Long-Term Care (LTC) Insurance

The good news is that we’re living longer. The bad news is that the price of health care is greater, and because we’re living longer, it’s greater over a longer period of time. Enter long-term care insurance – to pay for home health care or nursing home expenses. Studies show that forty-three percent of people aged 65 and over spend some time in a nursing home. It therefore seems prudent to consider some form of long-term care plan, whether it be self-funded through investments (for those individuals whose net worth is very large), or by means of a long-term care insurance policy (for people whose assets are considerably less than that).

Some permanent life insurance policies (whole life, universal life, etc.) may include a provision which allows the policyholder to withdraw or borrow against the death benefit to pay for long-term care. This provision is usually called a living benefit rider. The problem with this strategy is that it assumes that the need for long-term care reduces the need for life insurance (because the long-term care funds are taking away from the death benefit). In addition, the long-term care coverage is in effect only as long as the life insurance coverage is in force. So, if the life insurance policy were cancelled or surrendered, the long-term care coverage would also expire.

There are many insurance companies which offer LTC policies, so it’s wise to shop around to find the best possible coverage. Average premiums can range from several hundred to several thousand dollars per year. And because long-term insurance is still relatively new, only deal with the most reputable companies. Some things to consider when looking for a good long-term care policy are:

• Choose a reasonable elimination period (the waiting time before the insurance begins paying benefits). The longer the waiting period you choose, the lower your premiums will be. This is where a good emergency cash reserve fund can help immensely. Read our article entitled Pay Yourself First!
• Buy the insurance when you’re young. Although the motivation to buy LTC insurance when you’re young is probably low, the premiums you’ll pay will be much less expensive.
• The policy should have no limitation for preexisting conditions.
• Make sure the coverage is flexible. The policy should cover not only nursing home care, but home health care as well.
• Look for a daily benefit that’s at least as large as the average daily nursing home cost in your area, or in a state that you may want to reside in.
• Make sure that it offers lifetime benefits.
• Ensure that the policy is guaranteed renewable. This type of policy cannot be cancelled as long as the premium is paid. The premium can increase, however, as long as the insurance company is increasing the premiums for the entire class of insureds and not a single individual.
• Look at the policy triggers, the circumstances that must be met before the policy begins to pay.
• Ensure the policy allows you to choose any state-licensed facility, not just those which are Medicaid-certified.
• The policy should provide coverage for all organic-based mental illnesses, including Alzheimer’s, Parkinson’s disease, and senile dementia.
• The policy should include a waiver-of-premium clause that stops the premiums once the benefits begin.
• Finally, look for an inflation rider that will increase coverage as prices rise.