make a similar commitment to our own well-being by purchasing long-term care insurance; however, many families delay coverage because they think long-term care insurance is just for the elderly. This mindset no longer holds and can prove to be very costly for you and your family. Sporting accidents, disabling events such as spinal cord injuries or strokes, and debilitating diseases such as Multiple Sclerosis, Lou Gehrig’s, and Parkinson’s can happen at any age to anyone. Consider the following:

Nearly 40% of people requiring long-term care services are working-age adults.1
There is over a 70% chance that Americans age 65 and older will require some form of long-term care services.2
The average annual cost of a nursing home stay is $77,745 annually3, and 10% of residents will stay 5 years or longer.4
The average nursing home/nursing facility stay is 2.4 years.5

When long-term care is needed, family caregivers often take on significant emotional and financial responsibilities, which can place a heavy burden on family members. Planning with long-term care insurance can help ease the caregiving responsibilities of family members, help families stay more confident about future care decisions, and reduce the burden on family caregivers, providing both financial protection and peace of mind for your loved ones.

Why You Can’t Count on Medicare or Medicaid

While most Americans age 65 and older are eligible for Medicare, coverage for long-term care services is limited. Medicare wasn’t created to properly pay for assisted living, adult day care, nursing home care, or care at home. This is why Medicare requires a minimum 3-day hospitalization before paying any long-term care costs. Typically, it only pays the costs for the first 20 days of each benefit period in a skilled nursing home and only a portion of the costs for days 21 – 100. As helpful as some government programs may be, they do not provide the adequate coverage or the freedom of choice provided by long-term care insurance. Choices that you or someone you love may want.

Understanding Long-Term Care Costs

Estimating the cost of long term care is a critical step in determining how much long term care insurance coverage you may need. The expenses associated with long-term care can vary widely based on the type of services required, the location of care, and the length of time care is needed. For example, the average annual cost of an assisted living facility can range from $40,000 to over $100,000, depending on the state and the level of care provided. Nursing home care and specialized services can be even more expensive.

Resources like the Genworth Cost of Care Survey offer valuable, up-to-date information on long-term care costs in your area, helping you make informed decisions about coverage. It’s important to remember that long-term care expenses can quickly deplete savings and disrupt retirement plans if not properly managed. By understanding potential long term care costs and securing adequate insurance coverage, you can protect your financial situation and ensure access to the services you need.

Help Protect Your Lifestyle and Your Family

Spending a long time in a nursing home or under home care is not something we like to think about; nevertheless, as medical science increases the average life expectancy, a growing number of Americans are finding themselves unable to live independently. At the same time, nursing homes and home health care are becoming extremely expensive, primarily due to rising medical costs. Knowing this, people purchase long-term care insurance:

To help avoid depending on family or friends
To maintain options regarding how and where they receive care
To preserve future independence
To avoid using retirement savings or liquidating personal assets, including protecting a primary residence when appropriate, to pay for long-term care services

While some people with substantial assets choose to self-fund, the majority still need to assess future care needs carefully. When planning for long-term care insurance, it is important to assess how much care you may need in the future to ensure your coverage matches your potential needs and associated costs.

Community Living Options

Community living options provide a supportive environment for individuals who wish to maintain their independence while receiving necessary care services. Choices such as adult daycare and continuing care retirement communities are designed for those who are still active but may need some assistance with personal care or daily living activities. These settings offer a blend of autonomy and support, allowing residents to engage in social activities, access health services, and receive help as needed.

When evaluating community living options, it’s important to consider the range of long-term care services and support provided. Plans may include personal care, health monitoring, and some policies also help pay for adult daycare and other non-institutional support services when eligible. Community living can be an excellent way to remain connected, active, and independent, while ensuring that help is available when required.

Policy Features and Options

Long-term care insurance policies offer a variety of features and options that can be tailored to your unique needs and financial situation, and some return about 60% to 65% of total premiums paid in benefits over time. Key elements to consider include:

Benefit Triggers: These are the conditions that must be met before your policy begins to pay benefits, such as the inability to perform a certain number of daily living activities or the presence of cognitive impairment.
Elimination Period: This is the waiting period between when you become eligible for benefits and when the insurance company begins paying for long-term care services. Choosing a longer elimination period can lower your premiums, but may require you to pay out-of-pocket for initial care expenses.
Benefit Amount and Period: You can select the daily or monthly benefit amount, as well as the length of time (benefit period) your policy will pay for long-term care coverage.
Inflation Protection: As discussed, this feature helps your benefits keep up with rising long-term care costs.
Hybrid Policies: Some policies combine long-term care insurance with life insurance or an annuity, offering additional financial benefits such as a life insurance death benefit or a lump sum payout if long-term care is not needed.

When choosing a policy, it’s important to assess the financial strength of the insurance company, review premium guarantees, and consider how much coverage you need based on your family health history and other assets. Consulting with a financial advisor can help you use their expertise to compare LTC policies and policy features more effectively, then select a policy that aligns with your long-term care needs and overall financial plan.

Frequently Asked Questions
About Long-Term Care Insurance (LTC or LTCI)

An elimination period is the amount of time a policyholder must wait before long-term care insurance benefits begin. Depending on the policy, the elimination period can range from zero to 90 days. A policy with a zero-day elimination period may begin benefits without a waiting period once the qualifying conditions are met, while longer elimination periods require the policyholder to wait before receiving covered benefits.

Inflation protection is a policy feature designed to help long-term care benefits keep pace with rising costs over time. Some policies can increase benefit amounts by 5 percent annually. This can help maintain the purchasing power of the policy's benefits as the cost of long-term care services changes over the years.

Traditional long term care insurance policies generally follow a use it or lose it structure. If benefits are eventually needed, the policyholder or family may need to file a claim based on the policy’s terms. This means benefits are intended to be used for qualifying long-term care needs covered by the policy. If the policyholder never requires covered long-term care services, the policy may not provide a return of unused benefits under this type of structure.

Yes, long-term care insurance is designed to provide benefits when a policyholder meets the policy requirements for covered long-term care. The coverage can help seniors address qualifying care needs over an extended period, depending on the policy's benefit limits, eligibility requirements, and other provisions.

Inflation protection can increase the amount of available benefits over time to help account for increases in long-term care expenses. For example, a policy with a 5 percent annual inflation protection feature can increase its benefit amount each year according to the policy terms. This feature is particularly relevant when coverage may not be needed until many years after the policy begins.

The appropriate coverage depends on factors such as the level of benefits needed, elimination period, inflation protection, benefit duration, policy features, and gender-related pricing differences. Reviewing these provisions can help you understand how the policy would respond if you eventually require long-term care. You can also request a quote to compare available coverage options based on your individual needs, and our office is committed to helping you compare options and create a plan that fits your needs.

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