Are you considering purchasing long term care insurance or do you want to know more about how long term care insurance works?
We’re glad you found us, because this quick guide will tell you everything you need to know about long term care (LTC) insurance.
Like every other type of insurance, there are some important aspects to consider before buying a Long Term Care insurance policy.
Quick Article Guide:
1. What Is Long Term Care Insurance?
2. What’s an Elimination Period?
3. Choosing Your Daily Benefit Amount
4. Selecting the Right Term for Your LTC Policy
5. What is Inflation Protection?
6. How Can I Save Money on the Cost of My LTC policy?
7. Still Have Questions? We Can Help
Long term care insurance (LTC) is a not health or life insurance, it is a form of insurance that provides financial assistance to people who need help completing their basic activities of daily living (ADLs). Activities of daily living generally 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.
According to a recent study completed in 2016 by CareScout, the average national cost of nursing home care is more than $92,000 dollars a year. To prevent this financial burden from falling onto their loved ones, millions of Americans purchase LTC insurance to provide assistance with the cost of their assisted living expenses, nursing home care, hospice care, or even in-home care.
Like other forms of life and health insurance, long term care life insurance is less expensive for younger and healthier people. In addition, the cost of your long term care insurance can even be used as a tax deduction.
With that being said, it’s important to understand how these policies work to make sure you get the most from your coverage.
There are four major components of LTC insurance that you should understand and consider before you apply for coverage. We’ve explained each one below.
With long term care insurance, a period of time must pass before the insurance policy kicks in and begins providing financial assistance to pay for the cost of your care. This period of time is referred to as the “elimination period” and it usually begins when the insured needs help with two or more of their activities of daily living.
There are six commonly recognized actives of daily living which we’ve defined below.
The Six Activities of Daily Living:
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.
Long term care insurance policies typically have a waiting period that ranges from 30 days to 180 days. The shorter your elimination period is, the less expensive your LTC insurance will be, but it’s also important to note that you are responsible for 100% of the cost of your care during the elimination period.
If you have Medicare, they may be able to provide some assistance during this time, but on average, Medicare only pays for the first 23 days of your nursing home costs. If you move into a nursing home or hospice care, you could end up spending close to $50,000 dollars before your LTC insurance starts providing you with reimbursements.
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. When purchasing a long term care insurance policy, you also want to consider the amount of money that your policy will provide you with each day for the cost of your long term care needs.
We’ll explain how the daily benefit amount works in the next section.
When you apply for long term care insurance, you will be asked to select a daily benefit amount. The daily benefit amount is the amount of money you would like your LTC policy to reimburse you for each day you require some form of long term care.
Most long term care policies provide a daily benefit amount of $100 to $300 dollars. LTC insurance policies that provide a smaller daily benefit amount are 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: $7,698||Home Health Aide: $3,861||Assisted Living: $3,628|
|Semi-Private Room: $6,844||Homemaker Services: $3,813|
If you require nursing home care, the average daily cost of your care with a private room will be about $257 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 $157 a day on your care out of pocket, or about $57,000 a year.
It’s also important to note that the figures above represent the national average. If your state has a higher cost of living, the cost of your long term care will likely exceed these costs, but if your state has a lower cost of living, your cost long term care may 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 $311 per day. Whereas in Missouri, the daily cost of a private room in a nursing home is about $176.
Depending on the state you reside in, we usually recommend buying a long term care policy with a daily benefit of at least $200 dollars per day.
When you purchase a long term care policy, you will be asked to select a benefit period. With long term care insurance, the benefit period of your policy is the period of time that you’ll be reimbursed for the cost of your long term care needs.
Just 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 27 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 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.
If you’re in your 40’s oR 50’s and you’re considering purchasing a long term care policy, you may be concerned about inflation. A daily benefit amount of $250 may provide ample financial assistance for LTC needs in today’s world, but what about in 20 years? Will this be enough coverage to pay for your cost of care?
To offset the risk of inflation, many long term care policies offer inflation protection. This protection is designed to increase the monetary benefit your policy provides to keep pace with inflation and the rising costs of 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 in accordance with any changes in the marketplace, and are made 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 option, the policy’s maximum lifetime benefit and daily benefit amount will adjust each year. These adjustments are made automatically, regardless of any changes to your health, and they will not cause the cost of your insurance to increase.
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 to your LTC policy. In the insurance industry, these add-ons, or additional benefits, are commonly referred to as “riders.”
When reviewing your policy, make sure it offers an “inflation protection rider.” If your policy does not automatically offer inflation protection, we always recommend adding it.
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 them below:
1. Shop the Market
If you’re considering purchasing long term care insurance, make sure you shop the market and work with an independent no-cost broker. Every insurance company has their own rates for coverage and working with a broker who has the ability to compare rates and coverage options from multiple companies may save you a considerable amount of 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 cost of insurance will increase. Buying a policy when you are 10 years younger could save you more than 50% on the cost of your long term care coverage.
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 can qualify for a good health discount, but by the age of 60, this number has dropped to about 40%.
3. Be Married or Live With Your Partner
If you’re 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.
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.
Latest posts by Cliff Pendell (see all)
- Recent Changes to Estate Tax Law (What’s New for 2019) - December 12, 2018
- No Exam life Insurance – Guide to the Top 15 Companies (2019 Update) - November 28, 2018
- What is the Cut-off Age for Affordable Life Insurance? (Updated for 2019) - November 28, 2018