There are some sources out there who will tell you to watch out when obtaining Long-Term Care Insurance. While many of them see the benefits, they may even suggest it can be a scam at times.
At LTC News, we feel very strongly that those sources are wrong. We’ve worked with experienced long-term care specialists and other experts who consistently prove this, and have seen the benefits of Long-Term Care Insurance firsthand.
However, those doomsaying sources are occasionally correct about certain situations you should try to avoid.
We’re here to cut through the clutter, not just to explain why Long-Term Care Insurance can be valuable, but why you’ll occasionally hear that it isn’t.
Misinformation in Long-Term Care Insurance
Here’s a statistic you may have heard, one that gets shared a lot: 70% of Americans age 65 and up will need some form of long-term care.
It sounds like a scary statistic. Except that it’s not quite true.
The basis for this statistic is a federal study that showed that 70% of Americans will need assistance with one activity of daily living (ADL) at that age. That much is entirely true.
The problem, though, is that the statistic has been misapplied, because this isn’t sufficient for needing long-term care. The technical definition that meets the federal HIPAA definition for tax-qualified long-term care is two ADLs. And depending on the type or severity of the assistance needed, many Americans with a single ADL can continue to live independently even above that threshold.
So it’s not that 70% will end up in a nursing home or similar facility. Far from it, in fact; most long-term care is not in a nursing home setting.
But if you don’t know this, and an insurance group shares this statistic with you, you’ll have no reason not to believe it. And they likely aren’t trying to mislead you; they may simply misunderstand it themselves!
Similarly, what many people think of when they imagine long-term care is a nursing home, which is often the most expensive type of long-term care. But nursing homes are a small percentage of long-term care. More often, in-home care, independent or assisted living facilities and adult day care are more appropriate, and these come with lower long-term costs than nursing homes.
These examples are indicative of a larger point: that being able to assess the need for Long-Term Care Insurance requires more than a surface-level understanding of the needs and risks associated with it.
A proper Long-Term Care Insurance policy is catered to the realistic needs and goals of the individual, which is going to be more accurate when it’s with the guidance of a long-term care specialist.
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Premium Increases: Why Insurance Regulations Minimize Risk
You may have also heard about premium hikes on Long-Term Care Insurance policies. Surely it’s bad if your rates go up, right?
We're not here to suggest that premium hikes are good things. But rather, it’s important to put them in perspective.
The earliest days of Long-Term Care Insurance featured less federal regulation, and less conservative underwriting on volume and cost of claims. More recent interest rate environments are also historically unique, so actuaries never considered that interest rates would be this low for so long. Some horror stories do exist from those older, decades-old legacy policies, but they can no longer be used to make comparisons to modern policies.
For an insurance company to increase a premium rate today, the following applies:
- Insurance companies cannot price profit into a rate increase.
- They cannot make a rate increase more than it would be for a new policy of the same type.
- They must provide detailed actuarial reasons why the premium should be higher.
- The increase must be across a class of people and policies. Stated differently, they can’t pick on an individual for any reason.
- All of this must be documented and submitted to the Department of Insurance, which closely regulates the industry. These submissions are reviewed by actuaries to verify the data.
- Insurance companies must certify that their products are expected to have level premiums for the life of the product series, based on actuarial data.
These protections are in place to protect the policyholder against unnecessary or greedy price increases. Rate increases do sometimes occur, but even these have primarily been with policies sold before current rate stabilization rules and the interest rate crash. So it’s far more controlled than most people realize.
And since this regulation was put in place, Long-Term Care Insurance premiums have been very stable, and experts suggest that future premium increases will be small.
A Comparison to Car and Home Insurance
Your insurance premiums for other potentially catastrophic events are raised quite regularly. We’ve all experienced an unexpected rate increase to our premiums, and been upset by it.
Additionally, it could be your individual car or home insurance that goes up. Not anyone else’s; just yours.
The risk of needing long-term care is much higher than the risk of burning down your home or totaling your car. Based on average US statistics, the probability of having a car accident in the US is about 0.3% per year, and the probability of having a house fire is about 0.03% per year.
Meanwhile, the probability of needing long-term care is around 50%. That means you are much more likely to need long-term care than to have a house fire or have a car accident.
The cost of long-term care can match or exceed the costs for cars or homes, and insurance for it can be no less important. In many ways, Long-Term Care Insurance is held to a higher standard than these other industries.
Do I Need to Pay the Rate Increase?
If your rate increases, you have to pay it, right? Well…
Yes, but another possibility exists to reduce your benefits to keep your rates the same, or at least keep them similar to your original rate. Many policies have this sort of flexibility built into them, so that it’s not an “all or nothing” approach to paying for your care insurance.
Does Age Matter in Whether or Not Long-Term Care Insurance is Worth It?
Yes, age definitely matters. Generally, the older you are, the more problematic it is to plan for long-term care. Past a certain point, you may even be uninsurable for Long-Term Care Insurance.
Regardless, your premiums will be higher if you wait to get a policy. This is why most Long-Term Care Insurance policies are obtained by people in their 50s or even 40s. This is when premiums will be at their lowest.
The benefits of a policy can still be well over $100,000 over your lifetime, even if you’re only able to obtain Long-Term Care Insurance in your upper 60s or 70s. But for some, the premium rates may be too high at this point, and it will no longer be worth considering.
For example, if you are in your 70s and your health is insurable, you can still have substantial benefits, but for some, the premium would be much higher than if you had obtained coverage when you were younger. A long-term care specialist can help you determine the suitability of new coverage at older ages.
None of this means Long-Term Care Insurance isn’t worth it for many Americans. But it acts as a consideration for when you’ll want to obtain it.
RELATED: What’s the Cost of Long-Term Care Insurance?
Who Shouldn’t Get Long-Term Care Insurance
If you or a loved one has little or no income and assets, Long-Term Care Insurance is not going to be suitable for you.
If you’re in this situation, you will likely easily qualify for the Medicaid long-term care benefit program. This will be a better solution and may remove the need to consider Long-Term Care Insurance. Exceptions can exist to this as well, in situations where adult children will purchase a Long-Term Care Insurance policy on behalf of a parent to help them avoid Medicaid and ensure quality care. However, the considerations do differ depending on your income and assets.
Policies That Don’t Cover Care? What’s Really Happening
Let’s be clear: you will always get the benefits of your policy when you meet the federally-regulated triggers.
Long-Term Care Insurance companies are closely regulated by the federal and state governments, and they will always pay out what is owed per the terms of your policy.
So why do some people think this isn’t true?
The biggest reason is that while you’ll always get the payment that is owed to you, the policy won’t go beyond its limits. So if your policy covers you up to, say, $4,000 per month and your bill ends up being $8,000 in a month, you will only be paid $4,000.
That’s why it’s important to understand the terms and limits of your policy. Unlimited plans do exist, though they’re going to be much more expensive. You’ll be able to determine the benefit level of your policy when you apply for Long-Term Care Insurance.
Many Long-term Care Insurance plans are designed in part to safeguard your financial assets (the other part is to reduce burden on family), but aren’t designed to cover every single cost. The cost of the premium to cover every possible expense would be prohibitive for most people. In these cases, there are some out-of-pocket costs, but they’re far more manageable since a significant portion of the costs are covered through your insurance.
Only one major insurance company for long-term care has “reasonable and customary” language in their policies,which means they can adjust the benefit to a claim if they believe the bill isn’t reasonable or customary, no matter what your available benefit may be. This can be upsetting, but since they’re the only ones who do this, it’s also easily avoided. Be sure to ask your specialist if the policy you’re considering has this language.
For example, a bill of $4,000, with a Long-Term Care Insurance benefit of $4,000, may be reduced to a lower sum - say, $3,600 - if the company determines that the reasonable and customary cost would be less. The policyholder would only get $3,600, incurring extra, out-of-pocket expense despite their benefit level.
Again, only one major company has this embedded in their policies. Be sure you ask your Long-Term Care Insurance specialist about this.
Another reason some people think this is true is due to many older policies that didn’t cover home care, adult day care or assisted living care. Home care is much more common than nursing home care, but it wasn’t covered in some older policies. These again refer to legacy policies, and any modern policy will include discussion of all major types of long-term care.
Again, though, the companies are obligated to pay out benefits according to the policy. So as long as you’re covered in these areas, there’s no fear of missing out on benefits. Most policies today also include an "Alternate Plan of Care" provision that allows the insurance company to consider paying for things not listed in the policy -- perhaps not yet invented --- as long as it benefits the policyholder and is cost effective.
The ways in which policies triggers benefits are the same between companies as well, so while exact premiums can differ between companies, your benefits are assured if you need these benefit triggers regardless of who you’re with.
Will Insurance Companies Pay Out Your Benefits?
This is an easy question to answer. By law, every insurance company must have reserve funds and are covered by the state's guarantee association which would pay benefits to specific amounts allowed by law in the event the insurance company were to fail. It is usually best to only consider companies that have strong financial ratings.
Where some of the differences occur between companies are in things like exact premium rates, underwriting procedures, some features and benefits, and the method by which you’ll process claims to receive your benefits.
Ultimately, though, most Long-term Care Insurance claims are paid with little problem as long as you provide the necessary information in a claim, they’ll do what they’re contracted to and you’ll have the peace of mind of guaranteed benefits under the terms of your policy.
RELATED: Long-Term Care Insurance Claims Resources
Red Flags in Insurance Agents: Why Expertise Matters
Similarly, Long-Term Care Insurance agents will generally have your best interests in mind when guiding you through a policy.
But do you remember that misinformation we mentioned earlier? This can mislead even some insurance agents, who will believe you require a higher level of coverage than you’re actually likely to need.
For an example: an insurance agent who is licensed for Long-Term Care Insurance but not specialized in it might search for the average cost of care for a nursing home, multiply that by 10 years, and assume you could need hundreds of thousands of dollars worth of care.
Except nursing home stays are a small percentage of long-term care patients.
Meanwhile, a specialist has an understanding of how long-term care is delivered and will ask numerous questions in order to make appropriate recommendations on a policy.
So it’s not that an agent isn’t looking out for you. It’s that if they aren’t specialized in long-term care, they might not know the best strategies for crafting an affordable yet comprehensive plan, or understand the different underwriting standards every company has.
This is why LTC News recommends seeking help from Long-Term Care Insurance specialists whose expertise allows them to avoid the pitfalls that some policyholders fall into.
A Comparison to Home Services
Talk to a licensed electrician or HVAC technician, and they’ll tell you that a lot of their work comes from cleaning up messes that someone without their training tried to do themselves.
The same can be true in the insurance world. We’ve even seen instances of agents failing to ask enough medical questions during the underwriting process, then providing quotes for policies that their client wasn’t eligible for due to their health status.
This is time wasted. And to be clear, it doesn’t make Long-Term Care Insurance a scam. It just means that it’s important to talk to an expert about it.
Elimination Periods and Coverage
One common fear, which is repeated in some articles or videos on Long-Term Care Insurance, is that the policy’s elimination period (typically 90 days) may prevent you from receiving the benefits of your policy if you need repeated care but never longer than 90 days.
This is a misunderstanding of how policies work.
First, elimination periods are once-in-a-lifetime, meaning that they won’t reset.
Second, the trigger to be able to receive benefits is separate from the elimination period. If you (or a loved one) need assistance with two out of six activities of daily living (ADLs) or supervision due to cognitive impairment, and the care is expected to last 90 days or more, your policy benefits will trigger.
This expectation, certified by a health care professional, is separate from the elimination period, so that as long as the care expectation is in place, your policy benefits will be available to you.
This can sometimes be confusing, but is often made simpler when you realize that the elimination period can be adjusted to different lengths, but the trigger for qualifying as long-term care under an insurance policy will always be that same 90+ day care expectation. Most long-term care policies can provide multiple elimination periods, even zero day (this would increase the premium), but the 90+ day expectation to trigger benefits stays the same.
This also separates it from short-term care insurance policies, which have no expectation of a 90-day care period.
ALSO READ: What is Short-Term Care Insurance?
Why Long-Term Care Insurance Matters
Bottom line: a Long-Term Care Insurance policy can save you hundreds of thousands of dollars, or more, over the life of your policy. While not every policyholder will see that much in benefits, that’s good news, because it means your care needs were less.
The downside is obvious, though. Who in your life will be affected if you’re unable to pay for long-term care? A spouse? Your children? And are they prepared to provide care that could be paid for under a Long-Term Care Insurance policy?
LTC Insurance is about much more than just about money for securing quality care for oneself; it's about safeguarding the emotional, physical, and financial well-being of family members. The journey of caregiving, while rooted in love, can be immensely taxing. Many family caregivers experience emotional burnout, and physical exhaustion and often find their own personal and professional lives taking a backseat.
It’s similar to the car or home insurance analogy we used earlier: a catastrophic event could wipe out your financial assets. Your retirement savings is likely intended to lead a joyful life in retirement, not to pay for care. Long-Term Care Insurance helps ensure that it stays that way.
Are there considerations that you should be aware of to avoid some risks? Absolutely. Act when you’re young enough to take advantage of lower premiums, and work with a specialist who knows the ins and outs of the industry to help you craft an affordable policy that meets your needs.
If you’re doing these things, though, then not only is Long-Term Care Insurance worth it, but it could be one of the better financial decisions you ever make for your family and finances.