Long Term Care Insurance (LTCi)

As society changes, with fewer families able to care for loved ones at home, because both husband and wife work, or because of geographic separation between parents and children, and other reasons, and with increasing insurance coverage, we can expect the number and durations of nursing home stays to increase.

The average length of stay in a nursing home, if you include people who discharged in the first 90 days of care, is 2.6 years. If you count only people who are treated longer than 90 days, the average duration is 4.5 years. 14% of stays last longer than five years.

Consider that these statistics are for nursing home confinements only. 20% of long term care begins in nursing homes. 80% of long term care begins in the home, adult day care facilities or assisted living facilities. Therefore, most people want to purchase a “comprehensive” policy covering Nursing Homes, Assisted Living, Home Health Care and Adult Day Care.

According to Metropolitan Life, a leading carrier in the LTC market, the national average cost of Nursing Home Care in 2004 was $190 per day, up 6.1% from the prior year. The U.S. Health Care Financing Administration puts the average cost nationally at $55,000 in 2003 ($151 per day). If costs continue to increase by 5+%, in 2017 the national average for nursing homes could well be over $120,000 per year; in 30 years, over $250,000.

Design Questions in Buying Long Term Care
There are five or six primary design elements to consider and which are primary drivers of cost. They are 1) the daily or weekly or monthly benefits; 2) the benefit increase provisions; 3) the elimination period before benefits are payable; 4) maximum benefits payable; 5) how “comprehensive” the policy is in the types of care covered, i.e. Nursing Home Care, Assisted Living Facilities, Home Health Care, and Adult Day Care; and 6) (for couples) whether there are “share care” provisions.

Some secondary provisions are 1) benefit restoration, 2) non-forfeiture features, 3) waiver of premium 4) return of premium provisions. and 5) types of care or care givers that may be covered.

Paying for Long Term Care
By far the most common premium payment plan is an annual premium payable for life, until a person has been under care and benefits become payable, i.e. after the benefit elimination period is satisfied. Most companies also offer a 10-Year Fixed Pay Option in most states. Other premiums options include a Paid Up At 65 Option (only a few companies offer this), and a Single Pay Option (very few offer this).

The rate you pay throughout your lifetime is determined by your age when you take out an LTC policy. Premiums of course increase with each year that one waits to purchase coverage, so buying sooner rather than later may be advisable. For example, the cost for a person who purchases a policy at age 50 may be less than 60% of the cost for a person who purchases at age 60.

An Asset Based Alternative Approach
The second approach to planning for long term care is more recent, with new products coming on the market in the past ten years. This approach is called “asset-based” long term care planning and employs annuities or life insurance products that are designed with special payout provisions for long term care. These have an appeal to people who worry that they may pay premiums for health care based LTCi for several years and then die without ever collecting.

More Information
Contact the National Association of Insurance Commissioners and ask for a copy of “A Shopper’s Guide to Long-Term Care Insurance.” (816) 842-2600, www.naic.org.

Assistance from Best Source LLC
Best Source assists clients by helping them determine their needs and their other sources of paying for Long Term Care, to determine how much, if any, Long Term Care to purchase. Best Source also keeps abreast of policy provisions. Best Source then goes through multiple sources to get quotes from a number of the leading insurance carriers to best meet your long term and short term objectives.
Best Source LLC can also make suggestions as to the most tax effective way to purchase Long Term Care insurance.

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