Long Term Care: You Have Options
By Laura Bottoms Higginbotham
Vice President, Insurance Services
If you’re like me, you may have noticed an increase in construction of senior living facilities lately. This does not surprise me as it is common knowledge that we have an aging population who is living longer thanks to modern medicine. Therefore, the need for additional senior care services is foreseen to be more important than ever.
While at least 70 percent of people over the age 65 will need LTC services at some point in their lives*, this is not just an elderly person’s issue. 1 in 7 people living in nursing home facilities are under the age of 65**. Therefore, no matter what age you are at, it is time to start planning for your future long term care needs now.
You may picture a nursing home when you think about long term care (LTC). However LTC does not always mean institutional care. Instead it primarily refers to “custodial” care to individuals who need help performing Activities of Daily Living (ADLs). These activities including bathing, eating, toileting, dressing, continence and transferring themselves. Or this care is for someone with severe cognitive impairments such as Alzheimer’s or Dementia.
With the rising costs of care and no assistance from programs such as Medicare or health insurance, it is the individual’s responsibility to plan for this future cost to ensure that you will receive comfortable care when needed without being financial burden to loved ones. There are three ways to plan for this coverage:
TRADITIONAL STAND-ALONE LTC POLICIES
The traditional LTC option is what has been in the market for the longest time and it has slowly evolved over the years as this product matures. This solution is starting to become a thing of the past as many of the leading insurance companies are no longer offering this type of LTC and have shifted to one or more of the options mentioned below. Therefore, finding a suitable option with a reputable insurance company is becoming harder and harder therefore, this is usually not the route we recommend anymore.
Despite quality plans becoming extinct, this is a customizable option to fit the needs of the individual. You can choose your daily/monthly benefit, the benefit period, the elimination period as well as add an inflation protection provision. An added benefit to this type of LTC is the ability to have a “Shared Care” option for spouses. In the event that one person needs care and exhausts his or her benefits, the spouse’s policy can then be tapped to continue paying for the care. This approach uses a pool of benefits that both individuals can rely on.
However, like any option, you do have to weigh the risks. With this policy, the premiums are not guaranteed and could rise. If an inflation protection rider is added, you can certainly expect premium to increase since your monthly benefit will ultimately be increasing as well. Lastly, some may refer to this benefit as a “use it or lose it” type of coverage. Since the sole purpose of this policy is for long term care, there would not be a death benefit to beneficiaries if you were to pass away without needing any long term care.
HYBRID LTC POLICIES
Policies referred to as “hybrid” long term care policies combine the benefits of a life insurance policy with a traditional LTC policy. Usually purchased with a lump sum single premium or spread over 10 years, this policy has a smaller death benefit with the primary focus on the larger LTC benefit.
Due to the smaller death benefit, those who are interested in purchasing a policy such as this are mostly concerned with the LTC aspect of the policy. However, the advantage to a policy like this compared to a traditional LTC policy is that if you only use a portion of the LTC or none at all, there is still a death benefit (either in full, partial or residual). Another aspect that puts the policy owner’s mind at ease is the return of premium option if they determine that they no longer want the policy after so many years.
Inflation protection is also available but the advantage is that the premiums are set and will not increase unexpectedly.
LTC AND CHRONIC ILLNESS RIDERS ON LIFE INSURANCE
For those of our clients who still have a life insurance need but are also concerned with long term care coverage, this option is the best of both worlds. This is a universal life policy with either a LTC or chronic illness rider added on at a minimal additional cost. With the addition of a LTC or chronic illness rider, you would essentially be accelerating the life insurance policy’s death benefit once care is needed. Once benefits begin, the death benefit is reduced “dollar for dollar”. If the insured passes away before the benefit is exhausted then the remainder would be paid as a death benefit to beneficiaries. No matter what happens, someone will be paid the benefit whether it is you for long term care needs or your beneficiaries as a death benefit.
LONG TERM CARE VS. CHRONIC ILLNESS?
When it is time to make a claim, it may seem that LTC and Chronic Illness are virtually the same but there is one key difference. Both are similar in the fact that they both require the insured to be certified by a doctor as to not being able to perform two Activities of Daily Living (ADLs) or requiring substantial supervision due to severe cognitive impairment. However, the key difference is the qualifying length of chronic illness. With a LTC rider, the qualifying condition may be fully recoverable which allows the insured to receive LTC benefits for a temporarily disabling condition. With a chronic illness rider, the chronic illness must be certified as permanent and will more than likely last the rest of the insured’s life.
*U.S. Department of Health and Human Services. September 2008.
**Centers for Medicare & Medicaid Services. “Nursing Home Data Compendium 2010 Edition.” www.cms.gov.
Long-term care insurance benefits may be subject to limitations, waiting periods, and other restrictions. See your policy for more information or contact your insurance professional.