Is It Time to Buy Long-Term Care Insurance?

About 70 percent of Americans by the age of 65 will need some long-term care during their remaining years, according to AARP, which cites data from the U.S. Department of Health and Human Services. AARP notes that along with aging comes the increased possibility of physical or cognitive impairment. Family and friends may not be able to adequately provide care, and it’s estimated that more than one-third of the aging population will need to pay for assistance from skilled caregivers.

Long-term care insurance (LTCI) is a means of addressing this costly possibility.

Consumer advocate Clark Howard notes on his website that long-term care for women averages 3.7 years and 2.2 years for men. Without a long-term care insurance plan, a family can exhaust all its financial resources in order to provide care for themselves or aging relatives.

Gail Raab, owner and broker of Insurance Depot, has advised families about LTCI options for decades. She relates the following story:

“I sold a shared long-term care policy to a couple in their 50s. The wife was athletic, in good health, and did not feel that she needed long-term care coverage. She wanted it for her husband who was seven years older, but I explained she could buy a policy in which she and her husband could share the total benefits. If one spouse needed more than 50 percent of the policy, the other spouse’s share of the policy could be used. She finally agreed and purchased the shared LTCI policy. Within the first year, the wife had a serious illness that put her in intensive care for a month, the hospital for another few weeks, and in need of a year of physical therapy and rehab. During this time, she was unable to care for herself and needed long-term care. She thanked me over and over for convincing her to purchase the shared policy, thereby saving their retirement funds.”

Whereas regular life insurance will pay the face amount of a policy to beneficiaries after one dies, it does not ease the financial burden of a physical or mental illness while the policy holder is still alive. LTCI, while costly, meets that need and can be applied at home or in an assisted-living facility or nursing home where the caregiver works in addition to the facility’s regular staff.

Gail Raab, owner and broker of Insurance Depot, has advised families about long term care insurance options for decades.

LTCI is customized to an individual’s wishes and wealth. Options may include any daily allowance selected by the purchaser, beginning with $100 a day or $3,000 a month. Other options include the waiting period or number of days before the benefits start, including 30, 60, 90, or 180 days; the “zero” waiting period rider for health care in the home that begins on the first day that long-term care is needed, after which those days used for home can be applied to satisfy the waiting period in a facility; the number of years the policy will continue to provide benefits, including two to 10 years or lifetime; and the inflation rider of compounded interest rates of 3 percent or 5 percent simple interest; or no inflation rider. In addition, couples have the option of separate benefits or shared benefits, so they can take from one another’s ‘pool of money’ if needed for long-term care. In general, premiums are not guaranteed and can increase, and the numerous options will affect the cost of the policy.

Medical treatment for an illness or injury is covered by health insurance policies, Medicare, or Medicare supplements. LTCI, however, only pays for caregivers and does not provide for any treatment. A long-term care policyholder becomes eligible to receive benefits when unable to perform at least two forms of self-care, such as dressing, eating, bathing, transporting oneself in and out of bed, and moving around independently. Cognitive impairment automatically qualifies a policyholder for long-term care benefits.

Is long-term care advisable for everyone? Sheldon Berch, an insurance broker for Siegel Insurance, suggests that it’s not imperative for the very wealthy who have sizeable insurance policies to leave to heirs and are still able to afford skilled care without LTCI. He adds that LTCI is not for the poor who cannot afford the LTCI premiums. Georgia’s Medicaid Community Care Services Program operates under the Elderly and Disabled Waiver to help frail older adults remain in their own homes or communities and receive services there as an alternative to nursing homes. Those who fall between the two extremes of wealthy and poor are strongly encouraged to buy LTCI.

Sheldon Berch, insurance broker for Siegel Insurance

Because LTCI is expensive, and premiums increase periodically, the decision of when to purchase it is not set in stone. Raab thinks the best age to buy long-term care is in one’s mid-50s or early 60s. Howard and Berch agree. Berch mentions that this age group often looks at their own aging parents, who are in their 70s or 80s, and who often do not have LTCI. The younger group wants to plan for future needs without becoming a financial burden on their children. If purchased at older ages, late 60s and 70s, the premiums are much higher even though it’s likely they would be needed for fewer years.

Applicants with serious health issues, like diabetes, cancer, kidney, or heart disease, may be denied LTCI or may be accepted for coverage at higher rated premiums.

Raab mentions a new long-term care product that Howard calls a hybrid policy. With a total lump sum, an individual can purchase a paid-up life insurance policy with long-term care benefits. For example, the individual can invest $100,000 with no further premiums, and the proceeds will be paid to the policyholder’s beneficiaries upon his/her death. If the policyholder requires long-term care, the entire $100,000 may be used for caregivers, leaving no money for the beneficiaries.

However, the insurance company provides another sum matching the face amount of the original life insurance policy, to be used if needed for additional long-term care. In this example, the sum would be another $100,000. This insurance product is available for older policyholders in their late 70s who can afford to put a large lump sum into this special insurance plan.

Howard lauds the hybrid policy which combines life insurance with long-term care, underscoring that the policyholder gets long-term care coverage along with the life insurance that is designated for heirs if LTCI goes unused. If only a portion of the life insurance is used for long-term care, the balance of life insurance goes to the beneficiaries upon the policyholder’s death. Hybrid policies substitute for traditional long-term care policies for older adults whose premiums would be prohibitive and have increases. It is worth noting that premiums are not required when the policyholder is receiving benefits on a claim.

Raab suggests another option. Long-term care policyholders can purchase LTCI with benefits that will increase with an inflation rider over the years and be waiting for them when needed. She gives an example: if a policy is purchased with a 3 percent annual compounded inflation rider with an initial $3,750 monthly benefit ($125 a day), that monthly benefit the second year will increase to $3,863, then $3,979 the third year, and up to $4,893 in the tenth year. The inflation rider and the number of years it is added to the benefits (20 years or lifetime) are determined when the policy is purchased.

Raab relates this cautionary tale: “Long-term care policies are truly ‘worth their weight in gold’ and can prevent financial ruin. A friend’s wealthy parents, who lived in an assisted living facility, both developed dementia that required 24-hour care at the same time. Since they did not have long-term care coverage, the exorbitant expenses were paid out-of-pocket. Both parents required care for almost four years. After one died, the other parent needed care for another three years. My friend and her siblings watched their inheritance disappear.”

The cost of long-term care insurance depends on the age, health, gender, coverage amount, waiting period before initiation of care, and marital status of an applicant.

Howard candidly states on his website, “Getting old is part of life. At some point, most of us are going to need care. Maybe in a nursing home. Assisted living. Skilled care in our homes. Are you prepared?”

Berch adds this solemn advice, “Don’t become a financial burden on your children. Do your financial planning now!”

Raab is practical about long-term care insurance, “When it comes to insurance, something is always better than nothing!”