What You Need to Know About Purchasing Long Term Care Insurance
Are you thinking about purchasing long term care insurance, or would you to know more about how LTC coverage works?
Before you decide on a long term care policy, there are some important aspects you'll want to consider.
This quick guide will tell you everything you need to know about purchasing long term care (LTC) insurance. We've also included some money saving tips to help you stay within your budget.
Here’s what we'll cover in this post:
Quick Article Guide
Here’s what we'll cover in this post:
What Is Long Term Care Insurance?
Long term care insurance (LTC) is a not health or life insurance, it is a form of insurance that provides financial assistance to people that need help completing their basic activities of daily living (ADLs). These activities include bathing, dressing, eating, transferring, toileting, and continence.
Long term care is extremely expensive and these personal care expenses are not traditionally covered by Medicare, Medicaid, or health insurance. Approximately 70% of Americans will require some form of long term care after the age of 65, and over the last few decades, the cost of long term care has continually increased.
In 2021, the national average for a private nursing home room was more than $108,408 according to Senior Living.
To prevent this financial burden from falling onto their loved ones, many Americans decide to purchase a LTC policy. Long term care insurance can provide assistance with the cost of your assisted living expenses, nursing home care, hospice care, or even in-home care costs.
Like other forms of life and health insurance, long term care life insurance is less expensive for younger and healthier people. The cost of your LTC policy can also be used as a tax deduction.
With that being said, it’s important to understand how these policies work. This will help you save money and help you get the most from your coverage.
There are four major components to every long term care insurance policy that you need to understand (and consider) before you apply for coverage. In the following sections, we’ve explained each of these factors.
What’s An Elimination Period?
With long term care insurance, a period of time must pass before your policy kicks in and begins covering the cost of your care. This period of time is referred to as an “elimination period” and it usually begins when the insured needs help with two or more of their activities of daily living.
There are six universally-recognized activities of daily living which we’ve defined below:
The Six Activities of Daily Living Include:
1. Bathing: Cleaning oneself without requiring any assistance, brushing teeth, and shaving.
2. Dressing: Clothing oneself without requiring assistance with zipper, button, putting on pants, etc.
3. Eating: Being able to prepare meals and eat without requiring assistance.
4. Transferring: The ability to move oneself out of a bed or wheelchair without assistance.
5. Toileting: Being able to use the restroom without assistance including getting on and off the toilet.
6. Continence: Being able to control bowel and bladder functions.
Most long term care policies offer an adjustable waiting period of 30 to 180 days. The shorter the elimination period is, the less expensive your policy will be. However, it’s important to note that you are responsible for 100% of your long term care expenses during the elimination period.
Medicare may be able to provide some assistance during this time, but Medicare only covers full cost of your LTC expenses for 20 days. If you move into a nursing home or require hospice care, you could spend thousands of dollars before your long term care policy begins to reimburse you.
If you have a large savings set aside, this may not present an issue, but most of our clients feel safer with an elimination period of 90 days or less.
In addition to selecting an elimination period, you'll also need to consider the average daily cost of your long term care needs. The following section explains more about the daily benefit amount and how it works.
Choosing Your Daily Benefit Amount
When you apply for long term care insurance, you will be asked to select a daily benefit amount. This is the maximum amount of money that your LTC policy will reimburse you for each day you require some form of long term care.
Most policies offer an adjustable daily benefit of $100 to $350 dollars. LTC policies with a smaller daily benefit amounts are generally less expensive, but they may fall short of covering your ongoing long term care costs.
The table below contains the average monthly cost of various forms of long term care.
|Nursing Home Care
|Home Health Care
|Assisting Living Facility
|Private Room: $9,034
|Home Health Aide: $5,148
|Assisted Living: $4,500
|Semi-Private Room: $7,908
|Homemaker Services: $4,957
*Figures provided by Genworth Financial, a leading long term care insurance provider.
If you require nursing home care, the average daily cost of your care with a private room will be about $301 dollars per day. If you select a LTC policy with a daily benefit of only $100, you or your family could end up spending about $201 a day on your care out of pocket, or about $73,400 a year.
It’s also important to note that these figures represent the national average. If your state has a higher cost of living, the cost of your long term care will likely exceed these guidelines, but if your state has a lower cost of living, your cost long term care should be less.
As an example, in a state like California that has a higher than average cost of living, a private room in a nursing home is more than $400 per day. Whereas in Missouri, the daily cost of a private room in a nursing home is about $195.
Depending on your state of residence, we recommend buying a long term care policy with a daily benefit amount of at least $200 dollars. If you need help determining the best coverage for your needs, we can help. 855-247-9555.
Selecting the Right Benefit Period for Your LTC Policy
When you purchase a long term care policy, you will also need to select your benefit period. The benefit period is the maximum amount of time that your policy will reimburse you for your long term care expenses.
Like other types of insurance, the longer period of time that you are eligible to receive benefits for, the more expensive your policy will be. This is because the insurance company stands to pay more money to an individual whose LTC policy provides benefits for two years versus five years.
Most long term care insurance policies offer a two to three year benefit period. This is likely due to fact that the average stay in a nursing home is about 28 months. However, many people require some form of in-home care or living assistance before they are transferred to a nursing home.
For this reason, we usually recommend purchasing a long term care policy that offers at least a three to five year benefit period, unless you have a large amount of savings set aside.
What is the Maximum Lifetime Benefit or MLB?
The maximum lifetime benefit of a long term care insurance policy is the maximum amount of money your policy will pay towards the cost of your long term care needs. To determine the amount of your maximum lifetime benefit, multiply the benefit period by your daily benefit amount.
As an example, let’s calculate the maximum lifetime benefit of a policy offering a three year benefit period and a daily benefit amount of $250 dollars.
3 years = 1,095 days. (365 days a year x 3 years)
1,095 x $250 (daily benefit amount) = $273,750 maximum lifetime benefit
*If your policy offers an unlimited benefit period, your policy will not have a maximum lifetime benefit.
What Is Inflation Protection?
If you’re in your 40’s or 50’s and considering purchasing long term care insurance, you may be concerned about inflation. A daily benefit amount of $250 may provide ample financial assistance for LTC needs in today’s economy, but what about 20 years from now? Will this be enough to pay for your cost of care?
To offset the risk of inflation, many long term care policies offer inflation protection. This feature increases the monetary benefit that your policy provides in order to keep pace with inflation and the rising costs of long term care.
There are two types of inflation protection that are commonly offered to purchasers of long term care insurance; a future purchase option and an automatic compound inflation option.
• Future Purchase Option (FPO):
With a future purchase option, the insurance company will automatically increase your maximum lifetime benefit and your daily benefit amount periodically. These increases are usually adjusted every two years, regardless of any changes to the insured’s health.
• Automatic Compound Inflation Option (ACIO):
Many long term care insurance policies offer a 4 to 5% automatic compound inflation option. With this feature, the policy’s maximum lifetime benefit and daily benefit amount will adjust each year. These adjustments are performed automatically and they will not impact your insurance premiums.
Some insurance companies offer inflation protection with every policy they sell, while other insurers may require you to purchase inflation protection as an add-on. In the life insurance industry these add-ons, or additional benefits, are commonly referred to as “riders.”
When reviewing your LTC policy, make sure it offers an “inflation protection rider." If your policy does not include some form of inflation protection already, we recommend adding it.
How Can I Save Money On The Cost of My LTC Policy?
There are a few simple ways to save money on the cost of your long term care insurance without sacrificing your benefits.
We’ve outlined these strategies below:
1. Shop the Market
If you’re considering purchasing long term care insurance, make sure you shop the market with the help of an independent broker. Every insurance company sets their own rates, and working with a broker who has the ability to compare options from multiple companies should save you money.
2. Buy Coverage When You’re Young and Healthy
Almost every type of life and health insurance is less expensive when you are young and healthy, but many people put off buying insurance until they have a health issue.
If you’re considering purchasing LTC insurance, don’t wait to secure your coverage. Every year, your insurance rates will only continue to increase. Buying a policy when you are 10 years younger could save you more than 50% on the cost of your long term care insurance.
In addition, some long term care insurance providers give discounts to applicants that are in good health. Almost 70% of LTC insurance applicants in their 40’s qualify for a good health discount, but by the age of 60, this number drops to about 40%.
3. Be Married or Live With Your Partner
If your married, make sure you let your agent know when they are shopping for your coverage. Most life insurance companies will offer a discount of up to 40% to couples who purchase long term care insurance together. Some companies also offer discounts to domestic partners and couples who live together but are not legally married.
4. Pay For Your Policy Annually
If you’re able to pay for your long term care insurance for a year in advance, some companies will offer an annual discount of up to 8%. If you financial situation changes, you have the ability to adjust payment frequency at any time. Most insurance companies will allow you to make monthly, quarterly, or semi-annual payments.
Still Have Questions? We Can Help
Our agency has more than 60 years of collective experience in the insurance industry and our services are free. If you would like to learn more about long term care insurance, or if you would like to shop the market for your best rates, please feel free to give us a call at 855-247-9555. In just a few minutes we’ll be able to find your best options for long term care insurance.
Our agents do not have sales quotas or sales goals. Our only goals are to provide you with the best customer service and the lowest rates in the industry. We are here to answer all your questions and provide you with the insider’s advice you need. We’ve helped thousands of clients with their insurance needs, and we can help you too.
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.