New Long Term Care Insurance Options Available

New Long Term Care Insurance Options Available

By

Christopher C. Murray

As Baby Boomers are reaching retirement and living longer-and larger- than ever before, the chances of needing Long Term Care someday is increasing by the minute.  The need for LTC can happen to anyone, at any time.  Usually, the need for LTC is from a chronic illness, but something as unexpected as an accident or injury could trigger the need. The trouble is, LTC is expensive and a person should plan for it in advance while they’re healthy. Although it is costly, it is far cheaper than a nursing aid, and is not covered under private medical insurance. 

As the amount of long term care costs have kept increasing, over the last few years several major insurance companies have dropped out of the LTC insurance coverage business due to higher than anticipated claims experience. Well known companies such as Prudential, Met Life, CNA, Conseco and Penn Treaty, who were some of the first companies to offer LTC insurance have stopped offering the coverage.   It just wasn’t profitable for them.  Now there are only a few companies left offering this important component of your overall financial strategy.

Why do I even need Long Term Care insurance?  According to US government statistics, 70% of people reaching the age of 65 will need some sort of LTC whether it is at home or in an assisted living facility or at a nursing home.  However, LTC insurance is expensive because medical costs are expensive and rising.   The average annual cost of LTC in Fairfield County, CT is $134,000.  

Someone without LTC insurance will have to fund the care himself or an individual to qualify for Medicaid benefits, not possess more than $2,000 in “countable” assets. Otherwise the state could liquidate a person’s assets to pay for long term care expenses. 

Most people do not want to be in that situation and Medicare will only help with the doctor’s and hospital bills, not the expense of medications or service that may be required when a person leaves the hospital.  Financial planners have long advised their clients to anticipate long term care needs, including assisted living or a lengthy stay in a nursing home. Without insurance to cover those needs, entire estates can be wiped out, especially if a client’s stay in a nursing home, costing several thousand dollars a month, is extended several years.

To qualify for LTC, a person must have a doctor’s statement showing a need for non-skilled personal assistance with two of the 6 activities of daily living (ADL’s): bathing, continence, dressing, eating, transferring (getting in and out of bed, chair or wheelchair) and toileting or needing supervision because of cognitive impairment. The goal of long-term care is to maximize independence and functioning at a time when someone may be unable to be fully independent.  People usually need skilled care for medical conditions that require care by medical personnel such as registered nurses or professional therapists.  Custodial care refers to care which assists a person with ADLs. Custodial care is less involved than skilled care and it may be given in many settings.  People with cognitive impairments usually need supervision, protection or verbal reminders to do everyday activities.

Long Term Care insurance provides a daily benefit to cover skilled, intermediate or custodial, nursing care provided in Nursing Facility or Assisted Living Facility, Maintenance or Personal Care Services performed in an Assisted Living Facility and Hospice Care provided in a Hospice Facility.  Benefits are payable for expenses from Home and Community Based Services, aid in a medical facility, an assisted living facility or what most people prefer…at home where an aid will come to your house.

Who usually pays for care?

How much does Medicare pay for long-term care?

Long Term Care Statistics:

• The 2000 U.S. Census estimates that between 2003 and 2030, the senior population will double to 72 million and reach twenty percent of the total population.

• 10,000 Baby Boomers hit age 65 a day

• 93% of people age 65 or older, do NOT have long-term care insurance.

• The cost of care in Fairfield County, CT:

Private care – daily cost: $372  - annual cost: $135,780

Home care – daily cost: $176 – annual cost: 64,250

• The average cost today in the tri-state area is $120,000 per year. 

What happens if I buy LTC insurance but never need long term care?  Will I lose the money?  The answer is yes.  It is like car insurance, if you don’t have an accident, you lose the money you have paid – BUT you will have coverage.  Many people think, “That will never happen to me.”   Do you know anyone who has never had a car accident in his or her life? 

What if I need LTC but can’t afford it?  How can I pay for it?  There are 3 ways to help protect your retirement nest egg from the risk of long-term care expenses. 

The traditional way:  Purchase a long term care insurance policy that covers you whether at a nursing facility or at home and pays a maximum monthly benefit for a number of years.  If the benefits are unused, they are not reimbursed. They cannot be passed down to your beneficiaries either.

A second way of paying for Long Term Care is with Life Insurance. A few companies right now are offering traditional life insurance, but with a long term care rider or linked benefit. This is a hybrid product providing an income tax-free death benefit. You can purchase life insurance with a single one time premium, for example $50,000.  Depending on age and health condition, it buys a guaranteed death benefit of $95,000 worth of Life Insurance, but with the LTC linked benefit, it also buys $278,000 worth of Long Term Care insurance. So if a person DOES have the need for the LTC insurance benefits they can spend down the LTC benefit of the Life Insurance policy using a maximum of $120,00 per year or $6,000 per month until the $278,000 runs out.  If Long Term Care benefit is only partially used, then the used portion for LTC will be subtracted from the death benefit for the person’s beneficiaries.  If LTC is never needed at all then the tax-free death benefit will remain on the policy and not be subject to probate.  Plus there is a money back guarantee.  If a person ever changes their mind and decides they don’t want the policy, then there is the option of getting a full refund of their initial premium, in this example, the $50,000.   

The third way of paying for long term care is with Life Insurance and a long-term care rider where the death benefit becomes available in the event you need it to help pay LTC costs. Any unused portion of the death benefit remains with your policy and is paid to your beneficiaries at death.  When the policy’s death benefit is accelerated for LTC expenses, the death benefit is reduced dollar for dollar, and the cash value and policy’s account value are reduced proportionately.  So in this case the full amount of your life insurance death benefit is also the LTC benefit amount.  The combination of life insurance with the Long Term Care rider offers a cost-efficient way to help you plan and protect your future.

More people in their 50’s and 60’s are considering life insurance because their shrunken next eggs may not cover the expenses for their surviving spouses.  LTC insurance linked benefit offers them real security. Some people who already have life insurance are converting to this type of life insurance that can provide tax-free payouts for long term care coverage.  Consider this strategy for protecting your well being in retirement, not only financially for you and your family, but from a quality of life standpoint.

Christopher C. Murray is an Insurance Strategies Manager with Hayden Wealth Management Group, a division of NorthEast Community Bank, Offering Fixed Insurance Products Only. Fixed Insurance Products are not FDIC insured and are not guaranteed by the financial institution and maybe subject to loss in value.  He can be reached at cmurray@haydenwealth.com