The Ultimate Long-Term Care Insurance Guide

This guide covers Long-Term Care Insurance in a lot of detail. By the end, you'll have as much information as you'll need to make informed decisions about Long-Term Care Insurance for you or a loved one. We'd recommend bookmarking this page and coming back to it over the course of a few sittings, since it will be difficult to read and digest it all at once.

Long-Term Care Insurance is regulated by both the states and the federal government.

Under U.S. Code Section 7702(b), the federal government provides standards and consumer protections, including tax benefits for all tax-qualified Long-Term Care Insurance.

If you're already ready to speak to a Long-Term Care Insurance specialist, you can follow the link below to speak to an expert. If you're still in search of information, though, read on!

What is Long-Term Care?

To talk about Long-Term Care Insurance, we first need to talk about long-term care in general.

People require long-term care services and supports due to illness, accidents, or the impact of aging. Long-term care is defined as the assistance needed when a person cannot care for themselves due to chronic illness, physical injury, cognitive (mental) impairment, or frailty.

Healthcare professionals, health insurance providers, and Medicare classify this type of care as custodial care, as opposed to skilled, acute, or rehabilitative care. Long-term care focuses on assistance with the normal activities of daily living (ADLS) or supervision due to memory loss from Alzheimer’s or other forms of dementia. These ADLs include getting around inside and outside of the home (ambulating).

Activities of Daily Living (ADL’s)

The ADL's include Eating, Bathing, Dressing, Toileting (being able to get on and off the toilet and perform personal hygiene functions), Transferring (being able to get in and out of bed or a chair without assistance), Continence (being able to control bladder and bowel functions).

Dressing and Grooming

Dressing and grooming, as in selecting clothes, putting them on, and adequately managing one’s personal appearance.

Toileting

Toileting, which means getting to and from the toilet, using it appropriately, and cleaning oneself.

Bathing

Bathing, which means washing one’s face and body in the bath or shower.

Transferring

Transferring, which means being able to move from one body position to another. This includes being able to move from a bed to a chair, or into a wheelchair. This can also include the ability to stand up from a bed or chair in order to grasp a walker or other assistive device.

Instrumental Activities of Daily Living (IADLs)

Assistance needed with Instrumental Activities of Daily Living (IADLs), such as:

• Managing finances, such as paying bills and managing assets.
• Handling transportation, either via driving or by organizing other means of transport. Shopping and meal preparation. This covers everything required to get a meal on the table.
• Shopping for clothing and other items required for daily life.
• Housecleaning and home maintenance. This means cleaning kitchens after eating, keeping one’s living space reasonably clean and tidy, and keeping up with home maintenance.
• Managing communication, such as the telephone and mail.
• Managing medications, which covers obtaining medications and taking them as directed.

Who is at Risk for Needing Long-Term Care Services & Supports?

People think of long-term care as something that happens to older people. Think about the changes you have seen in your own health and body in the past twenty years. Now imagine the changes in your health, body, and mind in the decades ahead. 

While it is true that your risk of needing long-term health care increases as you get older, with the advances in medical science, we survive health events and accidents more often. If we don’t die but don’t recover, we will need extended care services. If we do survive, we continue to age and can be impacted by aging issues. 

Former First Lady Rosalynn Carter was the first major public figure to speak about long-term care and caregiving. She said: "There are only four kinds of people in the world: those who have been caregivers, those who are currently caregivers, those who will be caregivers, and those who will need caregivers." She championed the cause of those Americans involved in caregiving activities or in need of care.

Many people might remember Superman Actor Christopher Reeve required extensive long-term care services following an accident. In a book, Reeve said that his life of “privilege” ended as a result of the accident and the costs and burdens related to his extended care.

There are other famous people who, like the rest of us, are impacted by illness, accidents or the impact of aging. For example, former First Lady Jacqueline Kennedy-Onassis required long-term care in her extended battle with lymphoma. 

It was August of 1994 when former President Reagan was diagnosed with Alzheimer’s disease. He was age 83 at the time. Once the most powerful man on the planet with so many memories going back decades and decades, Mr. Reagan began to lose those memories that helped make him the man he was. The impact on his wife, Nancy, and the rest of the family and friends was tremendous.

There are far too many well-known people to list them all. We know many of the names Michael J. Fox, Montel Williams, Dudley Moore, and former Attorney General Janet Reno, have developed chronic diseases and may all need long-term care for many years. The names that have more meaning to people are those of their loved ones who need extended care due to illness, accidents, or the impact of aging.

The celebrities, just like the rest of us, are impacted by being human. Just like us, they have families, savings, and lifestyles that become impacted by the costs and burdens of long-term care. It happens at all ages. As we age, the risk just increases.

Who do you know, friends, family, co-workers, neighbors, who need help with everyday living activities or require to be supervised due to Alzheimer’s or other forms of dementia?

Many factors impact our chances of needing extended care at some time in our lives. One of these factors includes our family history. Simple genetics can make you a higher risk. Lifestyle decisions such as your diet, activity level, smoking, drug use, the environment, and stress levels all come into play.

If you have family longevity, you will probably live longer as well. Longevity itself is a risk for long-term care. As we age, we also have a higher risk of dementia.

An active lifestyle can create a higher risk due to the chance of accidental physical injury. Yet, active people in good health have greater longevity now than ever before. Preventative medical care, today’s medical technology, and new medications help prevent and control diseases that were often fatal in the past. Thus, we are living longer. Unfortunately, too often, we live with chronic conditions requiring us to need extended care. 

The unfortunate downside of living longer is our increased risk that we develop conditions requiring some form of help, assistance, and supervision due to aging.

Today, short-term fatal illnesses are mostly limited to undetected or poorly controlled heart disease, rapidly progressing cancer, a massive stroke, or rare events such as an aneurysm. 

Many chronic health conditions impact us as we start to approach our “fragile 50s” These include heart disease, chronic pulmonary disease, cancer, debilitating arthritis, and complications of diabetes. It is in your "fragile 50s" when many people start taking medications to control our blood pressure and cholesterol. We start putting on a few pounds. We have more aches and pains. Our knees hurt. Our neck hurts. Our hips hurt. It is part of being human.

There are also neurological disorders such as Parkinson’s disease or Multiple Sclerosis, fractures from osteoporosis, strokes (resulting in paralysis), Alzheimer’s disease, and accidents. And let’s not forget that becoming frail due to advancing age may be the most significant reason people need assistance.

What Are the Statistics on Long-Term Care Risk?

There is a lot of data. First, the only important statistic is this one: it will either happen to you or it won’t. However, there are all sorts of research, along with common sense, that supports the need to plan for the financial costs and burdens of aging and health.

The U.S. Department of Health and Human Services indicates that if you reach the age of 65, you have a 70% chance of needing some long-term care service and support before you pass.

Be careful since this statistic is a bit misleading as it means the total number of people who require help with at least one activity of daily living (ADL). This would not qualify to trigger an LTC Insurance policy's benefits since they require that you need help with at least two ADLs or supervision due to cognitive decline. It does show, however, as you get older, you will see changes in your health, body, and mind that often lead to your need for long-term care services and supports.

U.S. Department of Aging, the Census Bureau, the healthcare sector, and the insurance industry indicate that: 43% of all people over the age of 65 will be admitted to a nursing home at some time in their lives; over 40% of Americans receiving long-term care today are under 65 years old; Alzheimer’s disease affects 47% of all people over age 85: the average expense for care of an Alzheimer’s patient will vary greatly based on how much family support and help there is: 50% of all seniors over the age of 85 will require some form of assistance with activities of daily living, and the average stay in a nursing home will once again vary depending on the individual circumstances. For some lucky ones, it is brief, and for others, it may be many, many years.

The American Association for Long-Term Care Insurance (AALTCI), a national consumer education and advocacy group, says 70% of all new Long-Term Care Insurance claims in 2019 started with in-home care. The policyholder generally has the choice of quality care in the setting they desire. Plus, many American families are benefiting from LTC Insurance right now. Just the major insurance companies paid over $11 Billion in claims to American families in 2019 alone. Those are real numbers, not just stats.

Some LTC Insurance claims do go long, with 12% of those admitted to a nursing facility stay for five years or longer, and many have received other forms of care before going into the nursing care. Remember, most claims for LTC Insurance starts with in-home care. 

Current Stats Breakdown

Here are some current stats from a Christine Benz article in Morningstar:

• 52.3%: The expected percentage of people turning 65 who will have a long-term care need during their lifetimes. 
• 47.7%: The expected percentage of people turning 65 who will have no long-term care need during their lifetimes.
• 46.7%: The expected percentage of men turning 65 who will have a long-term care need during their lifetimes. 
• 57.5%: The expected percentage of women turning 65 who will have a long-term care need during their lifetimes. 
• 22%: Percentage of individuals over 65 in the highest income quintile who will have a long-term care need of two years or longer. 
• 31%: Percentage of individuals over 65 in the lowest income quintile who will have a long-term care need of two years or longer. 
• 10%: Percentage of Americans over age 65 who have Alzheimer's dementia. 
• 38%: Percentage of Americans over age 85 who have Alzheimer's dementia. 
• 35%: Projected increase in number of people with Alzheimer's dementia between 2017 and 2030. 
• 110%: Projected increase in number of new Alzheimer's cases between 2010 and 2050, barring the development of a new treatment to prevent or cure Alzheimer's disease. 
• 2 years: Average number of years that individuals age 65 and older will have a high long-term care need during their lifetimes.
• 0.88 years: Average duration of nursing-home stay for men. 
• 1.44 years: Average duration of nursing-home stay for women. 
• 22%: Probability of needing more than one year in a nursing home, men.
• 36%: Probability of needing more than one year in a nursing home, women.
• 2%: Probability of needing more than five years in a nursing home, men.
• 7%: Probability of needing more than five years in a nursing home, women.

These are but a few of the many statistics that point out that the potential need for long-term care is highly probable as we continue to live longer lives.

Despite all the statistics, many of us are in denial about our personal risk of needing care. Surveys show most people understand the risk but think it will happen to “the other person.” About half of Americans above the age of 40 believe almost everyone is likely to require long-term care services as they age. However, it appears everyone is pointing to someone else

.According to the results of a poll from the Associated Press-NORC Center for Public Affairs Research, only 25 percent think they will need long-term care for themselves.

We all know of people who have died suddenly without ever being sick. We also know people who have lived in nursing homes for several years and became impoverished because of an extended illness. 

While advances in medical science may still develop cures and effective treatments for medical problems we face today, it doesn’t end that these advances will just lead to more aging, and longevity, itself, is a risk for long-term care. 

The chances we will need long-term care services and supports are very high. Caregiving is hard on family members. Paid care drains savings and adversely impacts lifestyle and legacy. All this suggests we have an advance plan to safeguard savings and reduce the burdens placed on loved ones.

How Expensive Are Long-Term Care Services?

Long-term care costs will vary significantly depending on where you live and the type of care you receive. Many people think that home care usually costs less than skilled nursing facility care. However, skilled care at home can cost just as much, if not MORE, than nursing home care. 

It is very eye-opening to call health care agencies in your area, as well as Adult Day Care Centers. Assisted Living Facilities, Memory Care Facilities, and Nursing Home Facilities. Usually, the cost of care starts lower, and then, of course, ramps up as the care's amount and intensity continues. 

The cost of long-term health care is increasing due to greater demand and labor shortages in some areas of the country. As the cost of labor increases so will the cost of long-term health care.

The cost of care varies across the country. The LTC NEWS Cost of Care Calculator shows you both the current and future cost of extended care services where you live. It also indicates the availability of Long-Term Care Partnership policies and tax incentives that may be available.

What Types of Services Do People Require When They Need Long-Term Care?

Anyone with a chronic illness, physical disability, cognitive impairment (dementia), or frailty due to aging may need licensed professional services. These include services provided by a Registered Nurse, Physical Therapist, Speech Therapist, Occupational Therapist, Nutritionist, and Medical Social Worker.

Most assistance is provided by semi-professionals like personal aides and CNA’s (certified nurse assistant). These men and women help individuals with normal activities of living, otherwise known as “ADL’s.” This is referred to as custodial care. These ADLs include bathing, eating, dressing, transferring, toileting, and continence. Definitions of these terms and other common terminology can be found on LTC News.

People also need assistance with routine homemaker services. These include daily chores, i.e., shopping, cooking, light cleaning, transportation, gardening, bill paying, etc. 

What Is the Impact of Long-Term Care Services on My Family?

Without Long-Term Care Insurance, you would either pay for care yourself, out of savings and income, OR have your adult children, usually, a daughter or daughter-in-law, provide full or part-time care.

An AARP study indicates that there is a physical, emotional, and even a financial burden placed on family caregivers. The caregiving itself is hard. If you are 85 when you require care, your daughter won’t be 35 years-old anymore. If you require care younger, your daughter (as well as the rest of your family) will have their own careers and family responsivities, including caring for your grand-children. They may have to cut back work schedules, turn down promotions, and not attend other family functions.

Plus, do you really want your family's last memories that of being a caregiver to you? Think about what that means. They may have to help you bathe, use the toilet and clean yourself afterward, and other very personal activities.

Most people want their family to be family – to have the time to be loving and supportive. Affordable Long-Term Care Insurance allows them that gift of time.

Plus, most policies will help manage care and developing a plan of care. This allows your family more time to be family and reduces the burden on your loved ones.

The fact is your private health insurance (from your employer or from an individual plan), and for those 65 and older, Medicare (and your Medicare Supplement), will not pay for any long-term custodial care and a very limited amount of skilled care. 

Medicaid will pay for long-term care costs, but only if you have exhausted your assets. Neither of those options are realistic choices to rely on to pay for your future long-term care costs. This next section addresses who pays for long-term care and the limitations and disadvantages of relying on those options.

Health Insurance or Medicare Supplements (Medi-Gap)

Health insurance and Medicare pay nothing for custodial long-term care services and supports. Health insurance (be it HMOs, PPO’s, etc.), and Medicare (including the supplements including Medicare Advantage) pay for skilled medical services of acute health issues and a limited amount of skilled rehabilitation services for a limited amount of days (generally 100 days total). Examples of health conditions that may result in requiring skilled services would be a fractured hip, a heart attack, or a stroke. This limited amount of skilled care is per diagnosis, not per lifetime.

These heath insurance plans do not pay for personal home health aides, homemakers, adult day care, assisted living centers, memory care, or nursing homes (unless in a facility for rehab or skilled services on a limited basis). Since most long-term care is custodial in nature, health insurance, Medicare, and supplement plans won’t pay at all for these services. This means you will pay for these services yourself, or your family will become the caregivers.

Medicare, Medical Supplement or Medicare Advantage Plans

Medicare, Medicare Advantage Plans, Medicare supplements, as well as most group and individual insurance policies all follow the Medicare guidelines for long-term care. 

It is always best to contact your local Medicare office or request the Medicare & You Guide for the current year to have the most up to date information. A link to the 2023 guide is here.

Medicare has very firm restrictions; it pays only if you need skilled nursing or rehabilitative services.

Medicare Skilled Nursing Facility (SNF) Care - How Often Is It Covered?

Medicare Part A (Hospital Insurance) covers skilled nursing care provided in a skilled nursing facility (SNF) under certain conditions for a limited time.

Medicare-covered services include, but aren't limited to:

• Semi-private room (a room you share with other patients)
• Meals
• Skilled nursing care
• Physical and occupational therapy (if they're needed to meet your health goal)
• Speech-language pathology services (if they're needed to meet your health goal)
• Medical social services
• Medications
• Medical supplies and equipment used in the facility
• Ambulance transportation (when other transportation endangers health) to the nearest supplier of needed services that aren’t available at the SNF
• Dietary counseling

Medicare covers swing bed services:

When the hospital or critical access hospital (CAH) has entered into a "swing-bed" agreement with the Department of Health and Human Services (HHS). With a "swing-bed" agreement, the facility can "swing" its beds and provide either acute hospital or SNF-level care, as needed.

When swing beds are used to furnish SNF-level care, the same coverage and cost-sharing rules apply as though the services were furnished in an SNF.

If you're in an SNF, there may be situations where you need to be readmitted to the hospital. If this happens, there's no guarantee that a bed will be available for you at the same SNF if you need more skilled care after your hospital stay. Ask the SNF if it will hold a bed for you if you must go back to the hospital. Also, ask if there's a cost to hold the bed for you.

Who's Eligible Under Medicare?

People with Medicare are covered if they meet all of these conditions:

• You have Part A and have days left in your benefit period.
• You have a qualifying hospital stay. 
• Your doctor has decided that you need daily skilled care given by, or under the direct supervision of, skilled nursing or therapy staff. If you're in the SNF for skilled rehabilitation services only, your care is considered daily care even if these therapy services are offered just 5 or 6 days a week, as long as you need and get the therapy services each day they're offered.
• You get these skilled services in an SNF that's certified by Medicare.
• You need these skilled services for a medical condition that was either:
• A hospital-related medical condition.
• A condition that started while you were getting care in the skilled nursing facility for a hospital-related medical condition.

Your doctor may order observation services to help decide whether you need to be admitted to the hospital as an inpatient or can be discharged. During the time you're getting observation services in the hospital, you're considered an outpatient—you can't count this time towards the 3-day inpatient hospital stay needed for Medicare to cover your SNF stay.

Your costs in Original Medicare

The following breakdown shows what you pay:

• Days 1–20: $0 for each benefit period.
• Days 21–100: $203 coinsurance per day of each benefit period.
• Days 101 and beyond: all costs.

If you have a Medicare Supplement plan, it will pay the co-insurance amount for days 21 to 100. Nothing beyond 100 days will be paid for by Medicare or Medicare supplements.

There are other rules which you can find in the Medicare and You Guide.

Medicare Coverage for Home Health Care?

Medicare pays a very limited amount of home health care benefits. Medicare will pay 100% of medically necessary home health visits by a licensed home health care agency for skilled nursing care, home health aide services, and rehabilitative services. 

Medicare home health services

How Often are Home Health Services Covered Under Medicare?

Medicare Part A (Hospital Insurance) and/or Medicare Part B (Medical Insurance) covers eligible home health services like these:

• Part-time or intermittent skilled nursing care
• Part-time or intermittent home health aide care
• Physical therapy
• Occupational therapy
• Speech-language pathology services
• Medical social services

Usually, a home health care agency coordinates the services your doctor orders for you.

What Medicare Doesn't Pay For

• 24-hour-a-day care at home
• Meals delivered to your home
• Custodial or personal care (help bathing, dressing, and using the bathroom) when this is the only care you need
• Homemaker services

Who's Eligible?

All people with Part A and/or Part B who meet all these conditions are covered:

• You must be under the care of a doctor, and you must be getting services under a plan of care created and reviewed regularly by a doctor.
• You must need, and a doctor must certify that you need, one or more of these:
• Intermittent skilled nursing care (other than drawing blood)
• Physical therapy, speech-language pathology, or continued occupational therapy services.

These services are covered only when the services are specific, safe, and effective treatment for your condition. The amount, frequency, and time period of the services need to be reasonable, and they need to be complex, or only qualified therapists can do them safely and effectively.

To be eligible, either:

• your condition must be expected to improve in a reasonable and generally predictable period of time, or
• you need a skilled therapist to safely and effectively make a maintenance program for your condition, or
• you need a skilled therapist to safely and effectively do maintenance therapy for your condition. The home health agency caring for you is approved by Medicare (Medicare-certified).

 You must be homebound, and a doctor must certify that you're homebound.

You're not eligible for the home health benefit if you need more than part-time or "intermittent" skilled nursing care.

You may leave home for medical treatment or short, infrequent absences for non-medical reasons, like attending religious services. You can still get home health care if you attend adult day care.

Custodial long-term care services at home, adult day care, assisted living, memory care, and custodial care in a nursing home are not covered by Medicare or Medicare supplements.

Medicaid coverage of long-term care expenses

Medicaid is a combined Federal and State program (called “Medi-Cal” in California) that pays health care costs, including care in a skilled nursing facility, in some states assisted living as well, for people who are impoverished. 

One must meet specific state and federal guidelines to qualify. If you have any savings and assets, you must first spend them down to approved poverty levels. Medicaid allows you to keep your home, one car, your personal belongings, and certain exempt assets. If you are single or widowed, it is different than if you are married.

To be eligible for Medicaid, you must meet the requirements for an eligibility group that your state covers under its Medicaid program. They define an “eligibility group” as people who have certain common characteristics, such as being an older adult or a person with a disability, and who meet certain common requirements, such as having income and assets below certain levels. There are many different eligibility groups in the Medicaid program, and each one has its own set of requirements. States are required to cover some groups but have the option to cover or not cover others.

Regardless of the specific eligibility group, though, you must meet two types of requirements to qualify for Medicaid:

• General requirements
• Financial requirements

Medicaid counts ALL assets, INCLUDING separately held assets of spouses. Medicaid does NOT exclude from spend-down requirements those assets considered separate through pre-nuptial or other agreements. 

Couples who are in second or third marriages, and have legal pre-nuptial agreements keeping their assets separate, are often surprised to learn that they are in the unfortunate predicament of having to spend their separately held money because the sick spouse could not qualify for Medicaid.

There are many pathways to being eligible for Medicaid. For example, most states provide Medicaid to anyone who is receiving benefits under the Supplemental Security Income (SSI) program. A number of states provide Medicaid to older adults or persons with a disability with an income that is below 100 percent of the federal poverty level.

For the most part, to be eligible for Medicaid, you must be one of the following below:

• Be age 65 or older
• Have a permanent disability as that term is defined by the Social Security Administration
• Be blind
• Be a pregnant woman
• Be a child or the parent or caretaker of a child

In addition, you must meet certain other requirements, such as:

• Be a U.S. citizen or meet certain immigration rules
• Be a resident of the state where you apply
• Have a Social Security number

There are two particular pathways or groups that you should be aware of because they are the ones most commonly used to make people eligible for Medicaid long-term care services. These groups are the special income level group and the medically needy.

To be eligible for Medicaid, you must have limited income and assets.

Income Limits and Medicaid

The amount of income you can have varies by state and varies depending on which eligibility groups each state covers. When the state determines your financial eligibility for Medicaid, the state will count some of your income, but not all of it. Your income includes these sources:

• Regular benefit payments such as Social Security retirement or disability payments
• Veterans benefits
• Pensions
• Salaries
• Wages
• Interest from bank accounts and certificates of deposit
• Dividends from stocks and bonds

However, Medicaid generally does not count such things as:

1. Nutritional assistance such as food stamps
2. Housing assistance provided by the federal government
3. Home energy assistance
4. Some of your earnings if you have earned income from work you do

Medicaid will count payments to which you are entitled, even if you don’t receive all of the payment. For example, if you have earnings from which income taxes are withheld, Medicaid will count the entire amount of your earnings, including the amount that is withheld for taxes. If you and your spouse receive joint payments, such as rental income, the state allocates half to you and half to your spouse.

Medically Needy

Like the special income level group, coverage of the medically needy is an option for states. Thirty-three states choose to cover the medically needy, which is not as many as cover the special income level group. 

This is still an important group for you to know about because in states that cover the medically needy, people with high incomes and high medical expenses can still be eligible for Medicaid long-term care services.

As with other pathways to eligibility, to be eligible as medically needy, a person must meet the general eligibility requirements, such as being aged, blind, or a person with a disability.

People who are eligible as medically needy have too much income to qualify for Medicaid through any other pathway. But, they can still qualify for Medicaid as medically needy by “spending down” the income that is above their state’s income limit.

Spending Down to Become Eligible as Medically Needy

A person spends down his or her excess income to the state’s medically needy limit by incurring medical expenses, such as doctor visits, prescription drugs, or anything else the state considers to be medical or remedial care. It is important to understand that the person does not actually have to pay an expense for it to count as an incurred expense. The person only has to incur the obligation to pay the expense.

The medical expenses the person has incurred are then subtracted from his or her income. If the remaining income does not exceed the state’s income limit, the person is eligible as medically needy.

The medically needy income limit varies considerably from state to state. In most of the states that cover the medically indigent, the income limit for an individual is less than $500 a month.

Income-Only or Miller Trusts

In states that do not have a Medically Needy Program, Medicaid applicants often use a trust to effectively lower their countable income below the state limit. Income-only trusts, often called Miller trusts, are trusts that can be established by or for a person of any age, regardless of whether the person is a person with a disability. 

The trust can be funded only with the person’s income, such as Social Security benefits, pensions, etc. It cannot be funded with assets such as money from a bank account or the sale of stocks or bonds. 

IMPORTANT: Like a special needs trust or pooled trust, a Miller trust must contain a clause that says that upon the death of the person for whom the trust is established, any funds remaining in the trust must be paid to the state Medicaid program, up to the amount the program paid for services on behalf of the person.

Not all states recognize Miller trusts. If your state covers nursing home care for the medically needy, the state will not recognize a Miller trust. However, the other two trusts we described are recognized in all states.

Most trusts do not protect your assets when it comes to qualification for Medicaid. Read this article: Trust Your Trust, Except When it Comes to Long-Term Care.

Partnership Long-Term Care Insurance policies can provide dollar-for-dollar asset protection if you have a qualified policy. This allows you to protect part of your estate based on the amount of benefits paid by your policy and still qualify for Medicaid.

LTC News provides a state by state guide that gives you the current cost of care in your state, Medicaid spend-down eligibility amounts, and more.

Most people with limited financial resources often have no choice but to enter a nursing home that accepts Medicaid’s lower payment levels. Most people in nursing homes paid for by Medicaid become impoverished because they needed long-term care. Often, one spouse has used up all of their savings, paying for the other spouse's care. 

It is important to realize that it is not only the elderly who may need long-term care. Age is NOT a factor for the need for extended care nor eligibility for Medicaid.

Will Long-Term Care Costs Increase over Time?

This is a significant factor in planning for the costs and burdens of aging and long-term care. The cost of care does go up, and any advance plan needs to address the higher costs expected in the decades to come. 

While inflation in health care has been about double the overall annual inflation rate, long-term care costs generally match increased costs of labor as most long-term care is labor-intensive. Not only do you have the large Baby Boomer generation, but the Late-Boomers and Generation X are also all getting older. With increased longevity, more people will require care. This increased demand for labor will continue to increase the costs of long-term care in the future.

Due to the financial problems with Social Security, Medicare, Medicaid, and the looming impact of a rapidly aging population, the Federal Government and several states offer tax incentives to individuals and businesses that purchase private Long-Term Care Insurance. 

Remember, LTC News offers a state-by-state guide that includes the current cost of care in your state, availability of partnership plans, and tax-incentives.

Tax Benefits of Long-Term Care Insurance

Always consult a professional tax advisor for your specific situation.

Generally speaking, tax-qualified Long-Term Care Insurance policies do have significant tax advantages.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) included provisions for the favorable tax treatment of qualified Long-Term Care insurance. Tax benefits can increase the value of Long-Term Care Insurance even more.

The tax benefits include individuals and small and large businesses (S-Corporations, C- Corporations, LLCs, partnerships, and sole proprietors).

For C-Corporations, the total premium is deductible as a business expense. Consult your tax advisor for details.

In addition, individuals with a Health Savings Account can use the pre-tax money in their HSA to pay or reimburse themselves for LTC insurance policy premiums. 

Do not confuse the Flexible Spending Account or FSA with HSA. The FSA is a tax-advantaged benefit program established by employers for employees’ qualified health-related expenses. Unlike the Health Savings Account (HSA), the FSA is a use it or lose it account, and long-term care insurance is NOT an eligible expense.

An HSA holds the money that you get to keep, and Long-Term Care Insurance premiums are an eligible expense. Any money left over in these accounts at age 65 gets converted to an IRA, but you are still allowed early withdrawal with no penalty for qualified health expenses.

Tax-qualified Long-Term Care Insurance premiums are considered a medical expense. For people who itemize their tax deductions, medical expenses are deductible to the extent that they exceed the current amount required to meet their Adjusted Gross Income (AGI). 

The amount of premium that can be treated as a medical expense (and therefore deducted) is limited. The eligible amount is defined by Internal Revenue Code 213(d) and is based on the insured individual's age (s). The portion of the premium, if any, that exceeds the eligible premium is not included as a medical expense.

Individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves, their spouse/partner, or any tax dependents (such as parents) as a personal medical expense.

The yearly maximum deductible amount for each person is based on the person’s attained age at the close of the taxable year (see table for current limits). These deductible maximums are indexed and increase each year for inflation. Some people may not qualify for a tax deduction when they are younger but may become eligible as they age.

In addition to the federal tax incentives that are available, many states offer tax benefits as well.

Planning for Your Long-Term Care Needs

To effectively plan for the financial costs and burdens of aging evaluate your financial situation and develop an affordable way to protect your savings and lifestyle from the impact of long-term care.

You first must comprehend the possibility you may require care is high. You need to realize your family will not easily be able to be a full or part-time caregiver.

Caregiving is hard on loved ones. They have their own careers, families, and responsibilities. A spouse usually will be older and unable to be a caregiver without impacting their health. Paid care drains assets and adversely impacts your lifestyle and that of your spouse/partner. 

These goals should be part of your planning prior to retirement:

• To have the financial resources to pay for quality care at home or in a long-term care facility.
• Protect savings, assets, and the standard of living for both the person requiring care and the healthy spouse.
• Prevent being a burden and dependent upon children or other family members.
• Conserve your estate and ensure inheritance and legacy for your heirs or other beneficiaries.
• Avoid becoming impoverished and having to rely on the Medicaid program.

Four Choices to Pay for Long-Term Care Services and Supports

• "Self-insure" (really meaning 'self-funding') by paying for all the care yourself out of your savings and income.
• Become dependent on family caregivers.
• Qualify for Medicaid by exhausting your hard-earned savings.
• Include an affordable Long-Term Care Insurance policy to safeguard assets and reduce family burden.

Projecting the Costs of Your Long-Term Care Needs

The LTC NEWS Cost of Care Calculator says the national cost of care for a skilled nursing home is over $100,000 a year. That can vary from location to location. The cost of care has been going up from 1 to 4% a year, depending on type and location. Ideally, you should plan for 3%.

Assisted Living Facilities do cost less than a nursing home. In-home care is generally less unless you need extensive care at home. Adult day care can be an affordable way to help delay the need for a facility.

If you think you will self-insure this risk, you must first project the amount of money needed to meet your long-term care needs in the decades ahead. Of course, your need for extended care can happen at any age. We don't know WHEN or HOW LONG. 

If you are 50 years old, what will the cost of care be when you are age 85? Based on the national average, a skilled nursing home's cost will be over $200,000 a year! How will that impact your budget?

The national average for assisted living for that 50-year-old at age 85 will be $94,220 a year. Less than a nursing home but still devastating on your budget. Even care at home, based on a 44-hour week, will average $102,997 a year.

Since we don't know WHEN we will require care or HOW LONG, attempting to self-insure becomes very difficult. There are just too many unknowns.

Any money you set aside for long-term care can not be used for anything else. This is why many top financial planners and experts in longevity recommend an affordable Long-Term Care Insurance policy.

Self-Funding Future Long-Term Health Care

Some people, including financial advisors, feel that self-fund the costs of future long-term health care is a good plan. However, there are several flaws in that thinking.

First, you are placing your income and assets at risk. Most long-term care services start with in-home care services. Family members may attempt to provide this care initially but find they are not prepared or trained for this role. The family caregivers then see the significant amount of time and effort providing care takes and how it interferes with their careers and other family responsibilities, not to mention the burden and anxiety that the role of being a caregiver creates. 

Once you retire, the average portfolio withdrawal rate is 5%, according to Versta Research. However, according to the same research of financial advisors, a person who needs long-term care services has an average withdrawal rate of 11%. 

Self-funding goes through your savings and adversely impacts income, lifestyle, and legacy. A Long-Term Care Insurance policy provides guaranteed tax-free benefits to pay for your choice of quality care, including in-home care. These resources place a wall around your assets.

While some individuals are willing to "co-insure" part of the cost, because of the ever-growing costs of extended care, self-funding all the costs of future care is not financially wise.

Then consider the likelihood of needing long-term care in the future. Once you get into your 40s, you have already noticed some changes in your health and body. Some people see a more significant change than others, but we all can't avoid aging. 

When we reach certain age milestones, we all see more significant changes in our health and bodies. When we get into our 60s, some people start seeing declines in their memory. These changes increase once we get into our 70s.

If we are lucky enough to reach our 80s, our life expectancy gets stretched even more. Between health issues and frailty, our risk of needing care is high. With the cognitive decline, our need for supervision due to dementia is also an increased risk. 

Ignoring the risk of long-term health care makes no sense. Planning for future extended care needs protects not only income and assets but also gives the family more time to be family. 

Then consider the tax advantages of Long-Term Care Insurance. Self-funding will create a loss or a taxable gain as you sell off assets. Your loss could also still be a gain. You can never time the market, nor can you time the need for your future care.

A small amount of the earnings from your assets can easily fund your Long-Term Care Insurance premium. Plus, in addition to the money you get from the policy to pay for your choice of care, you often have other services, including case management, that makes it easier on your loved ones.

Long-Term Care Insurance: Is It the Answer?

For many people, Long-Term Care Insurance is an affordable solution, but it depends on your specific circumstances. LTC Insurance is very affordable, especially if it is designed correctly. Most insurance agents and financial planners do not understand long-term care and generally recommend benefits which are far too much or too little then what you need.

A Long-Term Care policy should provide appropriate coverage for your specific future needs, and the premiums must be affordable. Many top specialists say you should design a plan to make a catastrophic situation manageable. It should provide "peace of mind" that you will have the necessary financial resources to pay for your quality care in the setting you and your family desire.

A well-designed LTC Insurance policy safeguards your 401(k) IRA SEP 403(b) and other savings. It can be one of the best financial decisions you ever make – and the good news is it is very affordable. 

A Long-Term Care policy should be designed by an experienced Long-Term Care Insurance specialist using their experience and expertise along with your input. Generally, the design of a Long-Term Care policy should consider the following:

• Long-Term Care policy should provide enough benefit for your choice of quality care in the setting you desire without placing a burden on your family or draining assets.
• The premiums must be structured so they are affordable both today and in the future.
• The amount of money you would receive in benefits should be substantially greater than the premiums you will pay.
• If you live in a Long-Term Care Partnership State, you should be sure that your plan meets both the federal and state guidelines established under law.
• There is no need to "over-insure"/ Design a plan considering other forms of income you may have so you can affordably take a catastrophic situation and make it manageable
• Spouses/partners should consider shared benefits to add additional flexibility and affordability.

What Protection Does LTC Insurance Provide?

Long-Term Care Insurance has become a key part of retirement planning. Designed so you can protect your retirement accounts (401(k) IRA SEP 403(b) and other assets from the impact health and aging will have as you get older. People require long-term care services and supports due to illness, accidents or the impact of aging. While we often think it means the care we require when we are old, often it happens when we are younger.

This type of insurance is regulated by your state's Department of Insurance (or equivalent) as well as meeting federal standards as these are generally tax-qualified and partnership certified plans which must meet federal guidelines. Benefits are paid either to the provider or directly to the insured person for the costs of their care. You get to design the amount of benefit you wish to have. This is key – these plans are custom designed.

Since health insurance and Medicare and Medicare supplements (for those 65 and older) do not pay for the majority of long-term care services, American families have to either pay for care out of their own income and asset or ask family members to provide the care. Neither of those options are ideal.

Affordable Long-Term Care policies are designed to pay for all types and levels of long-term care services at home or in a facility. These include skilled services (nurse, physical therapist, etc.) and unskilled and semi-skilled services (home health aides, homemaker and companionship services, etc.) in your home, an adult day care center, assisted living facilities, memory care facilities, or a nursing home.

What Are the Components of a Long-Term Care Insurance Policy?

There are numerous ways to design a Long-Term Care Insurance policy to meet your specific needs. This is important as many people ask the questions, "How much does it cost?" The answer is it depends on the amount of coverage you select and the features you desire in a plan. Experts suggest working with an experienced Long-Term Care Specialist (find a qualified specialist here to help you design a plan based on your age, health, and the amount of assets you wish to protect.

Detailed Questions Specialists Ask

A specialist will ask you a number of important questions. These included detailed questions about:

Your Health: This includes conditions you are being treated for or have been treated for in the past ten years. Surgeries who have had in the past and the outcomes. Pending surgeries or health-related testing that has been recommended but not yet completed. Height and weight. Your personal habits like tobacco and drug and alcohol use. Medications you take and the reasons you must take them.

Family History: Family history only has a nominal impact on your risk of needing care, but it does have a big impact on your risk of a longer than average long-term care situation. Many companies will base some underwriting of your application on family history, especially a family history of Alzheimer's and dementia. Every company has different standards. This means a Long-Term Care specialist will ask you questions about your family history (parents, grandparents, aunts, uncles, and siblings). What health conditions did they live with? Their age (or ages at death). There are some health issues that run in families, which may increase your risk of having a longer than average long-term care situation. 

Future Retirement Plans: When do you expect to retire? Where will you live when you retire? How do you plan on financing your future retirement (defined pension, retirement savings, etc.)? The cost of care does vary from location to location, so having this information allows the specialist to make the right recommendation.

Legacy Concerns: How important is it to you to leave an inheritance? Perhaps your major concern is protecting the lifestyle of the other spouse/partner? You should share your thoughts with the specialist.

Your Family: How will your family fit into the equation? Generally, most people want their family to be family and not be forced to be caregivers. On occasion, a family member may want to be part of the caregiving team. If this is the case, they will need to "relief" or respite from the demanding burdens of being a full or part-time caregiver.

Your Main Concern: Is your main concern not being a burden on your loved ones? Maybe asset protection and legacy is your primary concern? Perhaps you want to make sure you have a choice of quality care in the setting you desire. Sharing this with the specialist will allow them to recommend the most affordable plan which addresses those concerns.

Designing a Plan

You design a plan by selecting a monthly benefit (some companies only offer daily benefit, but monthly is preferable because of how home care is delivered). This is the dollar amount coverage the insurance company up to toward your cost of care. There are a number of "riders" that are available. These are options like inflation benefits and shared spousal benefits, for example, which get added to the policy at extra cost.

Common Components on Long-Term Care Insurance Policies

Most policies have several components in common. 

Monthly or Daily Benefit

This is the dollar amount you will be entitled to. You can select from $1500 to $10,000 a month with most companies. This is money that is available to be paid toward your care. Most plans are "pool of money" products. This means if you don't use the maximum amount each month, you don't lose it; it stays in the benefit account and continues to grow with any inflation benefit you have. The bigger the benefit, the higher the premium. Keep in mind that even smaller plans have tremendous value and ease family burden if your budget is very limited.

Elimination Period

This is a deductible based on days, not dollars. It is the number of days you must wait before your benefits begin once you qualify for benefits under the policy. You can choose from 0, 20, 30, 60, 90, or 100+ days, depending on the company. The elimination period is once in a lifetime. 

With many companies, is it calendar days, not dates of service. During this elimination period, someone else is responsible for paying for care. It could be your health insurance or Medicare or your supplement. It could be out-of-pocket or a combination of all of the above.

Maximum Lifetime Benefit Period

Today's Long-Term Care Insurance is generally a "pool of money" product, not a benefit period. This is how much money is in your policy, starting on day one of your policy. This amount can grow with inflation each year. Few companies offer "unlimited benefits," but they do exist. The cost for unlimited benefit is much higher; however, if you have a strong family history and many dollars to safeguard, you might want to consider either a very large benefit pool or even unlimited benefits.

Inflation Protection Rider

This rider, generally required with a Long-Term Care Partnership plan, automatically increases the amount of your benefit (both the monthly benefit and the benefit pool). There is NO CAP on how much the benefits can increase. The premium is already factored into the cost of the premium. So as benefits increase, the premium does not. 

You can choose not to add the inflation protection rider or choose an option to purchase additional coverage in future years. PLEASE BE EXTREMELY CAREFUL ABOUT CHOOSING THE GUARANTEED PURCHASE OPTION or FUTURE BENEFIT INCREASE OPTION. Not only are those plans NOT Partnership certified, but your premium will also increase every two to three years unless you refuse the option. In most situations, it is not recommended.

CHOOSING NOT TO BUY AUTOMATIC INFLATION PROTECTION MAY BE ATTRACTIVE BECAUSE THE POLICY WILL BE PRICED SUBSTANTIALLY LOWER TODAY. THIS DECISION COULD PUT YOU AT CONSIDERABLE RISK OF BUYING A POLICY THAT WILL NOT PROVIDE THE COVERAGE YOU NEED. IT IS CRITICAL THAT YOU FULLY UNDERSTAND, AND CAN AFFORD THE CONSEQUENCES OF NOT CHOOSING AN INFLATION PROTECTION RIDER.

Most companies offer 3 or 5% compounded options. Some offer 1, 2, 3, 4 or 5% compounded. Some offer simple inflation options as well. A few companies offer benefit increases based on the CPI. Be careful; some of these CPI options are really purchase offers based on the CPI meaning your premium will increase over time.

Higher Benefit - No Inflation

Some Long-Term Care Insurance specialists are now recommending for some clients are higher initial benefits without any inflation rider. The cost of the inflation rider is one of the primary costs of a policy. If partnership benefits are less important, a specialist might recommend forgoing the inflation rider - lowering the costs even though the benefits are initially much higher.

Be sure to discuss all types of policy designs when speaking with a specialist. Several factors will go into their recommendations. The goal should remain to have enough benefits from a policy to give you access to your choice of quality care, easing the burdens otherwise placed on your family. A long-term health care need can be catastrophic to your family and finances. You want enough benefits to reduce the pressure on cash flow and the strain on your loved ones.

Additional Riders

 These are added benefits you can add to your Long-Term Care policy. These include, but are not limited to:

• Shared Care – This rider connects two policies together. In the event a spouse spends all the money in their policy they can either use money from the other's policy or an added "third pool" that either spouse can access if necessary. If a spouse pre-deceases, the premium usually disappears, but 100% of the unused benefit goes to the surviving spouse. Outside of inflation, this is the most popular feature on a Long-Term Care policy.
• Return of Premium – If you die prior to age 65 your premiums will go to your estate. Some companies offer a return of premium at any age, minus any claims paid. These premiums add cost, which may not be cost-effective for many people.
• Survivorship – This usually will waive the premium of a surviving spouses' policy if one passes away. Usually requires at least ten years have passed from the time the policy was issued.

Optional Benefits

Some insurance companies' policies include certain optional benefits at no additional cost. These include:

Bed Reservation Guarantee: If you are in a facility (memory care, assisted living, or nursing home) and need to leave temporarily (the most common reason is to go to the hospital), the facility will still charge you for the room OR not guarantee the room will still be there when you return. 

 Once you have found a facility, you and your family are happy with you, don't want to lose it. Most insurance companies will pay to reserve your room if you are not there (but still qualify for benefits under the policy).

Alternative Plan of Care: Many Long-Term Care Insurance policies have this provision. This makes your policy adjustable to advances in caregiving and technology in the future. 

If there are types of care available in the future that benefit your care and are cost-effective, the insurance company will consider paying for this care even though it is not specifically listed in the policy. 

A good potential example is robotics. Robot care providers are being tested around the world. This may become a common option for people in the years to come. As of now, no policy includes robot coverage. This might make sense to both you and the insurance company in the future. The insurance company will not, however, force you to use "alternative" care options. Those decisions are left up to you and your family.

Hospice: Many of the same forces that make more people require long-term care services and supports are impacting end-of-life as well. Medicare doesn't cover room and board when you get hospice care in your home or another facility where you live (like a nursing home or assisted living facility). Most Long-Term Care policies will pay for hospice at home or in a facility.

Waiver of Premium: With most Long-Term Care Insurance plans you will not pay the premium when you are receiving benefits. If you recover, the premium will start again, but you don't have to pay back the waived premium.

Case Management: Most policies offer case management, which can be very helpful at the time of claim. The insurance will pay for a nurse case manager (or social worker skilled with elder care services). The case manager will make recommendations for a plan of care, find providers and facilities, and monitor your situation to make sure the proper care is being provided. 

This is NOT managed care, and you don't have to take the recommendations. This allows the family to be family and reduces the burden placed on them.

How Do I Qualify for LTC Insurance Benefits?

Eligibility to receive benefits from a Long-Term Care policy is straightforward. Your healthcare professional must certify that you required assistance is expected to last at least 90 days. This means you have a long-lasting or recurrent illness or condition that causes you to need help with Activities of Daily Living (ADL) and often other health and support services. The condition must be expected to last for at least 90 consecutive days. 

For federally tax-qualified Long-Term Care insurance policies you must require long-term care because of an inability to do a certain number of Activities of Daily Living without help (either hands-on OR stand-by), or you require supervision due to a cognitive impairment such as Alzheimer's Disease or another form of dementia.

Acitivities of Daily Living Triggers

For most policies, your health care professional certifies that you need assistance (hands-on assistance or stand-by assistance) with 2 of 6 Activities of Daily Living. The activities of daily living are bathing, dressing, transferring, toileting, continence, and eating.

Cognitive Impairment

Your healthcare professional determines through standardized tests that you are suffering from a cognitive (mental) impairment that affects your memory, your ability to think clearly, and your ability to take care of yourself in a safe manner.

What is a Tax-Qualified Long-Term Care Insurance policy?

The 1996 Health Insurance Portability and Accountability Act (HIPAA) was signed into law by former President Clinton. It provided certain tax benefits to people who already had Long-Term Care Insurance and to those purchasing new policies after January 1997.  

Premiums paid for Tax-Qualified policies are tax-deductible within certain limits. The tax deduction value is a function of whether you are self-employed (or own a company, (S-Corp C Corp, etc.), have a policy paid for by your employer, or itemize health care expenses. 

Under all the above circumstances, benefits paid out by a Tax-Qualified Long-Term Care Policy are guaranteed to be tax-free. This means you have "dual tax advantages" as premiums may be tax deductible but remain tax-free.

What are Long-Term Care Partnership Policies?

The Long-Term Care Partnership Program is a Federally-supported, state-operated initiative that allows individuals who purchase a qualified Long-Term Care policy to protect a portion of their assets that they would typically need to spend down prior to qualifying for Medicaid coverage.

The Long-Term Care Partnership Program is a public-private partnership between the federal government, states, and private insurance companies. It is designed to reduce Medicaid expenditures by delaying or eliminating the need for some people to rely on Medicaid to pay for long-term care services and supports. Medicaid has been the primary payer of these services, with the majority coming from American families who exhausted their savings due to long-term care costs. 

The idea is they encourage people to purchase some form of Long-Term Care Insurance and, in return, provide them with "dollar-for-dollar" asset protection.

In February of 2006, President Bush signed the Deficit Reduction Omnibus Act of 2005 (DRA). This new law allows for nationwide expansion of Long-Term Care Partnership programs and tightens Medicaid eligibility rules. 

Long-Term Insurance Partnership policies allow consumers to shelter part of their estate based on the amount of benefits paid by the policy. If your policy paid $650,000 in benefits, they will "disregard" that amount in the spend-down requirements for your state. 

In this example, you could keep $650,000 plus the amount your state normally allows (usually $2000) and still qualify for the Medicaid Long-Term Care benefit. No matter what happens, you will never lose all your savings. 

See if your state participates in the partnership program.

Keep in mind that not every insurance company offers a partnership certified plan. The policy must be designed to meet federal guidelines and any additional state requirements. Plus, federal law requires policies must have some form of inflation protection depending on your age at the time to obtain coverage:

Less than 61	Company must offer 5% compound inflation.  If rejected by the consumer, a minimum of 3 percent or changes based on the consumer price index must apply. Some states have elected to allow inflation BELOW 3% compound … as little as 1%. The benefits go up automatically every year even when on claim, BUT the premium does not increase as this is already factored into the cost of the premium. Policies which offer "options to increase" usually do not qualify unless the options are automatic. This means unless the consumer says "NO" the benefit increase, and the new premium, occur automatically. If a consumer has such a plan, the premium would increase with each option (which usually is too expensive). If a consumer has such a plan and they REJECT the increase, the partnership certification is terminated. This type of plan is usually NOT in the consumer's best interest.
61 – 75	Some level of inflation protection must apply. No minimum level is established.
Over 75	No inflation protection required for partnership policies.

The Cost of Long-Term Care Insurance

Perhaps the most asked question is, "How much does this cost?" There is a perception that Long-Term Care Insurance is expensive. The fact is today's Long-Term Care Insurance is very affordable for most people, especially if you purchase a plan before you retire. Most consumers are looking at Long-Term Care Insurance in their 40s and 50s as part of their retirement planning.

The cost is generally the most significant issue that people are concerned about when considering a plan. There is a misconception that Long-Term Care Insurance is "too expensive." This is a myth. This is often mentioned in both the consumer and the financial press as well as by people who have not kept up with significant changes in the industry and understand benefit design. 

Therefore, it is so important to work with a Long-Term Care Insurance specialist to help you design and shop for the best coverage at the best value. The American Association for Long-Term Care Insurance, a national consumer advocacy and education group, says consumers should work with a specialist with a substantial amount of experience in long-term care and works with several companies, if not more.

Many general insurance agents and finances advisors lack a complete understanding of these products, underwriting, and policy design.

As a result of consumer-driven legislation on both state and federal levels, Today's Long-Term Care Insurance plans offer great flexibility in policy design, clearly written and understandable policy language, built-in consumer protections, fair and affordable premiums, and increasing Government scrutiny over premium stability. 

Most states have rate stabilization rules for all policies sold today (unlike in decades prior). This means today's Long-Term Care Insurance is not only affordable but much more rate stable. This gives consumers and their families even greater "peace-of-mind."

Today, underwriting is much more scientific and conservative than ever before. Premium costs now consider low-interest rates, low lapse rates, and actual claims experience going back decades and decades. The Society of Actuaries suggests the chance of a rate increase on a long-term care policy sold today is very, very low. Regardless of those facts, it is also not easy for insurance companies to raise rates on the products being sold today.

Insurance companies must first get their rate approved to start with and indicate they have come up with premium schedules based on sound actuarial data. Essentially, they need to actuarially certify that the premiums make sense for the policies selected. 

In the event an insurance company wishes a rate increase, they must go to the Department of Insurance in each state that they're looking for the increase, show a substantial need which is based on actuarial data, and have it impact a class of people in a product series (in other words they can't just pick on you). The insurance companies can not price in PROFIT on any potential increase!

You have a great deal of control over the premium by the selections you and your specialist make in the benefit design. Each component affects your final premium. 

Once the policy is issued, the premium is intended to remain level for life, unless there is an across the board increase approved by the department of insurance as noted above. You can always lower your premium at a later date by reducing your benefits and can do so at any time without any penalty (keep in mind if you eliminate inflation, you may lose your partnership certification). 

Premiums can be paid monthly, quarterly, semi-annually, or annually. Generally, it is always less expensive to pay annually. One major company offers an accelerated pay option. You pay ten years of higher premiums in exchange for no future premiums, no matter how long you live. This is especially valuable if you own a "C" corporation, which can deduct 100% of the higher premium. High-income professionals also may like this idea. This allows the premium to be fully paid-up before retirement.

The important factors that affect the cost of Long-Term Care Insurance are the age at which you purchase the policy, your current health conditions, the amount of benefits you wish to have in place, and the insurance company you choose. You pick the wrong company you could pay more than double of what you should. This is another reason to work with a Long-Term Care specialist who works with all the major companies.

The age at the time of application is the factor that all other factors are impacted by.

An upcoming birthday could save you money as premiums are based, in part, on your age at the time of application. The younger you are, the lower the premium, and the less in total premiums you will pay over your lifetime. In addition, your health is usually better, and you may qualify for preferred health discounts. It makes good fiscal sense to buy a policy as young as possible. 

Numerous experts and financial publications recommend purchasing Long-Term Care Insurance in your 40s or 50s as part of your retirement planning. This way, you can safeguard your 401(k), IRA, SEP, 403(b), and other savings from the financial costs and burdens of longevity. Plus, some people require care when they are younger (early-onset Alzheimer's, accidents, cancer, and strokes, for example). You will never "save money" by purchasing a policy at a later date.

Your health conditions when you apply determines eligibility for coverage.

Health is a significant factor in whether you can get coverage in the first place or perhaps qualify for preferred health rates. 

Each insurance company has different underwriting standards. A qualified Long-Term Care specialist will have a complete understanding of each company's guidelines and, if necessary, discuss your case with underwriters before any application. 

Don't assume you are unable to obtain coverage, although if you require care NOW, you will NOT qualify for a policy. Some health conditions require a "waiting period" after recovering from a condition. There may be waiting periods after starting a new medication as well.

Selecting a good insurance company depends on several factors. 

Consider the company's financial ratings by the insurance rating services such as A M. Best, Moody's, and Standard & Poors. These rating services evaluate the financial strength of an insurance company and its claims-paying ability. 

However, the rating has no bearing on the policy's benefits or the company's customer service.

When is the best time to buy Long-Term Care Insurance?

If you knew exactly when you would require care, you would purchase a plan just before that event. However, we don't know when our needs will occur or how long we will require extended care. It is a fact that waiting to buy is not wise, from either a financial or a health perspective. (The exception is if you are now uninsurable due to a health condition that will improve soon.) 

It makes the most sense to buy a policy at the youngest age possible because premiums are based, in part, on your age and health at the time you apply for coverage.

Remember, your health can change instantly due to an injury or illness. By waiting, changes in your health could mean that you would be uninsurable or that your premiums would be much higher because of an existing health condition. 

Additionally, insurance companies frequently develop new policy series to be competitive in the marketplace. Once a new policy design is issued, the older policy is no longer available for sale (remember: Long-Term Care Insurance is guaranteed renewable for life, so older plans cannot be canceled as long as you pay the premium … but a company is not required to sell new policies going forward). 

With Long-Term Care Insurance, the trend has clearly been that newer policies have all been priced at higher premium levels. Today's Long-Term Care Insurance policies are well designed, offer outstanding benefits, and are affordable and rate stable.

What If I Buy Long-Term Care Insurance and Never Need Care?

Consider yourself, lucky! Most people would love to know they will never need extended care as they age. Long-Term Care Insurance (like automobile insurance, homeowner's insurance, health insurance, disability insurance, and business liability insurance) is purchased to protect you from the catastrophic costs of financial loss. You don't pay for auto insurance for reimbursement of a $500 fender bender. You buy insurance to protect yourself from catastrophic loss. 

Just one year of care can be financially catastrophic and create enormous stress and anxiety for your family. Keep in mind; long-term care is more than just money. It impacts you, your family, AND your savings and lifestyle. The burdens placed on family members impact not only them but their families as well. 

The risks of YOU needing long-term care at some time in your life is much greater than your risk of being involved in a major injury auto accident, needing major surgery, or your house burning to the ground.

Your health, body, and mind change as you get older - so do your risks of needing long-term health care. 

Without a crystal ball, there is no way of knowing who will need long-term care in the future or for how long. There are "return of premium" options available if you are lucky enough never to require care. 

Several insurance companies have developed asset-based plans, which the industry has names "hybrid" plans. These products combine Life Insurance or annuities with Long-Term Care benefits. 

These plans have received attention in the last several years for presenting a way to leverage an existing asset (money you already have) to plan for long-term care. These plans will normally have a cash value or a death benefit in the event care is never required. 

Typically, these are single premium life insurance policies (although some offer annual or multi-year premium options) or annuities with riders for long-term care.

Many companies offer policies similar to this; however, only a few insurers offer traditional triggers for long-term care benefits without using language that limits benefits. 

Be careful with these combination products; generally, you want a policy that is a 7702(b) policy. This is Federal government jargon that defines the policy as a Long-Term Care Insurance policy. 

There are life insurance policies that categorized as 101(g) only and are generally referred to as "Accelerated Death Benefit for Chronic Illness" riders. With these products, the term "long-term care" can't be used in the marketing or sales of the product by federal law since they do not meet the federal definition of long-term care.

Some 101(g) policies require the insured to be "terminal" to accelerate the death benefit for extended care. They all require the insured to have a permanent need for extended care; however, not all long-term care situations can be classified as "permanent."

A Long-Term Care Insurance specialist will understand these important differences that a financial advisor or general insurance agent may not understand.

You can also make use of a 1035 tax-free exchange if you have an existing life insurance policy with cash value OR an annuity to fund one of the plans that include long-term care benefits.

A traditional plan will usually be much less expensive and provide more long-term care benefits in most situations. If you have some health conditions, these "hybrid" plans may offer benefits that traditional plans will not.

If LTC Insurance is so Good Why Don't More People Own a Policy?

Good question! There are several reasons, but the number one reason is that many people falsely believe they are already covered by their health insurance, Medicare, or Medicare Supplement plans. Despite government budget problems, some people also hope the government will provide for their care, without understanding that they will need to spend their own money and assets until they are impoverished and eligible for government assistance. 

Our personal belief system is another big reason people delay or decide not to plan for long-term care. Some people just don't believe it will ever happen to them. Other people just don't want to think about it.

The word that best describes this thinking is "Denial." Why would you plan for something that will never happen to you? Some people point out their parents never needed care. The fact is family history has little impact on your risk of needing care (although it does affect your risk of a longer than average situation. 

Many "facts" and common sense suggest that the advances in medical science and longevity create a huge risk of needing extended care as we age. Remember, just longevity alone is a risk. You might be "healthy," but if you are old and frail, you will require help with daily living activities. There is also a higher risk of cognitive impairment the longer we live.

Who gets impacted when you fail to plan? Your family. Failing to plan is a plan to fail … not just because of the high costs of long-term care services and supports. The impact on loved ones from the consequences of your long-term care is tremendous. There is a physical, emotional, and financial burden on your family due to your future extended care. Yes, caregiving is hard, and paid care drains savings.

Perhaps the most unfortunate reason that more people don't have an affordable plan to address the financial costs and burdens of aging is simply that they waited too long. 

If you wait until you are too old or your health has changed, it is too late. You cannot purchase Long-Term Care Insurance for any amount of money if you already have certain high-risk medical conditions or if you already need care.

Don't fall into the trap of using unreliable articles or advice to stop you from doing what you know is the right thing to do based on facts. We are getting older. As we age, many of us will need long-term care. The cost is high, and the consequences are hard on those we love. Premiums are affordable, especially if you purchase in your 40s and 50s before retirement. Today's Long-Term Care Insurance is rate stable and very affordable.

There are only two "mistakes" you can make with Long-Term Care Insurance, and one is definitely more costly than the other:

1. You buy a plan. It doesn’t matter how big or how small. You live a long and happy life. You die in your sleep with a smile on your face, never needing any care or assistance. The money you paid in is gone! Had you known this would happen, you would never have done it, right?
2. You don’t buy a plan. You end up needing long-term care services. Not only do you pay for your care out of your savings, but your family has to at least manage your care if not be full or part-time caregivers. Based on a 52-year-old today, the cost of care, based on the national average, in 30 years would average $236,549 a year for a nursing home and $119,402 for one year of care at home. If you need two years of care at home plus one in a facility, that will run $475,353.

Point being, the cost of premiums will never come close to the cost of care.

How Do Long-Term Care Insurance Claims Work? 

Filing a claim for Long-Term Care Insurance is emotional since a spouse or adult child will generally be doing the work. If you have everything ready and understand the process, the claim will start paying benefits before you know it.

Many in-home health agencies offer services to help people submit claims for Long-Term Care Insurance. These agencies often provide the service at no charge with the hope you will choose them to provide the care. There is no obligation to use their help.

Whether it is for care in your own home, adult day care, assisted living, memory care, or a nursing home, Today’s Long-Term Care Insurance will help you get the quality care you desire at home or in a facility. Since there is a good chance are you are going to need to activate your policy, you should understand the claims process.

Below are some easy steps to make the claims process easier.

Understand the policy benefits

When you obtain your coverage, most Long-Term Care specialists will review your policy in detail; however, this is not always the case. If your agent does not offer to do so, be sure to ask. Even after they review the policy, be sure to read it a few times, and review it. The best place to look is what is called the schedule page. It reviews the initial benefits and amounts in your policy.

Most agents will offer to re-review your policy years later. Take them up on that offer. You may want to have a family member listen in on the conversation. Never hesitate to communicate with your agent and use their expertise.

It is common to have a policy for 15 or more years before you need to use it. Often a policyholder may have forgotten the details of the policy. Call the agent first. Familiarize yourself with your policy before even starting the claim process. If you don’t have a copy of the policy – call and order a copy from the insurance company. This may take a week or two, but it will be very helpful.

If your insurance agent or financial planner is not around anymore, you may want a third party, like an elder law attorney, to review the policy as well. Your best bet is always a Long-Term Care Insurance specialist who hopefully was the person who sold you your benefits to start with.

Legal Documents

When you, or a family member, contacts the insurance company, they will ask you a number of questions. If you are unable to communicate, your family member will need to have the medical power of attorney. Be sure you have that setup decades in advance. Be sure to name a successor if the person you select is not available. In most cases, even the insurance agent will need to have legal paperwork to get information on your case because of medical privacy laws. Some insurance companies have special forms where you can name another person to speak on your behalf.

Initial contact with the insurance company

Generally, an intake nurse will take in the initial information on your claim. They will order medical records from your doctor in order to confirm your need for long-term care. This can take a few weeks. Some companies may send a nurse to see you as well.

Find the major insurance company claims department contact information.

Outside Help

Remember, many providers will help you with the claims process, including filling out forms and communicating with the insurance company. Several major home health agencies provide this service. Many facilities will also be happy to work with the insurance company. 

Generally, they love Long-Term Care Insurance since once the claim is approved, their check comes regularly!

LTC NEWS can help you process a Long-Term Care Insurance claim and offer case management services at no charge or obligation.

Plan of Care

A plan of care will be developed. You and your family can be involved with this plan as you get to make the final decisions of providers and options once the claim is approved. Many companies provide case management, which will continue to monitor your situation.

Assignment of Benefits

You can assign the benefits directly to the provider. This way, the provider bills the insurance company, and the insurance pays the provider directly. This makes it much easier for your family.

Nonforfeiture Benefit

Under federal law (Section 7702(b), a Contingent Nonforfeiture Benefit must be included with any tax-qualified Long Term Care Insurance policy.

If an insurance company were to receive approval from a state department of insurance for a substantial premium increase, the policyholder could choose to have a fully paid policy based on the amount of premiums paid into the policy.

Insurance companies must also offer a nonforfeiture benefit rider that if you have owned a Long-Term Care Insurance policy for a certain number of years and then lapse the policy, you also maintain a paid-up policy based on premiums paid into the policy. This rider is referred to as a "Reduced Paid-Up Benefit" or "Shortened Benefit Period." 

Every tax-qualified Long-Term Care policy includes a chart indicating the percentage increase required to trigger the nonforfeiture benefit based on the policyholder's age when coverage was put in force. 

Today, Long-Term Care Insurance premiums are priced based on the extremely low-interest rate environment making approved interest rate increases much less likely. In addition, most states have rate stability rules also in force for Long-Term Care Insurance.  

Even if an increase were ever approved, it would be better to reduce current coverage to a lower premium than take advantage of the nonforfeiture benefit.

Long-Term Care Insurance: Understand Your Options, Protect Your Future

Regardless of where you are in life, it's worth considering the potential for needing long-term care and understanding your options for covering care via Long-Term Care Insurance.

If you've made it this far, congratulations! Your next step is to speak to a LTC Insurance specialist. LTC News partners with LTC Insurance specialists who can help you create a policy that meets your budget and care needs. Click below to get started!