Long Term Care Insurance

Long Term Care Insurance | Is it Worth It?

When most people start aging into retirement years, it’s not unusual to have concerns about finances. Two questions that seem to keep a lot of people up at night are:

If I die unexpectedly, will there be enough money for my surviving loved ones?

If I live past retirement age and then need long term care, will I have to spend most of my retirement?

The answer to #1 is pretty straightforward. Just make sure you have enough life insurance to replace your income if you die unexpectedly (most affordable).

The answer to #2 is not that simple. Long term care can be ultra-expensive, and without additional insurance coverage, you could easily spend all of your retirement money on long-term care services.

Easy Article Navigation

• What is Long-Term Care? 
• Who Needs Long Term Care?
• How Much Does Long-Term Care Cost? 
• What about Medicare? 
• What Are My Insurance Options? 
• When is the Right Time to Shop for a Policy? 
• How Does Long-Term Care Insurance Work? 
• Features and Benefits of Long-Term Care Insurance 
• How are the Rates Determined? 
• Can I Use Life Insurance? 

What is Long-Term Care?

Long-term care incorporates the medical and non-medical services you’ll require in the event you become ill or injured to the extent that you require care either in a medical facility, assisted living facility, or at home. Generally, long-term care is divided into five categories of service:

Home health care services are typically provided by nurses, health care aides, and other specialists who can deliver various services for the patient. These services generally include personal care, homemaking services, and therapy services for speech, respiratory, and physical fitness.

Adult daycare provides health services in a community environment (similar to child daycare) and is provided on a part-time basis.

An assisted living facility is generally similar to living in an apartment that includes around-the-clock personal care and other non-skilled care services.

Nursing home care is similar to receiving long-term hospital care due to a medical necessity which is typically the result of an injury, chronic illness, or dementia-related disease like Alzheimer’s. The care provided in a nursing facility is typically given by a licensed health professional.

Hospice care is normally considered end-of-life care for the terminally ill. Hospice care can be provided in the home or at an inpatient facility. The care given is usually medications to keep the patient comfortable.

Who Needs Long Term Care?

We tend to think that it is only the elderly who require long term care, but that isn’t always the case. True, your chances of requiring some sort of home or inpatient care shoot up to about 70 percent by the time you reach 65 and above, but a surprising amount of young people also end up requiring ongoing medical or custodial care as well.

In fact, due to accidents or chronic illness, around 40 percent of patients currently receiving some form of long term care are under the age of 65.

Consider the Statistics:

• Over six million American seniors will need some form of assistance (generally from family members or close friends) in order to remain living at home.
• Most home-care assistance that individuals receive is from family and friends and is provided for free.
• Since 2020, one in six people in the U.S. will be at least 65 years old or older. (World Population Ageing 2019)
• Over 69 percent of those turning 65 will require some form of long-term care during the remainder of their lives. (LongTermCare.gov)
• 58 percent of all males 65 and older will need long-term care. (ASPE)
• 79 percent of women 65 and older will need long-term care. (ASPE
• 52 percent of men and women who are 65 or older will require at least a year of long-term care, and at least 20 percent will need five years or more of long-term care.
• Over 65% of the U.S. population will need some form of long-term care during their lifetime. This includes home health care, nursing home care, assisted living, or rehab care. (ALTCS)
• For men and women in the U.S., the average stay in a nursing facility is 835 days or almost two and a half years. (National Care Planning Council)
• As the senior population increases, research suggests the nursing home population will grow significantly to 3 to 4 million residents in the U.S. (NCBI)

How Much Does Long-Term Care Cost?

In short, if you don’t have coverage or some sort of solid financial safety net, long term care can quickly drain your bank account down to zero.

The national average for adult in-home daily health care sits around $18,000 per year, and when you start looking into assisted living facilities, that number jumps dramatically.

From light assisted living to private room nursing home care, you’re looking at annual fees ranging from $43,000 to $91,000 and, in some cases, well above $100,000.

Annual Median Costs for Long-Term Care in 2020

Listed below are the current costs of the various forms and levels of care offered by the Genworth Cost of Care Survey published in 2020.

What about Medicare?

Medicare can be a great resource for people who are over the age of 65 and/or disabled. However, Medicare does not cover the costs of custodial care or room and board in a nursing home or other long term care facility.

This leads some seniors to try to apply for Medicaid, which can help, but it can require you to spend down your assets. Medicaid assistance is based on financial need, and individuals who apply for Medicaid typically cannot hold more than around $2,000 in liquid assets, depending on the state.

This means that applicants often have to spend themselves in financial need in order to meet their state’s Medicaid requirements, which can be tricky if you are planning on leaving some of your assets to your spouse or family.

What Are My Insurance Options?

Basically, there are two major options for long term care coverage.

The first option is a traditional insurance policy. This is pretty standard. Traditional long-term care plans will cover your care for a fixed period of time, up to a set dollar amount, and require you to pay an annual premium, which may or may not change over time, depending on the policy.

The second option is to add a long-term care benefit rider to a life insurance policy. Typically, this accelerated death benefit rider provides for the insurer to advance a large portion of the death benefit to the insured when the long-term care benefit is triggered.

The insurance company will pay the benefit monthly or in a lump-sum, depending on the policy purchased.

Either way, there is no one-size-fits-all solution, so before you choose a policy, talk to an insurance professional and decide what is best for your specific circumstances and lifestyle.

When is the Right Time to Shop for a Policy?

Because your health at retirement age can be unpredictable, timing is extremely important when it comes to purchasing long term care insurance.

Many people wait too long to start thinking about their potential care needs and end up paying much higher premiums because they don’t look into insurance until after they start experiencing health issues.

The best time to buy long term care insurance is typically around your mid to late 50s and early 60s while you’re still healthy and able to qualify easily.

Again, if you have any questions about long term care insurance, do some research and talk to your insurance agent before settling on a plan. But whatever you do, don’t make the mistake of waiting until it’s too late.

The earlier you start thinking about important life planning issues like long term care, the better off you and your family will be in the long run.

How Does Long-Term Care Insurance Work?

Now that you have an idea of how much long-term care services can cost, it’s time to discuss the solution: Long-Term Care Insurance.

Long-term care insurance was developed to assist individuals and families with the substantial cost of long-term care (LTC) services since many of these services are either not covered or only partially covered by Medicare.

The LTC policy will provide coverage for services that are delivered at home or in a facility and help mitigate the risk that the policyholder would have to spend most of their assets to qualify for Medicaid.

The financial eligibility requirements to qualify for Medicaid in 2019 are particularly brutal:

INCOME LIMITS: $2,313 per month for individuals and $4,626 per month for married couples (New York is significantly higher)

ASSET LIMITS: $2,000 in countable assets for individuals and $126,420 for married couples who have “community assets”

The eligibility requirements for Medicaid as far as “level of care” can be very complex, so individuals who are considering this option should contact a Medicaid specialist in their state.

The bottom line here is that unless you are ready to opt for losing most of your assets to qualify for Medicaid, your best option is to consider Long-Term Care insurance.

Features and Benefits of Long-Term Care Insurance

Certainly, not every LTC policy is the same, but there are more similarities than there are differences. Typically, the most important aspect of a policy to consider is the Defined Benefit Amount/Period. This specifies how much your policy will pay per day or month and how long your benefits will last.

 For example, your policy may be calculated to pay a benefit of $7,500 per month, but that benefit would be limited by the period you select. The higher the benefit and longer the benefit period, the more premium your insurance company will charge.

Where most LTC policies differ (other than cost) is the options they offer, such as Shared Care which provides for insured spouses to pool their benefits based on each spouse’s individual needs. When one spouse dies, the surviving spouse will inherit the benefits of the deceased spouse.

Another popular optional benefit is the Inflation Benefit Rider which provides for the policy’s benefit to increase over time based on inflation.

How are the Rates Determined?

Like any health insurance policy, LTC insurance applicants go through an underwriting process that considers various factors:

The younger you are and healthier you are when you apply for coverage will result in more affordable rates than if you were older and had health issues.

Since women typically live longer and therefore have a greater chance of needing LTC services, the insurers will charge more for women’s coverage.

Married people are typically charged less than a single person.

Policies that offer larger benefits and longer benefit periods and shorter elimination periods will cost more than policies that offer less coverage. Additionally, optional riders can increase your premium as well.

As we mentioned earlier, even though most insurance companies offer similar features and benefits, premiums vary considerably according to the company you select. This is the main reason that LTC shoppers need to take time to shop their coverage.

Can I Use Life Insurance to Pay for Long-Term Care?

The answer is yes, but only under certain circumstances. If you have life insurance, there are several ways in which you can use your policy to pay for long-term care. To learn more about how to use life insurance to pay for long-term care, keep reading and see which option works best for you.

Life/Long-Term Care Insurance

Insurance companies have just recently started offering combination life/long-term care insurance policies. Many people struggle with the idea of buying long-term care insurance because the chances of using those benefits are uncertain.

However, combination policies give the holder the option of using their benefits either as a death benefit or to pay for long-term care. The policy will usually stipulate what percentage of the death benefit can be used for long-term care expenses.

Jump over to the American Association for Long-Term Care Insurance for more information on combination insurance policies.

Accelerated Death Benefits

An Accelerated Death Benefit or ADB allows you, when terminally ill, to access a portion of the death benefit of your life insurance policy while you’re still alive. You can use that extra income from your ADB on your life insurance to pay for long-term care or medical bills.

Your insurance provider may charge you a premium to receive an ADB, although many companies will allow you to add the rider to your policy at no additional cost. The amount you receive from your ADB will be subtracted from your death benefit, leaving less money for your heirs.

In many cases, you will receive monthly benefits to help with your long-term care expenses. Usually, the overall ADB payout is limited to a specific percentage of your death benefit.

Additionally, the extra income from your ADB might prevent you from qualifying for government benefits. Go to the American Council of Life Insurers for an FAQ on ADBs and how they will affect your life insurance policy.

Viatical Settlements

Viatical settlements are reserved for those who are terminally ill. If someone is diagnosed with a terminal illness with less than two years to live, an investor will offer to buy their life insurance policy at a reduced value.

The previous owner of the policy can use this money to pay for treatment and living expenses. The new owner of the policy will receive the death benefit once the previous owner has died. However, the investor runs the risk of the previous owner outliving their new life expectancy, which means that they might have to wait years to cash in on the life insurance policy.

Investors will usually only invest in cases with the worst medical conditions to make sure that they will get a timely return on their investment. To find out more information on how to use viatical settlements on life insurance to pay for long-term care, head over to Paying for Senior Care’s guidelines on viatical settlements.

Life Settlement

A life settlement is very similar to a viatical settlement except that life settlements are reserved for seniors with deteriorating health conditions rather than the terminally ill.

A senior with a life insurance policy may have several years left to live, but his premiums are getting more expensive, and he can’t access the money from his policy. In order to use his life insurance to pay for long-term care and living expenses, he might apply for a life settlement.

In that case, an investor will offer to pay him for his policy at a reduced value. The senior can use that money to live out the remainder of his years. While, the investor can cash in on the policy once the beneficiary is deceased, making a profit on the policy.

For more information, take a look at the Life Insurance Settlement Association’s advice for policyholders looking to obtain a life settlement.