Long Term Care Insurance

Wow, the interest in this insurance coverage has grown tremendously of late as we move into the "Sandwich Generation." No, we aren't talking about Subway Sub shops, we're talking about the fact that many of us are worrying about how to pay for our parent's medical care as they age, and how to take care of our own kids' financial needs.

Long-term Care Insurance is a complicated topic and is evolving everyday, so you need to know what you are buying and what is available to suit your particular needs. Does it cover just nursing home or institutional care, does it cover in-home care or both? This is important. We polled our clients and found that most prefer to be treated at home.

How much of a daily payment from the insurance company would you like? And for how long? And should that payment amount go up each year to match the rate of inflation so you maintain your buying power? These are just a few of the many questions you need to ask and have answered. We can help.

What is long term care insurance?

A long term care insurance policy is a contract between you and an insurance company. In exchange for periodic premium payments you make to the insurance company, the company promises to pay you a daily benefit to cover the cost of long term care. Long term care is ongoing care for people with chronic disabilities. It includes custodial care -- assistance with activities of daily life like eating, bathing and getting dressed -- in a nursing home or in the patient's own home.

Why Should You Purchase It?

Government studies indicate that 40% of Americans over age 65 will eventually need some type of long term care. With more Americans living longer, this need is likely to increase. Today, a year in a nursing home on average costs $40,000. In some parts of the country, it can range up to $80,000 and more. This type of care normally isn't covered by regular medical insurance or by Medicare. Long-term care insurance makes sense for you if you are concerned about protecting your assets and maintaining your financial independence throughout your life.

Features and Options:

Long term care coverage is relatively new, and policy language is not as standardized as it is in many other types of insurance policies. The policy pays a specified dollar amount as a daily benefit, but the benefit amount is only one of many important features. It's vital that you know which policy features are important to you and make sure your policy provides them.

Guaranteed renewable - This feature ensures that you will be able to continue your coverage without undergoing additional medical exams.
Good benefit triggers - Benefit triggers are what cause benefits to start being paid. Federal law identifies the benefit triggers that must be included in a long-term care policy if the premiums are to be deductible for income tax purposes. Your policy benefits should be triggered if you need assistance to perform at least two of the activities of daily living (ADLs), which include bathing, dressing, eating, toileting, continence, transferring (moving from a bed to a chair) and taking medication. Another trigger should be "cognitive impairment," which means coverage applies if you are mentally impaired (with Alzheimer's disease for example) even if you're physically able to take care of yourself.
Home health care coverage - You will want to make sure your policy pays benefits for care at home as well as in an institution. Policies which only pay for institutional care may force you to be institutionalized in order to receive benefits when you could be cared for at home.
Definition of nursing home care - You will also want to make sure coverage is provided whether the nursing home you use is classified as skilled, intermediate care, respite or a custodial care home.
Inflation riders - An inflation rider will increase the benefit amount by either a simple or compound inflation rate each year the policy is in effect. This feature is costly, but it is protection against the rising cost of long term care. A compound inflation rider is a good idea even if it means you must reduce the starting daily benefit in order to make the policy affordable. It means the policy is much more likely to pay an adequate benefit in the future.

How much coverage do you need?

Policy daily benefits range from $30 a day to more than $300 a day. How much you need depends on what nursing home costs are in your area, and on how much you could pay for from other resources, like savings and investments. We know of clients in nursing facililties paying $300 per day for care right now.

What affects your rates?

Your age - The younger you are when you buy the policy, the less it will cost.
Benefit period - A policy that pays benefits for life will be more expensive than a policy that provides benefits for a limited period of time, such as for 2 years.
Amount of benefit - The greater the daily benefit, the higher your premium will be.
Waiting period - The longer you can wait until the first benefit payment, the lower your premium will be. Waiting periods of 20 to 100 days are typical.
Policy features - The more options and features a policy has, the more it costs.

A Few Tips:

Once you buy a policy, don't stop paying the premium. If you do, not only aren't you covered in most cases, but you forfeit everything you've already paid;
Make sure the policy is guaranteed renewable for life. Otherwise, the insurer could cancel when it looks like you may actually use the benefits;
Check that it will let a physician decide if you need long-term care. Some policies pay only for nursing-home stays that occur immediately after discharge from a hospital, but most long-term stays don't fall into that category;
Look for a policy with level premiums. This means that the company can't lure you in with a low rate and then hike it up dramatically after you've signed on. It can still raise its premium if costs go up, but not because of your age: if you buy a policy when you're 55, for instance, you'll always pay the premiums that a current 55-year-old would pay, even when you are actually 75;
Insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb (unless you are in your 70s or 80s and will most likely begin using the benefits fairly soon). They have most certainly risen in the past 15 years, and there's every reason to think they'll continue to climb precipitously over the next decade or two (it does cost more to inflation-index your benefits);
Ask for a provision waving premiums once you're in a home. If you are a patient in a nursing home, the last thing you need to worry about is premiums;
Look for a policy that provides for home health care. Most older people prefer to remain in their homes, if possible;
Make sure the policy covers cognitive impairments such as Alzheimers, when a patient may be otherwise physically healthy, but still need long-term care, and any illnesses or conditions you may already have when it is issued.

Medical Savings Plans and 125 Cafeteria Plans:

These are company benefit plans which can assist employees in paying for the health care costs. There are phenomenal benefits to the company - and to the employee - in both these plans. Call us for more details.

Nearman Financial
1005 Cameron Street
Old Town
Alexandria, VA 22314

Phone: 703-683-4660
Fax: 703-683-9433
Cell: 703-587-4321
Email: Nearman Financial

Neither the information nor any opinion contained on this website constitutes a solicitation or offer by Nearman Financial Consulting Inc. or its affiliates to buy or sell any securities, futures, options or other financial or insurance instruments or provide any investment advice or service.

Securities and advisory services offered through representatives of Lincoln Financial Securities Corporation, Member FINRA/SIPC, to residents of the District of Columbia, Virginia, Maryland, West Virginia, Georgia, Florida, Arizona, Nevada, Pennsylvania, Massachusetts and California. Nearman Financial Consulting Inc. and Lincoln Financial Securities Corporation are not affiliated.