Q: I am considering purchasing a long-term care insurance policy. What do you think I should do? Is the premium worth the benefits?
A: Long-term care insurance is something we see advertised a lot. Your question is not one that is answered easily. You are asking me to predict your future. If I could do that I would have a different job entirely.
Let me instead explain some basic vocabulary used in long-term care insurance (LTCI) and give you some basic guidelines to help you make a decision.
Long-term care insurance is very different from other policies you purchase. It is an insurance product that could help you pay for care provided by others if you ever need it. We all assume that someday someone will be taking care of us. That is not true, some of us are lucky enough to die suddenly, or without a lengthy illness leading to our death.
I do not say this lightly. Being sick is not what anyone wants to be. Dying suddenly is very hard on those that love and care about us. Dying suddenly is easiest for the person who dies. You don't have to think about who will provide your care, how you will pay for it and where you will be living.
Approximately 30 percent of us never require care provided by others. That 30 percent are those that die suddenly, or are not sick long enough to need ongoing care provided to them. The other 70 percent of us will be under the care of someone for some period of time. But that is a statistic. You want to know what will happen to you, and no one can tell you that. So let me give you some definitions to help you make your decision as to whether to purchase it or not, and which type of insurance might be the best for you.
Benefit level: The daily dollar figure the insurance company will pay. Remember that a nursing home today costs about $300 per day. If you expect your long-term care insurance to pay entirely for your care, then you need a policy with that daily benefit level. If you choose a lower daily benefit level, say $150 per day, you will be paying the other $150 from your pocket. This is probably the most important item to consider. If your services cost more than your benefit amount, you are paying out of pocket. If your services cost less than your benefit amount, your benefits last longer.
If your benefit amount is $150 per day and you have a five-year benefit, you are purchasing $273,750 worth of insurance. If you qualify for benefits, they will pay for up to $273,750 worth of care. That money may last more than five years if you don't spend all $150 every day. If you are only spending $95 per day on home care as a covered benefit, the other $55 stays in the policy to use another day. The total benefit paid, that $273,750 is really what you are paying a premium for.
Health Qualify: LTCI is not available to everyone. When you talk to an agent and get a quote on the premium, it is based on your health situation as told to the agent. Once you actually apply for the insurance there is usually a medical review by your physician. If you have a pre-existing condition, your insurance application may be denied or your premiums may be very high.
Elimination Period: The number of days that you will pay the expenses for the care provided, before you benefits begins. Once the elimination period is completed, the company will begin reimbursing you for expenses up to the daily amount limit. Most policies range from 30 to 100 days of elimination. The fewer days you have in your elimination period, the higher the premiums you will pay. One hundred days equals just over three months, so during those three months you are paying for your care without any benefit paid by the company.
Premium: the amount of money you pay each month, quarter, or year, to the insurance company to have the policy. The premiums you pay are based on six main factors: your age at original purchase, the daily benefit amount, how long the benefits are paid, the elimination period, inflation protection rider, and your health rating (preferred, standard or sub-standard).
Your premiums should not be more than 7 percent of your income. If you must scrimp and save to pay the premiums, you probably shouldn't be considering long term care insurance.
Activity of Daily Living (ADLs): These are things you need to do on a daily basis, such as: Eating, toileting, transferring, bathing, dressing, ambulating. ADLs are what qualify you for using your insurance. You usually need to require assistance with at least two ADLs or have an issue such as mental confusion to initiate coverage with your policy. Remember that you initially enter into the elimination period, and then begin receiving benefits from the policy.
Waiver of Premium: this benefit means that once you have met the criteria of the policy o being receiving payment under the policy, you no longer are required to pay the premiums. Each insurance company/product decides when this benefit begins. It could begin during the elimination period, or when the elimination period is met. This could be a significant benefit and is one I recommend making sure is part of your policy. If they are paying you $150 dollars per day and you don't have to pay the premiums any more, your household is saving money.
Acute Care: Medical care that is required for a short period of time to cure/treat an illness or condition. This is usually in a hospital setting. LTCI does not usually pay you for these days. This care is covered by your health insurance.
Nursing Home (SNF): A facility that provides 24-hour care, this care includes: skilled nursing, personal and custodial care. They must be licensed or certified to provide this care within their state. As noted earlier, SNF care is locally costing about $300 per day.
Assisted Living Facility: (Also known as adult home, residential care facility, adult care facility and assisted living programs.) These facilities provide 24 hour staffing with services including meals, medications management, assistance with bathing, laundry services and usually activity programs. LTCI policies differ in how these facilities are paid. Some policies cover them (pay out) the same as nursing facilities. Some policies pay at 50 percent the rate (that is $75 per day with a $150 per day policy).
Respite Care: Placement within a facility (skilled nursing facility or adult care facility) that is considered temporary. This is usually for up to 30 days. Each facility can decide whether or not to provide respite care or not.
Home Care (Home and Community Based Care): This refers to services provided to the individual in their own home by a licensed provider of services. This benefit can include skilled nursing care, personal care, home health care, assisted living and adult day programs. Some policies cover home care (pay out) the same as Nursing Facilities. Some policies pay at 50 percent the rate (that is $75 per day with a $150 per day policy). Be sure you understand where you are eligible to receive your coverage.
Bed Reservation: This is the benefit that pays for the cost of holding your bed within your facility while you are out of the facility. This usually happens due to a hospital stay for an acute illness. This means your policy will pay for your bed/room in the facility you are living in, while you are hospitalized.
Partnership Policy LTCI: A type of LTCI you can purchase that provides additional protections for you and your assets. You would go directly from your LTCI policy coverage onto Medicaid within states that honor the partnership policy agreement. This can be a significant protection for you and your assets. This type of policy usually costs more to purchase.
Asset Protection: A type of partnership policy benefit. Total Asset Protection means that all assets are protected once the policy has maxed out and you apply for Medicaid. Income is subject to current income levels for Medicaid eligibility at the time you apply. Dollar for Dollar Protection means that assets equal to the benefits paid/received are protected. All assets above that amount will be subject to current Medicaid level regulations. Income is subject to current income levels for Medicaid eligibility. If neither of these phrases are a part of your policy, once you max out the benefit of the insurance policy you will be subject to pay privately until the current Medicaid eligibility levels are met.
Group Policies: may be available through your employer, or other organizations you belong to. These policies need to be evaluated using the same standards and variables as individual policies. They sometimes are offered at a reduced premium to you, but compare premiums with what you could buy on your own.
These are just some of the terms you want to become familiar with in evaluating long-term care insurance. There are a host of new, exciting, and confusing options out there. This is a relatively new and always changing type of insurance. LTCI is not for everyone. If your premium is too high you are impacting your household negatively for a benefit you might never receive. If your assets are low, you may not need to purchase LTCI. If your assets are very high, there may be other better ways of protecting your assets. My recommendation is if you are curious, talk with an insurance salesman and then look objectively at what are you protecting (assets you have), with the premiums you pay, and the benefits you might collect.
I hope this information helps as you evaluate your need for LTCI.
To contact Janell Sluga, GCMC with questions or concerns, please call 720-9797 or email her at firstname.lastname@example.org.