A Long-Term Care Insurance Primer
Long-Term Care planning is one of the hardest things I discuss with clients. First of all, Long-Term Care Insurance (LTCI) is expensive. Second, the risk seems far off. Third, you may never use LTCI, but if you need it, you NEED it. All valid concerns. For many transitioning Senior Officers the decision involves self-insuring the risk as well. In any event, before you can have any discussions about Long-Term Care Insurance, you need to understand it. So, let’s take a look at some key terms and concepts for LTCI.
Triggering Event. With most LTCI policies and all qualified LTCI policies the benefits go into effect when you can no longer accomplish 2 of 6 Activities of Daily Living (ADL) or you have cognitive impairment. The ADLs are:
- Transferring (essentially walking)
When a medical practitioner of the insurance company’s choosing certifies you can no-longer accomplish two of the above list without assistance your insurance coverage is triggered.
Covered Services. LTCI can cover Nursing Home Care, Assisted Living and Home Care, depending on the exact details of the policy.
Elimination Period. Just like an Auto Insurance Policy has a deductible, LTCI has one too. However, instead of a dollar amount, LTCI deductibles are measured in days. Common elimination periods for LTCI are 30, 60, 90, 180 and 365 days. The lower the number of days, the higher the premium you pay. The higher the number of days, the more you pay out-of-pocket before coverage starts.
Maximum Daily Benefit. This is the maximum amount that the insurance company will pay for one day of covered services. If you select a lower daily benefit your premiums will be lower. A higher daily benefit results in higher premiums. This is one area where you may not want to economize. As explained later, it is better to underspend your Daily Benefit than to overspend it.
Benefit Period. This is the amount of time that the insurance will pay benefits. Common Benefit Periods include 3 years, 5 years or for life. Just like above a shorter coverage period will have a lower premium. Some stats to consider when making this decision…
- The average nursing home stay lasts about 2.5 years
- Men have a 5% chance of staying in a nursing home for more than five years
- Women a 13% chance of staying in a nursing home for more than five years.
Total Benefit. While not always called a Total Benefit, most LTCI policies state a maximum amount to be paid out under the policy (Daily Rate x Number of Years of Coverage x 365). Because of this, it is often better to select a higher daily amount and a lower number of years. This is because if you don’t spend the maximum daily amount, you in effect extend the Benefit Period until such point as your Total Benefit is paid out.
Inflation Protection. This “rider” increases your Maximum Daily Benefit (and as a result your Total Benefit) by some set amount. 5% is common. I rarely say always, but if you do purchase LTCI I can’t think of a scenario where you wouldn’t want Inflation Protection.
Those are some of the big things to understand when talking about and making the LTCI insurance decision. Here are some other things to consider.
MEDICARE and TRICARE do not cover long-term custodial care. Medicare has a limited benefit for Skilled Nursing Care which is only effective after a hospital stay and lasts for a short time
For those who are Military Retirees MEDICAID is not an option. Your military retirement will almost certainly make you ineligible for MEDICAID. This is true for many others covered by some sort of Pension as well. For those of you who aren’t covered by a pension then to qualify for MEDICAID support for Long-Term Care, you essentially have to spend down your assets first before you qualify for coverage.
Rates for LTCI go up significantly after age 60
For those who are Military Retirees, you have access to the Federal Long-Term Insurance Program by virtue of your retiree status.
There are other options to LTCI insurance. Depending on your level of assets, you may be able to self-insure. There are also hybrid Life Insurance Policies and Annuities that provide for Long-Term Care coverage. Some Disability Insurance Policies also have Long-Term Care Coverage as well (not everyone in a Nursing Home is old). These policies are even more complicated to understand and must be evaluated on a case-by-case basis.
Like I said at the beginning, Long-Term Care and the risk transfer decision associated with it are difficult subjects to discuss. But ignoring them, doesn’t make them go away. It is worth it to have the discussion.
So, what do you think? Do you plan on getting LTCI or will you self-insure? Is it worth it?