Who Needs Long Term Care?

Wiser has the privilege of working with the Laona M. Kitchen Foundation, a foundation that provides vouchers for short-term respite care for caregivers of patients with Alzheimer’s. The beneficiaries of these vouchers are almost always family members caring for their loved one on their own. Sometimes the caregiver is family because they prefer it that way. Sometimes, however, it is because it’s what the family can afford. Having long-term care insurance in place could have helped.

Obviously, long-term care insurance can benefit patients for other things besides Alzheimer’s. Long-term care insurance can cover the costs of professional care for a loved one in need of it. The key questions are: How does it work? Who should have it? What are the limitations?

How Does it Work?

Long-term care insurance helps to cover costs for assisted living, nursing home, and home health care. Assisted living is typically the lowest cost, because the care provided is limited in scope. Home health care comes with the highest cost, as it covers much more extensive services.

Long-term care insurance provides a stated daily benefit for a certain number of years of care. The stated daily benefit is typically around $180, with a cost of living adjustment of around 5%, but this can vary (as can the premiums). This may or may not cover the entire cost of care, depending on the level of care being provided.

The benefit period can last 2, 3, 5, or 10 years. 89% of claims are 3 years or under. 95% of claims are 5 years or under. Alzheimer’s claims can last up to 10 years or longer. Interestingly enough, the longest claim in history has been for a motorcycle injury.

You can do a shared joint/survivor policy of 5 years each, 10 years total. In this kind of policy, if the first spouse only uses 3 of the 10 joint years, the remaining 7 would cover the surviving spouse. You can also do a combination policy that combines long-term care with life insurance in a single premium.

Who Should Have It?

People who should have long-term care insurance are people who do not have sufficient personal assets to cover long-term care costs themselves. You can generally self-insure if you have assets around $3 million or more. Otherwise, long-
term care insurance could be beneficial.

Medical issues can impact insurability. For instance, heart issues will have minimal impact. Diabetes may require high premium rates. Existing Alzheimer’s disqualifies one from insurability. So the key, really, is to have it in place before the condition arises that would eventually require need of it.

Premium costs are generally equal to 9 to 12 months of expected claim. Premiums are adjusted based on age of obtaining the policy. For younger people, it may not make sense to purchase long-term care insurance, as the need is too far off. At retirement or later, it becomes a big budget item. At some point it may be beneficial to switch from paying for long-term disability insurance (which replaces income for a certain period of time) to paying for long-term care insurance (which pays for custodial services). A good long-term care insurance agent and your financial advisor can help you determine the appropriate age to purchase long-term care insurance.

What Are the Limitations?

As inferred above, having long-term care insurance does not ensure that all costs will be covered. Your daily cost of care may be higher than what the plan pays. Your period of need may be longer than the period of benefit you paid for.

If you have an existing policy, it is generally not in your best interest to replace it. Older policies typically promise more benefits than newer ones. Also, premiums are generally lower on your older existing policy than on a newer policy you would purchase today.

There are also a limited number of insurance providers. Genworth and John
Hancock are the two largest providers of long-term care insurance. Other providers include Mass Mutual, Mutual of Omaha, Transamerica and Med America. There used to be many other providers, but economic pressures from the cost of care have resulting in several dropping out of the market.

In conclusion, having a long term care policy in place can help you preserve assets that would otherwise be diverted to custodial care, and give you peace of mind that your care needs will be addressed should the need arise.

Rick Bailey of Rick Bailey and Company Contributed to this Article.