What is Long-Term Care Insurance?

Today we are going to look at the only form of insurance that will pay for the cost of long-term care. It is called Long-Term Care Insurance, or LTCi. 

 Do you have it? If you are like many people the answer is no. Or, if you have it do you have enough? And, why don't you have it. The most common reasons are:

• Too expensive 
• I don't need it because  it won't happen to me
• The government will pay

 Before you say, it's too expensive you need to ask yourself one question: Insurance is too expensive as compared to what? According to the "2010 Genworth Cost of Care Survey" it costs on average $87,600 for a semi-private room in a nursing home in the Bay Area. Who wants to go to a nursing home? Not me and probably not you. Most people would rather stay at home. In fact only 15 percent of long term care takes place in a nursing home. The rest is done at home. A home health aid according to the Genworth study costs $57,000 per year. 

Would you rather depend on a family member to care for you or have your family manage your care?  What if you are or will be single, divorced or widowed when health care on a continuing basis.  Insurance is cheap compared to the actual out-of-pocket expense for care.

According to a U.S. Department of Health and Human Services report "15 percent of home care recipients did not think they would be able to receive care in the home if they did not have their long-term care insurance policy and about the same for assisted living residents." Some 83 percent of those who had long-term care insurance said that could not have been able to afford care if they didn't have the insurance.

Reason number two, it won't happen to me, you say. You have either a 0 percent chance of it happening to you or 100 percent chance. Either you will need long term care on an extended basis or you won't. But if you need it it's 100 percent. We all die. The question is how you will die; will it be sudden or will it be lingering, with illness, frailty and the inability to manage the activities you do every day or with a cognitive impairment. The real question is how will you cope and how will you pay for the care you might need.

Reason number three, the government will pay for your care if you are broke or if you work with an elder law attorney. We will review the Medi-Cal rules and what an elder law attorney is and what they can do for you in future article.

Long-term care policies today pay for care in the home, in assisted living facilities and in nursing homes. The objective is to have the means to stay OUT of the nursing home until you or your have loved-ones have no other choice. It is the last resort on the elder care journey.

There are four types of policies available today in California.

Traditional Long-Term Care Insurance 

This insurance is based on a maximum daily benefit for a period of time. If you buy a policy, for example, that has a benefit of $250 per day for three years, you are buying a pool of money that totals $270,000. If you go on claim and don't use the daily maximum the unused portion rolls forward until it is used up. New policies today have a cash complement and a reimbursement component. The cash is available immediately and the reimbursement part has a waiting period. A qualified broker can design the right plan for you.

These policies should only be purchased with an inflation rider.

Partnership Long-Term Care Insurance

The Partnership Long-Term Care Insurance PROTECTS assets from Medi-Cal spend down.  If you run out of benefits the amount of coverage paid out protects an equal amount of assets should you go on Medi-Cal.

Your broker must not only be licensed to sell long-term care insurance but must also be licensed to sell the Partnership LTCI in your state and take additional CEU courses every two years.  

Annuity Based Long Term Care Insurance

This is new and is a result of the Pension Protection Act of 2006, enacted in 2010. An annuity with an LTCi rider enables you to take payments from annuity to pay for long term care expenses tax free. The beauty of this is if you have an annuity with growth, you can take that growth out without paying taxes on it by rolling the old annuity into one that has the long term care rider on it. You must qualify for the insurance component but it is less stringent than traditional or partnership. If you never trigger the LTC insurance portion the annuity, which has been growing at some interest rate, passes to your heirs.

Life Insurance Based Long Term Care Insurance

Some life insurance policies have a long-term care feature. Basically you buy a life insurance policy with a long-term care rider. If you need long-term care then these policies will pay a percentage of the death benefit every month for long-term care for a preset number of years. 

The benefit of this approach is that if you die without using all or part of the LTC benefit the life insurance proceeds will go to your heirs. Unlike the annuity, there could be more proceeds at death and life insurance passes at death tax free unlike an annuity.

Harold Lustig, Chartered Life Underwriter and Chartered Financial consultant, is the president of the California Estate and Elder Planning Center in San Rafael, whose mission is to help seniors and their families maintain financial security. He specializes in long-term care insurance as well as financial and estate planning planning. Harold can be reached at 415-472-1290 or at Harold@haroldlustig.net.