Long-Term Care Insurance

 

What is Long-Term Care Insurance?
 
By
Sanjay A. Das, CFP®, CLTC
 
 
“Isn’t long-term care insurance really just to pay for a nursing home? I don’t want to be placed in a nursing home!” This is one of the most common questions I get when discussing long-term care insurance in my practice. What is long-term care insurance? It is insurance that provides financial support in case one becomes incapacitated either physically or mentally whether in a licensed care facility or at home. In other words, it is meant to help pay for the care that one would need if they are not able to perform the activities of daily living.
 
There are six main Activities of Daily Living (called ADL’s) that are used as criteria for long-term care benefits. If a person is not able to perform two of these ADL’s, long-term care benefits can kick in. These six activities are: hygiene, continence, dressing, eating, toileting, and transferring.
 
Another question I commonly get is- What about Medicare and Medicaid, don’t they pay for these long-term care services? Medicare is not designed to pay for “custodial care” which is a major need of long-term care patients and Medicaid is for those with minimal assets and income. One can either self-insure (pay out of pocket) or obtain long-term care insurance.  
 
Long-term care insurance policies tend to have more moving parts than traditional life insurance and this can have a great effect on the coverage and premium paid. The main variables involved are the following:
 
·        Daily Benefit Amount- how much will the insurance company pay? In long-term care insurance, this amount is broken down into a daily benefit. On the West Coast, the average cost of long-term care can be greater than $200 a day. This represents a shared room in a licensed care facility.
·        Inflation Protection- do you want your daily benefit amount (see above) to increase over time so you can take into account the rising cost of healthcare and inflation? Inflation protection is one choice that can cause a dramatic increase or decrease in premium. There are several inflation protection choices available that allow your daily benefit amount to grow at specified rates.
·        Elimination Period- how long do you want to wait until the insurance benefit is paid? The standard elimination period is 90 days (due to possible coverage by Medicare and/or self payment). The longer the elimination period you choose, the lower your premium and vice versa.
·        Benefit Duration- how long do you want the benefit to last (how long would you receive the money)? 3 years of coverage is a standard choice when providing quotes, however the longer the benefit duration you choose, the higher your premium.
 
There are many reasons why people believe that they do not need long-term care insurance. The most common misconceptions are:
 
Long-term care policies are just for the elderly. A recent Genworth Financial study found that 40% of people receiving long-term care are under the age of 64. Also, rates will be lower the younger you are so it makes sense to start coverage early.
 
I want to receive care at home. According to a study by the U.S. Department of Health & Human Services, 80% of long-term care is provided in the home. Friends and family are the sole care-providers for 70% of the elderly (Thompson, L. Long-term care: Support for family caregivers [Issue Brief]. Washington, DC: Georgetown University, 2004. Long-Term Care Financing Project).
 
I may not be in the greatest shape.  Perfect health is not a pre-requisite to apply for long-term care insurance.
 
It sounds expensive! Don’t assume that premiums are going to be something you cannot afford. There are many affordable options for long-term care insurance. Spousal and partner discounts are often available by different companies and can offer substantial savings. You may even qualify for group coverage through your employer.
 
There are many myths and a lot of confusion surrounding long-term care insurance. While it may not be right for everyone, it makes a lot of sense for many. Take the time to learn about whether it makes sense for your situation. It can bring great piece of mind for you and your loved ones.
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If you are interested in learning more, please call Mr. Sanjay Das at (206) 763-4350 or e-mail: sanjay.das@natplan.com. Sanjay Das is a Certified Financial Planner® and Certified in Long Term Care (CLTC). I am happy to schedule a complimentary, no obligation consultation either in person or over the phone to further discuss these topics. Please visit my website at: www.sri-investing.com.