What is Long Term Care Insurance and How Does it Work?
Many look forward to being able to sit back and enjoy their life’s hard work, spend more time with their families, or travel around the world.
However, with aging comes some downfalls as well, and most Americans approaching retirement worry about losing their financial independence and the ability to care for themselves.
According to the U.S. Department of Health & Human Services roughly 70% of Americans over the age of 65 will eventually need some sort of Long Term Care, or LTC.
Unfortunately, traditional health insurance and Medicare do not cover the cost of long term care expenses, leaving the financial burden on the ones you love the most. To avoid this scenario, many experts recommending purchasing affordable long term care insurance before the age of 60.
In this article, we’ll explain the ins and outs of LTC Insurance and provide you with some insider’s tips to help you save.
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What is Long Term Care Life Insurance?Long term care insurance, or LTC insurance, is not a form of health insurance or healthcare. LTC insurance covers the cost of the activities of daily living (ALDS) including:
- Feeding ourselves
LTC insurance can be purchased as a stand-alone insurance, or in conjunction with term life insurance as a “rider” or add-on. Many people purchase long term care insurance around the age of 50 when they realize the cost of their parents’ care.
However, like other forms of insurance, purchasing LTC when you are young and healthy will save you money in the long run. In addition, the increasing cost of long term care services has made it harder to qualify for LTC insurance.
Why Buy Long Term Care Insurance?Many people purchase long term care insurance to avoid the staggering cost of LTC services later in life. According to Genworth, currently the annual cost of a nursing home is approximately $108,400, and this number is expected to continue increasing.
When you consider the fact that the average woman stays in a nursing home for 2.6 years and the average man stays for 2.3 years, these costs are alarming. Long term care coverage will also cover the costs of assisted living, which can cost upwards of $54,000 per year, or home care, which can range from $59,484 to $61,776 per year.
Even if you have a large life savings, the astronomical cost of these services will likely deplete any savings you have set aside or create a financial burden for your family members.
According to Joel Weisser, President of Weisser Law Group, “Those who have planned ahead by purchasing long-term care insurance have a degree of certainty and peace of mind, knowing that they have a lesser need to rely on other sources in the future.”
What to Look for in A Long Term Care Policy
Like other forms of insurance, long term care life insurance can be customized for your needs. Aside from your health and your age, the cost of your long term care insurance policy is dependent on a variety of factors.
We’ll explain some of these factors below…
Elimination PeriodThe elimination period in a long term care insurance policy is the amount of time you must wait before your long term benefits begin. Most long term care insurance policies offer a 30 to 180 day waiting period, during which time you are solely responsible for 100% of the cost of the care you receive.
Selecting a longer waiting period can save you money on the cost of your policy, but it will also likely result in a large bill when your LTC policy begins to provide you with coverage.
If you don’t have a large savings set aside, it may be advantageous to select a policy with a shorter period. If you're more concerned with the monthly cost of your coverage and you have an ample amount of money set aside for your retirement, buy a policy with a longer elimination period.
Daily Benefit AmountWhen purchasing a long term care insurance policy, you can select the amount of your daily benefit or how much you will be reimbursed each day for the cost of your long term care services.
Its important to note that the average cost for a Medicare approved nursing home is about $108,408 per year, or about $301.00 a day, and these costs are predicted to continue to rise.
To avoid being under-insured, it’s important to purchase a long term care policy that will provide you with a daily benefit of at least $250.00 to $300.00 per day. According to Kevin Leinum owner of Capstone LTC Insurance Services, “Most people who have long-term-care coverage wish they had bought more…”
Our advice? Buck the trend and purchase the coverage you’ll likely need while it’s still available and affordable.
Selecting the Right TermLike term life insurance, LTC insurance also offers a term. The term of a long term care insurance policy relates to the amount of time that your policy will pay for the cost of your long term care services. Most LTC insurance policies typically offer a term of 3 to 5 years, and the longer the term of your policy, the more expensive it becomes.
Unfortunately, no one can predict the future and predict how long they will need LTC for, but remember, most people spend less than 3 years in a nursing home. However, if your immediate family has longevity you may want to consider spending the extra money and buy a longer term.
Inflation ProtectionSome LTC insurance policies offer a feature known as inflation protection. While inflation protection adds to the cost of your LTC policy, you’ll have peace of mind knowing that as the cost of long term care continues to rise, your policy will still provide the financial protection you need.
Most LTC insurance policies offer 3-5% compounded inflation protection - the higher inflation protection percentage you choose, the higher the cost. Deciding whether or not to purchase inflation protection will impact the monthly cost of your coverage, but it also provides additional peace of mind.
Inflation protection is complex, may vary from policy to policy, and can create confusion. For these reasons, if you decide to purchase this feature, make sure you do your research before selecting an option.
How to Save On Long Term Care Insurance
Who doesn’t like saving money, especially on insurance? Below are some insider’s tips to help you get the best rates on your LTC insurance policy as well as what corners you should avoid cutting when you're selecting the right policy for your needs.
Shop the Market to Get the Best RatesIf you're considering purchasing long term care life insurance, make sure you compare quotes from different top-rated insurance companies. Every company assesses risk differently and by shopping the market, you can save thousands of dollars on the cost of your policy.
Just make sure you purchase your policy from an insurance company that has a strong financial background. At JRC Insurance Group, we represent dozens of highly rated insurance companies and we’ll help you find the most affordable options available.
Purchase Coverage When You’re Young and HealthyAs with purchasing life insurance, if you wait too long to purchase LTC Insurance you may end up paying astronomical premiums or being denied coverage. We usually recommend purchasing a policy in your 40’s or 50’s to hopefully avoid the development of any serious health issues. Although you’ll begin paying for your policy earlier in life, you’ll likely save thousands of dollars in the long run.
Know What You’re BuyingDon’t buy more coverage than you need. As we mentioned earlier, in the United States the average woman will stay in a nursing home for 2.6 years and the average man stays about 2.3 years. One can try to predict the future or determine how long they’ll need care, but by buying a LTC insurance policy with a 3- to 5-year term, you can decrease the cost of your premiums while providing ample coverage.
Save on Coverage by Being MarriedWe’re not advocating that you should get married before you buy a LTC insurance policy, but married couples typically save about 15% on the cost of their long term care life insurance. This is due to the fact that your spouse may be able to care for you in later years, decreasing the amount of time that you’ll require assistance with your day-to-day activities.
How We Can Help You with Your LTC Insurance Needs
At JRC Insurance Group, we work with dozens of top-rated life insurance companies to save our clients time and money. In just a few minutes we’ll be able to determine which company can offer you the best rates providing you with the most affordable options available.
Our services are free and there is no cost to apply for coverage. JRC is an owner-operated agency and our agents do not have quotas. We’re here to provide a consultative, no pressure approach to insurance. If you have questions about long term care insurance or want an accurate quote, give us a call today toll-free at 855-247-9555 and we’ll be happy to help.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.
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