Long-term Care Insurance: What You Need to Know
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Long-term care insurance (LTCI) is designed to help people afford long-term care when they can no longer care for themselves. LTCI can be expensive, but it’s a lot cheaper than long-term care itself. For many families now facing high long-term care (LTC) costs, long-term care insurance remains the best funding strategy available.
Hundreds of thousands of people in the United States received benefits from their long-term care insurance each year, and that number doesn’t include the people who receive LTC benefits from Medicaid or paid for long-term care on their own.
Interestingly enough, the vast majority of people apply for LTC insurance before they are senior citizens – more than half according to the most recent statistics from the American Association of Long-Term Care Insurance (AALTCI). Nearly 25 percent apply between the ages of 45 and 54, so large numbers of people who are not seniors also maintain LTCI.
What is long-term care?
Long-term care insurance is coverage designed to cover a patient’s expenses if an illness, disability or impairment suddenly interferes with daily functions. The phrase “activities of daily living,” or ADL, refers to six major activities of everyday life: bathing, continence, dressing, eating, toileting and walking. When people can’t do these things on their own, they have little hope of earning a livable salary.
That’s where LTC comes in. With long-term care, people get the professional help they need to complete their ADLs and maintain a comfortable quality of life.
While people of any age can have trouble performing ADLs, instances of requiring LTC are understandably higher among the elderly.
LTC is not the same as regular medical care in that it does not treat an illness or seek to improve your health. Instead, the goal of LTC is to maintain the quality and routine of your lifestyle much as possible.
Levels of LTC
LTC service providers make sure that you’re eating healthy meals, getting to the places you need to go, taking your medications regularly and as directed and maintaining your hygiene. For patients with severe disabilities like advanced Alzheimer’s, LTC can also provide supervised, in-home care.
There are two levels of LTC: personal care and skilled care:
- Personal care helps you do normal activities that you’d do around the house. This is the first and most basic level of LTC care. Many people receive personal care in their homes, and many also receive it in a care center or nursing home.
- Skilled care is for patients who require the regular presence of a medical professional, though not a doctor. Usually these tasks can be performed by a nurse or therapist. For the most part, these kinds of services are received in care centers and nursing homes, not in individual residences.
The costs of LTC can add up, especially over the years. People buy LTCI as a way to cover this cost, ensuring they don’t end up with a heavy financial burden later in life or put that burden on their loved ones.
What is combo life insurance?
You can buy LTCI on its own, but that comes with some risk. What if you never require long-term care? In that case, you could spend money on an insurance policy that ultimately serves no purpose for you.
To protect against this, many people choose to buy a specific type of insurance product that combines LTCI with life insurance. This way, if you never need to call on long-term care, your loved ones still get a benefit from the policy in the form of your death benefit when you pass away.
When you buy combo life insurance, any LTC coverage you use detracts from your final death benefit. Still, because this insurance is most likely protecting your loved ones from the cost of the long-term care you need, it still provides a benefit to them.
Should you combo your life insurance? It depends. While combining your life insurance and LTCI may be an attractive option, it usually requires either one lump sum premium payment or a handful of high annual premium payments. In other words, you’ll need some money sitting around to put this coverage in place.
Long-term care insurance cost
Because LTC is so specific and only deals with this one aspect of health, LTCI is a supplement. It covers these LTC costs that health insurance, Medicare and Medicaid might not cover, but it is never used in the place of primary health insurance.
Surveys show that LTC is expensive. The median monthly rate in America for a private room in a nursing home was $8,517 in 2019. That’s an annual cost of $102,200 for private room care. Semi-private rooms in nursing homes aren’t much cheaper. Last year, the median monthly rate for a semi-private room was $7,513. By comparison, the median monthly rate for residence in a U.S. assisted living communities was $4,051. This figure does not factor in the additional administrative, health or transportation costs.
For adult daycare services, the median monthly rate in the United States was $1,625 in 2019. That means adult daycare averages about $19,500 per year. As you can see, depending on how much care is needed, the costs of LTC vary widely.
The average 55-year-old adult can expect to pay around $2,000 a year for LTCI, but long-term care insurance cost is also highly variable depending on your age and other factors. Rates have been rising in recent years partly because fewer people are allowing their policies to lapse before their insurance companies originally predicted. As providers lose enrollment numbers, costs for enrollees will necessarily rise.
What does LTCI cover?
People who are in relative good health will usually qualify for LTCI. Unfortunately, if you have any pre-existing problems that indicate you will need LTC or any sort of assistance with ADLs in the future, you will probably not qualify. Similarly, if you have a degenerative disease like multiple sclerosis (MS) or a severe mental disorder, you will probably not qualify for LTCI.
Long-term care insurance can cover a long list of costs that include adult day care, home care services, assisted living facilities, respite care, hospice care, nursing homes, Alzheimer’s facilities and home modification costs:
- Adult day care facilities are like activity centers for seniors that provide some supervision and a minimal level of care. Some employ social workers and medical personnel.
- Home care services include help with everyday tasks like cooking, cleaning and bathing.
- Assisted living facilities are for people who need help with ADLs but do not need nursing.
- Respite care provides private family caregivers with breaks so they can maintain their own lives, jobs and families while ensuring that their loved one receives the necessary care. Respite care varies from part of each day to several weeks at a time and can include home-based care, adult day care and short-term institutional care.
- Hospice care provides end of life care for people who are close to death and in need of palliative care.
- Nursing homes provide both ADL assistance and medical care for residents.
- Specialized nursing homes have wings or units that provide care for diseases like Alzheimer’s; these sections are disease-specific and tailored to the needs of their residents.
- Home modification costs include costs to remodel bathrooms for wheelchair accessibility, for example.
If you choose to get LTC at your home, there are several types of service providers who are generally involved in LTC: live-in caregivers, companions, housekeepers, therapists and private duty nurses. The services of these workers are typically covered by LTCI:
- Live-in caregivers assist people who need 224-hour-a-day care but not consistently enough to prevent a single caregiver from sleeping. They are not medical workers. Live-in caregivers typically work shifts of a few days at a time and go home between their shifts.
- Companions are a flexible sort of LTC provider. They can provide as much care as a live-in caregiver or as little as a few hours of personal care each week. Typically, they have the same kinds of qualifications as live-in caregivers and are not medical workers.
- Housekeepers generally provide the kind of services you’d expect. They perform the daily chores that keep the household running, but do not do personal care work.
- Therapists are skilled providers who typically provide a specific kind of care. Therapists generally do not provide services other than those related to their therapeutic area.
- Private duty nurses provide skilled in-home nursing care to private patients. They can provide any services that nurses can provide in a home setting.
Because these services are expensive without coverage, LTCI can be essential.
What are the LTCI add-ons and how do they work?
When you buy LTCI, you may have the option to add features to make the policy work better for you. Usually, you’ll pay more for these add-ons — also called riders — but you might find they’re well worth the additional cost.
Some of the most common LTCI add-ons include:
- Return of premium benefit means that if you pass away without ever needing long-term care, your beneficiary will get the premiums you paid back from the insurer.
- Waiver of premium means you don’t have to continue paying premiums while you’re receiving long-term care.
- Inflation protection is when your policy adjusts for inflation so you can continue to enjoy the same quality of care through the years.
- Shared cost helps if you and your partner buy LTCI together because this rider will allow one of you to use the other person’s LTCI benefit if they hit the limit of their own benefit.
These are just a few options. As you’re shopping for LTCI, look for riders that can make your policy best serve you.
How can one access death benefits?
While LTCI is designed to cover long-term care costs, you might have another option to pay for these expenses. If you have a life insurance policy that offers an accelerated death benefit (ADB), you may be able to use some of the face value of your policy to cover LTC costs.
Generally, in order to access your ADB, you’ll need a diagnosis from a doctor saying:
- You have a terminal illness
- You can’t perform ADLs on your own for either a long period of time or permanently
- You’re diagnosed with a life-threatening condition
Again, you’ll need a specific type of life insurance to call on your death benefit for LTC costs, so review your coverage to find out if this is an option for you.
How to shop for LTCI
As you shop for LTCI, you’ll be glad to know that some of the cost is most likely tax-deductible.
Like any other kind of coverage, LTCI can be complicated. To clarify your goals before you shop, ask yourself:
- How much of a benefit will you need? Figure out if you have other assets or income that could help you pay for LTC. The less you need, the better, because your premium will be lower.
- How much time can you pay for on your own before your benefits kick in? Your LTCI comes with an “elimination period.” For example, if you have a 90-day elimination period, you will have to pay the full cost of those first 90 days. Make sure you can. Also, make sure you know how they calculate those days. Some companies only count the actual days where you receive care.
- Is your policy inflation-proof? Make sure you have inflation protection in your policy. This ensures that your benefit will rise as the cost of care does.
- Do you have to keep paying premiums throughout your benefit period? Make sure you have a waiver-of-premium benefit in your policy. This ensures that you can stop paying premiums once you start receiving benefits after the waiting period.
- Do you understand how your premiums work? Typically, premiums on LTCI policies increase over time. For policies that don’t have fixed rates, companies can raise the premiums for everyone in your rate class (not just you) no matter how your health might have changed or how many claims you’ve made.
You need to know what your policy includes, but what doesn’t it include? Understand any limitations or coverage gaps in your plan:
- Make sure you know exactly what is and isn’t covered. If you think you’ll be able to apply LTCI to your 24 hour in-home nursing care bills, make sure your policy guarantees this. These personalized types of care are expensive, and most policies only cover them in special cases.
- Make sure you understand how your insurer defines ADL and the disabilities that interfere with them. In almost all cases, a licensed health care provider will have to attest that you require help with two or more ADLs for 90 days or longer. Other kinds of illness can also trigger benefits. Alzheimer’s patients, for example, may technically be able to achieve all ADLs on their own, but still qualify for care under many policy terms.
- Make sure your intended insurer is viable. The reason rates have been growing so quickly is that companies that provide LTCI have been selling fewer policies than they anticipated. If they can’t stay in business, they can’t provide you with benefits. If they get into too much financial trouble, they might hike your rates so high you have to drop the policy.