The Long-Term Care Insurance Investment: What You Need to Know

Fifty years ago, the average life expectancy in the United States was 65. Today, the life expectancy is over 75 for men and even higher for women, and the fastest growing group in the United States is persons over the age of 85. By the year 2040, it is estimated that there will be more than 1 million people in the United States reaching the age of 100. With longer life expectancy comes the need to plan not only for retirement, but for possible long-term health care.

“Americans are living longer and the consequence is more people needing long term care,” Jessie Slome, director of the American Association for Long-Term Care Insurance said.

When many people think about preparing for future healthcare, they automatically think of nursing homes or assisted-living facilities, but those options aren’t always the best or even the most popular choice. According to the American Association for Long-Term Care Insurance (AALTCI), 1.8 million individuals live in nursing homes. In comparison, the same source shows that 7.6 million individuals receive in-home care for terminal illnesses, long-term health issues, or permanent disabilities.

Long-term care insurance is an important investment, and a frequently misunderstood one. According to AALTCI research, half of all newly opened long-term care insurance policy claims paid for in-home care.

“Contrary to what most people think, the vast majority of long term care insurance pays for care in the home or in assisted living communities, not in skilled nursing homes,” Slome said. “Consider long term care insurance as nursing home avoidance protection.”

Currently, in-home care services cost anywhere from $14 to $28 per hour. However, the cost of long-term care is expected to increase in the next few decades. Thirty years from now, the annual cost will increase approximately 330 percent or around $300,000 per year, for in-home care. Nursing homes and assisted living facilities will increase even more. Even with savings and investments, it can be difficult to prepare for such a high-cost situation, which is why long-term care insurance is a smart investment in the long run.

Some may not see the value of long-term care insurance because they see it as an expense rather than an investment. According to policyholders and industry experts, however, the cost of in-home care can ruin you financially if you are not prepared.

Mrs. Mitchell, an in-home client of Amada, said purchasing a long-term care insurance policy was the best financial decision she ever made.

“I can’t even fathom the immense financial devastation it would have caused if I wouldn’t have had long-term care insurance,” Mitchell said. “I would be lost without it.”

The cost of a policy depends on many factors such as sex, age at application, health at application, the amount of coverage you want, and any discounts for which you qualify. AALTCI says that any buyer can purchase a good coverage plan for $1500 to $2690 per year. A couple in good health, both in their 60s, could get a combined coverage plan for just $1945 per year. Most plans have options to add more coverage over time.

Key Things to Consider When Purchasing LTCI

There are many options when deciding what type of long-term care insurance policy to purchase. Perhaps the most important thing to remember is most insurance companies will only cover the cost of in-home care when it is clear that the caregiver is helping with Activities of Daily Living (ADLs). ADLs are non-medical needs, and include basic routines such as bathing, eating and getting dressed. But what other factors play a role in the type of policy you choose? There are four main factors to consider: benefit amount, benefit period, elimination period, and inflation protection.

The benefit amount is how much you want your policy to pay out at the time of claim. To decide this, it is important to know the average daily cost for home care in your area. Generally, a daily benefit amount is anywhere from $50 to $500. However, some plans offer a more flexible monthly option, which sets a maximum amount offered per month. The premium for the plan directly relates to the benefit amount that you choose.

The next thing to consider for your policy is the benefit period. For in-home care, the benefit period is anywhere from 3 to 5 years on average. The benefit period begins at the time that you claim your policy. Most insurance companies also offer a “pool of money” concept, in which you multiply your daily benefit amount by the number of days in your benefit period. For example, if you choose to receive $200 per day for five years (1,825 days) that comes out to $365,500. If you use the total $200 every day, then your period will last just the five years. However, if you only use $100 per day, it would double your benefit period, making it last 10 years. According to completelongtermcare.com, 91 percent of all people will have a claim that last 5 years or less, so most people can get what they need with a five-year benefit plan.

The third thing to consider is the elimination period. This is this waiting period from when a claim is made to when the policy pays out benefits. Most companies offer anything from zero-day (first day) coverage to a 365-day max, with exceptions in some states and special cases. Another option is a split elimination period, in which you have a 90-day period toward facility care and a zero-day period toward home care. This would be beneficial if a policyholder eventually ends up in a nursing home or assisted-living facility. It is important to know if the elimination period is counted by calendar days or by the number of days that a policyholder actually receives care. In the latter case, it may take longer to receive benefits.

The final factor to consider is inflation protection. There are four levels of inflation protection in long-term care insurance policies. The first is no protection, which is self explanatory. In this plan, the buyer should get as much daily protection as possible to make up for inflation costs. This plan is best for older buyers (over 80). The next level is the guarantee purchase option, in which there is either no up-front cost added, or a minimal charge. Every two to three years, the daily benefit can be increased with no additional underwriting. The cost of each new increase is based on the age of the insured, so this option is best for buyers in their 70s.

The next option is simple inflation, which adds 40 to 60 percent to the premium. Every year, it automatically increases the daily benefit by five percent. In about 20 years, the daily benefit will be doubled, making this a good option for buyers in their 60s. The final option is compound inflation. Compound inflation can double your premium, but it also adds five percent to the daily benefit, doubling it in 14.5 years. This is a good option for anyone under 60 years old. All inflation plans can also have additional features, optional riders, and exclusions, so it’s important for each buyer to examine his or her individual case and decide what works best.

Every state now also provides a partnership policy option. This is when private insurance companies partner with state Medicaid programs to cover individuals who have exhausted their long-term care insurance benefits. This is a good option for low-income individuals who want to protect their assets. However, check to be sure that Medicaid in your state will cover the cost of home care.

Given the number of available options and features listed above, it’s easy to see how with a bit of research, a person can find the right long-term care insurance policy for their unique needs and situation. It is important for buyers to understand their policies to ensure that insurance companies fulfill their promises. While the value of long-term care insurance is proven, policies can be difficult to decipher and the options for coverage can be overwhelming. The help of a professional, such as an Amada Senior Care Advisor, can be crucial to getting the most out of your policy.

Amada’s team of professionals can help educate seniors on long-term care insurance policies, and help them manage and analyze existing policies. Amada Senior Care acts as an advocate – negotiating with insurance companies on behalf of seniors and policyholders.

“They are professionals. You just know you’re in good hands with them,” Mitchell said of Amada Senior Care. “With someone like Amada, I don’t really have to worry about the claims process or anything else. I just get to focus on my own health and on getting well.”

Written by Taylor French, Amada blog contributor.

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