Page Reviewed / Updated - April 14, 2009
Long Term Care Insurance, sometimes called Nursing Home Insurance, is a policy that pays for some or all a senior’s long-term care costs in exchange for monthly premiums that typically range from $250-$1,000 / month. Depending on the policy, payouts can be used to pay for services at home, in adult day care, in assisted living and in nursing home communities.
Should a senior have long term care insurance already, then they are probably familiar with how it can help with the costs of long term care. If one does not have long term care (LTC) insurance but has an immediate need to pay for long term care, this option will not help. Insurers typically do not accept new, elderly enrollees if they are already receiving or in need of care. Even seniors not requiring immediate care but in frail health are often rejected. If a senior is accepted, the insurance premiums can be very expensive.
Rather than discuss the benefits of long term care insurance, this article will focus on what persons who are interested in purchasing long term care insurance should know.
LTC insurance is attractive because the monthly premiums are known in advance and therefore can be built into a budget. Plans are very flexible and can be structured to meet variety of needs.
Plans can cover the costs of in-home care, adult day care, assisted living, skilled nursing or all of them. One may choose a daily or monthly care allowance. For example, a plan can payout $75 / day if the individual resides at home and $200 / day if they are in residential care. Alternatively, one may choose coverage areas, like skilled nursing but not assisted living. In some rare cases, a family member can even receive payments for the care they provide at home.
For healthy seniors, Consumer Reports recommends not purchasing long term care insurance coverage before the age of 60. The older a senior is, the greater the cost of their monthly premiums. This is because there is an expectation that the senior will be paying those premiums for a shorter period of time before they require benefits. Other factors affecting the monthly cost include the benefits covered, the amount of benefit (the “care allowance”), the deductible level and the health of applicant. Younger seniors should expect to pay, at a minimum, several hundred dollars per month in premiums. The cost could be as high as several thousand dollars per month for older seniors.
In choosing a policy, there are a dizzying number of decisions, options and fine print legalese which can make selecting the right insurance a very tricky process. Follows is a list of some of the considerations of which potential buyers should be aware:
1) Care Allowance - A care allowance is the amount of money a policy will pay out on a daily or monthly basis. If selecting a care allowance plan, consider how the cost of care may change at some unknown point in the future when the care is required. Inflation is a factor to be consider, and the health care costs are rising a rate much higher than inflation.
2) Deductible - What is the appropriate deductible with consideration to the policyholder's other resources? How might this change in the future? The deductible is how much the policyholder is required to pay out-of-pocket before benefits kick in.
3) Monthly Premium – The premium is much the policyholder must pay each month. What monthly premium can the person afford? Recognize that premiums will increase and it is likely the individual's income will decrease as they age.
4) Elimination Period - The "elimination period” is the number of days the policyholder must require care before benefits begin. What other insurance coverage does the individual have and will those insurance benefits sustain them for the elimination period? For example, most seniors have Medicare which will pay for most of the cost of short-terms stays in nursing homes, but will not pay anything toward assisted living.
5) Payout Duration - What duration of time should the policy cover? Many policies will pay for certain lengths of time such as 1, 2 or 5 years of care, other policies are unlimited. The average stay in skilled nursing is 2.5 years and in assisted living, 22 months.
6) Daily Allowance vs. Expenses Incurred - Is an indemnity / daily care allowance better for the senior then a policy that covers only the expenses incurred?
7) Policy Cancellation Policy - Should the individual include a non-forfeiture clause that enables a senior to receive money back if they cancel the policy? At what cost?
8) Non-Care Expenses - Should the policy cover medications and/or home medical equipment? At what additional cost?
9) Tax Deduction of Premiums - Is a tax-qualified plan that allows the senior to deduct their premiums appropriate?
10) Partnership Plan - Is a “partnership plan” that allows the senior to protect their assets from Medicaid appropriate?
11) Definition of Care – How is “care” defined by the policy? Is non-medical care included? Companion care? Supervision for Alzheimer’s?
12) Cancellation by Insurance Company - Can the policy be cancelled by the insurance company? Or is renewal guaranteed?
It may be worthwhile to find a long term care advisor / broker that can help determine what one’s future care costs might be and choose a policy that will avoid unpleasant “gotchas” when it is actually needed.
There are no age requirements to purchase long term care insurance. While insurance companies may recommend an individual purchase the policy as young as 40 years old, Consumer Reports recommends waiting until the age of 60. Waiting too long to purchase a policy can result in prohibitively expensive premiums.
Applicants for long term care insurance need to be in good health. Elderly individuals will likely be denied if they already require long-term care or need help with activities of daily living such as bathing and dressing or have any of the following conditions: AIDS, Alzheimer's, Parkinson’s, MS, any dementia or progressive neurological condition or have had a stroke or metastatic cancer.
Marital status typically does not affect eligibility for long term care insurance though it may affect premiums.
Long term care insurance benefits depend entirely on the policy. Some plans will reimburse seniors and others will make payments directly to the service providers. Most plans require that a professional service take place to receive the benefit. For example, a family member won’t be compensated for the care they give, unless they form a home care agency and provide care through that organization. (Note, the idea of forming a home care agency and being paid by insurance as a family caregiver is not as difficult as it sounds.)
There are plans with annual limits, total dollar limits as well as unlimited plans. One can also choose daily or monthly limits and align those to specific care situations. For example, $125 / day if the individual resides at home and $200 / day if they are in a skilled nursing home.
Most policies have “elimination periods”. This is the period of time after a policy becomes active before the senior is eligible for any benefits. Typically, these are between 20 and 100 days, but some are even longer.
It is recommended that seniors use the services of a broker / advisor who is not tied to any one insurance provider. This eliminates some of the conflict of interest that long term care insurance salespersons may have. A salesperson might be tempted to sell a more expensive policy that does not necessarily suit a senior’s needs. Typically, there are no fees to use a broker / advisor. These individuals will be compensated by the insurance company when a policy is purchased.