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8. Long Term Care Insurance


Typically, a policy purchaser will pay for a daily benefit amount. According to the U.S. Department of Health and Human and Human Services, some averages costs for long term care in the United States (2008):
  • $187/day for a semi-private room in a nursing home
  • $209/day for a private room in a nursing home
  • $3,008/month for care in an Assisted Living Facility (for a one-bedroom unit)
  • $29/hour for a Home Health Aide
  • $18/hour for a Homemaker services
  • $59/day for care in an Adult Day Health Care Center

Most long-term care policies pay on a reimbursement (or expense-incurred)  basis, up to the policy limits. In other words, if you have a $180 per day benefit but spend only $130 per day for a home long-term care provider, the policy will pay only $130. The “extra” $50 each day will, in some policies, go into a “pool” of unused funds that can be used to extend the length of time for which the policy will pay benefits. Other policies pay on an indemnity or per diem basis . Using the same example as above, an indemnity or per diem (per day) policy would pay $180 per day as long as the insured needs and receives long-term care services, regardless of the actual outlay.

Inflation protection is an important feature, especially if you are under 65, when you buy benefits that you may not use for 20 years or more. A good inflation provision compounds benefits at 5 percent a year. Without inflation protection, even 3 percent annual inflation will, over 24 years, reduce the purchasing power of a $150 daily benefit to the equivalent of $75.

A few other important policy provisions to be aware of are listed here:

  • Elimination period. The period of time during which the insured must pay for their LTC needs out of pocket. 
  • Guaranteed renewable  policies must be renewed by the insurance company, although premiums can go up if they are increased for an entire class of policyholders.
  • Waiver of premium, so that no further premiums are due once you start to receive benefits.
  • Third-party notification, so that a relative, friend or professional adviser will be notified if you forget to pay a premium.
  • Nonforfeiture benefits keep a lesser amount of insurance in force if you let the policy lapse. This provision is required by some states.
  • Restoration of benefits, which ensures that maximum benefits are put back in place if you receive benefits for a time, then recover and go for a specified period (typically six months) without receiving benefits.

It is important to note that as of 2009, the federal government has decided to partner with private insurance companies to make long term care insurance more readily available and affordable to the public. The program is sponsored by MedicaidMedicaid is a program administered by state-governments that pays for medical and long-term care expenses. If you have more money than your state permits when you need long-term care services, your state’s Medicaid won’t pay for those services. You’ll have to spend your own money—including using up your assets—until you meet the financial threshold to qualify.

But with a Partnership Long Term Care Policy, you can qualify for Medicaid without spending yourself into poverty. To participate in the Partnership, you must buy a long-term care insurance policy that contains at least the basic benefits required by the Partnership program.

Long Term Care Partnerships are administered at the State level, so each state’s plan is different. Be sure to research your state’s Partnership program before buying a long-term care policy. For more information on Colorado’s Partnership Long term Care Policy, click here 

There are important considerations when comparing long term care insurance policies such as:

  • The premium amount—how much does it cost?
  • Does the policy have tax advantages?
  • What services are covered?
  • Is the policy a reimbursement or per diem policy?
  • How much does the policy pay for facility care and home health care?
  • How long will benefits last?
  • Does the policy have a maximum lifetime benefit?
  • How long is the elimination period?
  • Is there a waiver of premium provision—can you stop paying your premium when you are using the benefits?
  • What is the period that an insured must received benefits before premiums are waived?
  • Does the policy offer an inflation adjustment feature?
  • Does the policy meet the requirements to be a partnership policy for your state?

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