Long-Term Care Insurance: Let’s Cover the Basics
In a previous blog on long-term care payment options, I noted there are three sources of money to pay for long-term care:
- Your own money
- Government sources
- Insurance
There are two ways to go if you’ll be using insurance for long-term care:
- Dedicated long-term care insurance
- Life insurance and annuities
This blog will cover more details about using dedicated long-term care insurance to cover these expenses.
Dedicated* Long-Term Care Insurance
This is the “pure’ form of long-term care insurance (LTCI) in that it focuses on paying for the following types of costs:
- In-home health care
- Adult daycare
- Assisted living
- Memory care
- Transitional and permanent skilled nursing care
* The word “dedicated” is used here to differentiate LTCI from life insurance and annuities with long-term care riders. These other products will be covered in a future blog.
LTCI policies are typically obtained by the consumer directly from companies. However, some employers also offer these policies as an employee benefit.
Long-term care insurance companies typically offer policies with differing inflation factors. An inflation factor ramps up policy benefits by a certain percentage per year. This is an effective way to manage the risk of future cost increases. However, the higher the inflation factor, the higher the premium.
For example, a 55-year-old female with a $165,000 benefit would pay over 4 times as much in annual premium for a policy with a 5% inflation factor compared to a policy with no inflation provision.
| No inflation | 1% inflation | 2% inflation | 3% inflation | 5% inflation | |
| Female | $1,500 | $2,150 | $2,815 | $3,700 | $6,400 |
Premium costs also increase with age. The American Association for Long-Term Care Insurance estimates a nearly 50% increase in annual premium for a 65-year-old compared to someone who buys LTCI at age 55.
LTCI Reluctance
As a risk reduction tool, LTCI would appear to be a logical choice to manage future long-term care costs. However, the American Association for Long-term Care Insurance (AALTCI) reports that only about 8% of those 55 or older have some type of LTCI. The underlying causes of this are:
- A perception that LTCI premiums are not affordable.
- Reluctance to acknowledge the 50-70% risk of needing long-term care at some point in life.
- The mistaken belief that government programs will cover long-term care costs.
- An assumption that family members will handle any long-term care responsibilities.
Six Tips for LTCI Shopping
Shopping for long-term care insurance can be a complex process. There are many “moving parts,” so consumers need to educate themselves on finding the right policy for their situation.
Know Your Priorities
Think carefully about what you want out of a long-term care situation. For example, do you want to stay in your own home, or would you prefer the amenities offered by a senior living facility? Deciding first on what is important to you will help evaluate policy options.
Research LTCI Companies
Every state has an agency tasked with regulating long-term care insurance companies. Ask your state’s agency about licensing status and complaints history.
Beware of Premium Rate Increases
LTCI premiums can go up over the years. LTCI shoppers need to weigh the impact of possible increased premiums against their capacity to pay for coverage over the long haul. Since state regulators must approve premium rate increases of existing policies, check with the state office regarding past and pending rate increases for the companies under consideration.
Understand Coverage “Triggers”
LTCI benefits typically won’t start flowing until a specific “triggering” event occurs. Understanding these policy provisions will set realistic expectations about when funds will be available.
Carefully Review the Policy Summary
The insurance company should provide a summary describing all the policy details. Comparing policy summaries of different companies will help narrow down your choices.
Review the Policy Documents
When the policy is delivered, ask the agent questions about any unclear language. Don’t feel rushed into signing before you are comfortable. Most states have a right-to-examine period to allow a reasonable amount of time to review a policy.
Proceed with Caution
Long-term care insurance can be a terrific way to manage the risks associated with potentially crushing long-term care costs. However, these products are complicated. As a consumer you need to thoroughly analyze all the options to choose the policy that fits best. Learn more about the details about paying for long-term care in my eBook at Living50+.
What options have you considered for paying eventual long-term care? Would you count on your own savings or family to handle the costs? If not, what have you considered? Do you have any tips to share in regard to shopping for Long-Term Care Insurance? Please use the comments below!
