LTC Insurance 101
The cost of institutional care can have a catastrophic impact on an elderly persons finances. In 2011, the annual cost of care for a resident paying out of their pocket averaged $80,000. (Congressional Budget Office report on long term care supportive services released 2013).
Traditional Long Term Care Model
1. How Much – Determine the range of care expenses in your area. Select a monthly benefit to cover a portion of long term care expenses. Good policies will pay the same benefit in any setting. Since most claims are paid for home care, the monthly benefit for in home supportive services should be equal to the monthly benefit paid for care in a facility.
2. How Long - Determine how long your policy will provide benefits for your care. The average LTC benefit selected is between 3 to 5 years. This is called “benefit duration” or “pool value”. Since the policies are a pool of money, the policy could last longer depending the amount of benefit paid each month.
3. Shared Benefits for Couples - For an additional premium, you and your partner can share all benefits from one pool value. This gives greater flexibility.
4. Inflation -The NAIC Shopper Guide reports nursing home costs increasing at a 5% inflation rate according to the US Dept. of Labor Statistics 2000 (pg. 26) If you are under age 65, you should consider a 5% or 3% compounded inflation rider. Deferred or step rated inflation riders may be preferable over the age of 65.
5. Elimination Periods – This is also referred to as a deductible period. Don’t count on Medicare to pay for home care or care in an assisted living. The average number of days Medicare will pay in a SNF is 22.5 days per person. Most people select a 90 day deductible. Make sure you understand the terms of how the days are satisfied. Some policies will waive the elimination period if home care benefits are utilized.
6. Riders - All carriers offer various riders as options that may be beneficial. Some examples of riders include, joint waiver of premiums, nonforfeiture benefit, home care monthly benefit, reduced elimination period for home care benefits, and shared benefit for spouses.
7. Underwriting – Your health history may determine what company you will select. Some companies offer a rated premium for significant health concerns. The underwriting process may take about four to six weeks. During this time, evaluate your benefit package, outline of coverage, and any disclosures that have been given to you.
ASSET BASED LIFE & LONG TERM CARE RIDER PLANS
A handful of companies now offer life insurance policies with long term care riders. The advantage to these plans for consumers is the return of premium mechanism in the event that no long term care is needed. The premiums for the policies can be paid all at once. This protects the consumer from any future rate increases. These polices may be a good option for a consumer who has cash value accumulate in an old life insurance policy. The cash value can be exchanged into a new life insurance plan with a long term care rider. Annuities that include a long term care rider are also available. The disadvantage to these plans may be in a reduced LTC benefit. Often these polices DO NOT include an inflation provision, and the monthly benefit, as well as the plan duration is reduced. While you are researching your options, ask about this product design, it may fit into your overall planning goals.
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