1. Intro To Insurance: Introduction
  2. Intro To Insurance: What Is Insurance?
  3. Intro To Insurance: Fundamentals Of Insurance
  4. Intro To Insurance: Property And Casualty Insurance
  5. Intro To Insurance: Health Insurance
  6. Intro To Insurance: Disability Insurance
  7. Intro To Insurance: Long-Term Care Insurance
  8. Intro To Insurance: Life Insurance
  9. Intro To Insurance: Types Of Life Insurance
  10. Intro To Insurance: Life Insurance Considerations
  11. Intro To Insurance: Other Insurance Policies
  12. Intro To Insurance: Conclusion

By Amy Fontinelle

Long-term care (LTC) insurance is designed for seniors who need help with basic activities of daily living such as bathing, getting dressed and eating. About half of Americans who turned 65 in 2015 will need long-term care services, according to the U.S. Department of Health and Human Services. A hip fracture, a stroke, or another serious illness or injury could make it impossible to carry out tasks we take for granted when we’re healthy.

This type of round-the-clock assistance is expensive, but long-term care insurance can cushion the blow. According to the 2016 cost of care survey from Genworth Financial, an insurance and annuity company, the national average cost for a year of long-term care services is about $18,000 for adult day care, about $44,000 for an assisted living facility, about $46,000 for a home health aide, about $82,000 for a shared nursing home room and about $92,000 for a private nursing home room. (For background reading, see Failing Health Could Drain Your Retirement Savings.)

The thing is, long-term care insurance itself can also be also quite expensive and many people don’t understand how it works; all they understand is that they’ve read lots of news stories about people losing their coverage due to skyrocketing premiums. So they don’t even try to buy it.

Before you make a decision either way, you should have all the facts. We’ll give you an introduction to the most important things you need to know about long-term care insurance in this section.

Covered Services

Coverage varies by provider, but in general, long-term care insurance covers home care, respite care, hospice care, adult day care, assisted living and nursing home care. It covers skilled care from nurses and therapists; personal care, such as help using the toilet; occupational, speech, physical and rehabilitation therapy; and Alzheimer’s and dementia care.

Who Should Buy Long-Term Care Insurance?

People who have no assets don’t need to buy long-term care insurance because they will qualify for Medicaid. People who have such a gigantic nest egg that they will easily be able to afford whatever care they need also don’t need to worry about buying long-term care insurance. It’s the vast majority of people who fall somewhere in between who should consider it – people whose nest eggs would be devastated by the cost of long-term care. The catch is that these people won’t always find the premiums affordable.

Getting Approved

To get approved for a policy, you’ll have to qualify medically. Certain illnesses make you automatically uninsurable, such as Alzheimer’s, Parkinson’s and AIDS. If you’re already getting assistance with activities of daily living, you also won’t qualify, in the same way that you can’t purchase car insurance for an accident you’ve already gotten into. Other serious conditions, such as heart disease or cancer, will not necessarily disqualify you but will increase your premiums. Depending on the insurer, women may pay more for long-term care insurance than men since they tend to live longer. (For more, see Too Late for Long-Term Care Insurance?)

When to Buy a Policy

Experts have differing opinions on the best time to buy a policy, and there’s no right answer. Buying in your mid-40s means you’re more likely to qualify and your premiums will be lower, but it also means you’ll be paying premiums for more years, Buying in your 60s means you’re not purchasing insurance until much closer to the years when you’re more likely to use it, so you’re paying premiums for fewer years, but it also means you’re less likely to qualify. If you have a family history of an illness with long, slow decline that will likely result in your needing long-term care, but you haven’t yet shown symptoms of the illness, long-term care insurance should probably be in your plans. (For more on this topic, see What’s the Best Time to Get Long-Term Care Insurance?)

Benefits

Long-term care policies have a daily benefit amount, such as $120 per day, and a maximum coverage length, such as 360 days. The annual premium on such a policy might be $1,000, or less than $100 a month. That’s not bad, but $120 may not cover the full daily cost of care, meaning that the policyholder will need to make up the difference. In addition, the policy might have a 30-day elimination period, meaning that the policyholder will have to wait 30 days after beginning to need long-term care before insurance benefits kick in. During the elimination period, the policyholder pays the full cost of care (not unlike a health insurance deductible).

Is this policy has a 100% home care benefit, the insured will receive $120 in benefits whether she receives care in a facility or in her own home. Some policies provide less coverage for home care, such as 50% or 70% of the daily benefit.

A desirable policy feature is annual growth based on inflation. This feature costs extra and comes in the form of a rider, but it preserves the policy’s benefit as you age and as health care inflation likely increases the cost of long-term care.

As with any type of insurance, shopping around will help you see who offers the best coverage for you at the best price. Consider a catastrophic policy or short-term care insurance if you can’t find an affordable long-term care policy. (See also Long Term Care Insurance: Can It Be Affordable?)

Premiums

Insurance premiums can and do increase over time on long-term care insurance based on insurance companies’ experience with consumers filing claims. Long-term care insurance has only been around for a few decades, and insurers did not charge high enough premiums at first to cover the claims they had to pay out. As a result, existing policyholders faced steep rate increases, some of which were so expensive that policyholders decided to terminate their coverage.

Since insurance companies now have more experience with long-term care claims, experts say today’s policies may be better priced initially and therefore less likely to experience unaffordable rate increases in the future.

If your policy did later become unaffordable, you would not have to completely forfeit your coverage; you might be able to get some form of lesser benefit going forward. You would want to talk to your insurer to find out what your options were before simply letting your policy lapse. This is also a good topic to discuss with your agent before buying a policy. (For some alternatives to LTC insurance, see How Long-Term Care Riders on Life Insurance Work and An Overview of Hybrid Long-Term Care Insurance Policies.)

How Much Coverage to Buy

Ideally, you would buy enough insurance to cover the anticipated cost of care in the area where you expect to live when you’re old enough to need long-term care. Costs of care can vary dramatically by region and by facility. You should also buy a policy that would cover one to three years of care, since that’s the typical amount of time people need long-term care for. You should buy more coverage if you think you’re more likely to use it, perhaps because of a family history of a long-term illness, and basic coverage if you have been healthy for decades and your older relatives have lived long and relatively healthy lives. Your insurance company may periodically offer to increase your coverage, which you may want to do if the cost of care has gone up and if you can afford it.

Qualifying to Claim Benefits

The inability to perform at least two out of six activities of daily living – bathing, continence, dressing, eating, toileting and transferring (walking) – will usually make you eligible to file a claim, as will severe cognitive impairment. Your healthcare provider will need to certify your condition in writing, and in some cases, the insurance company might require certification by a doctor of their choosing. Then, you’ll have to satisfy the elimination period, and after that, you can start receiving benefits. Long-term care contracts usually reimburse policyholders for expenses based on bills they submit rather than paying providers directly. Every 30 days, your healthcare provider will recertify whether you still need long-term care. (For more on LTC plans, see Protecting Your Income Source and Take Advantage Of Employer-Sponsored LTC Insurance.)

Policy Termination

Long-term care insurance policies are guaranteed renewable if you pay your premiums on time; you can’t be dropped for filing a claim or getting sick. However, your policy can end in several ways:

-you cancel it in writing

-you fail to pay premiums as agreed

-you exhaust your maximum lifetime benefits

-you pass away

(For an in-depth look at long-term care insurance, see our tutorial, Your Complete Guide to Long-Term Care Insurance.)

In the next section, we’ll give you an overview of how life insurance works.


Intro To Insurance: Life Insurance
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