Broker Check

Long Term Care Insurance Planning

When considering Long-Term Care insurance planning you should consider meeting with a professional planner.  At Zettergren Financial Group, we help many families plan financially for this cost that we consider to be one of the highest financial risks to a family's assets.

When considering Long Term Care planning there are three major areas you should pay attention to in the design of your plan:

1.  How plans pay out benefits

2.  The current cost of care in your area and how will inflation impact that

3.  The three major insurance plans offered for purchase

How Plans Pay Out Benefits

There are two ways LTC insurance plans pay out benefits:

  1. Reimbursement Long Term Care Insurance

    Reimbursement long term care insurance policies are the most common type of policies sold. They pay the exact expenses up to your daily, weekly or monthly benefit amount. Depending on your policy, the insurer may directly pay the bill or you may have to pay first and then be paid by the insurer. If there is a remainder, that money is kept in the pool to make your benefits last longer.

    Reimbursement LTCi Example 1:

    You have a monthly benefit amount of $4500 and your facility bill is $3800. Your insurer will pay the $3800 bill and the remaining $700 will be left in your benefit amount pool.

    Reimbursement LTCi Example 2:

    You have a monthly benefit amount of $4500 and your facility bill is $4700. Your insurer will pay up to your benefit amount ($4500) the remaining $200 is your responsibility to pay.

  2. Indemnity Long Term Care Insurance

    In an Indemnity Long Term Care insurance policy you receive your complete benefit amount, regardless of the bill. Because of this, these types of policies are overall more expensive than reimbursement policies. 

    Indemnity LTCi Example 1:

    You have a daily benefit amount of $200 and your facility bill is $170. You will receive the full $200 and can keep the remainder ($30).

    Indemnity LTCi Example 2:

    You have a daily benefit amount of $200 and your facility bill is $250. Your insurer will receive the full daily benefit amount of $200 from your insurer and you will be responsible to pay the remaining $50.

The Current Cost of Care In Your Area and the Impact of Inflation

Current Cost of Care in Greater Nashville, TN Area[1] :

Nursing Home:
Private Room $6,600 per month
Semi-Private Room $5,962 per month

Home Health Care:
$3,103 per month

Assisted Living :
Private, One Bedroom: $4,196 per month


Annual Inflation Rates of Long-Term Care providers[2]:
Nursing Home: 4.19%
Home Health Care: 1.32%
Assisted Living: 4.29%

According to the U.S. Department of Health and Human Services, 70 percent of people over the age of 65 will need some type of long-term care services and support during their lifetime.

The average Long-Term Care claim is a little over 3 years according to the LTC industry.

[1] Represents the average local cost of long-term care based on John Hancock's Cost of Care Study, conducted by LifePlans, Inc., 2013. Individual facility costs may vary. Costs rounded to the nearest dollar.  http://www.johnhancockinsurance.com/long-term-care/cost-of-long-term-care-calculator/state-detail.html#TN

[2] http://insurancenewsnet.com/innarticle/2014/05/23/ltc-costs-continue-outpacing-inflation-a-508990.html#.VCBKbr5XtRk



The Three Major Insurance Plans Offered for Purchase


There are three basic types of Long-Term Care Insurance

 





1.    Traditional Long-Term Care Insurance

2.    Asset-Based Long-Term Care Insurance

3.    Life Insurance with Long-Term Care Rider

Traditional Long-Term Care Insurance

 





Long-term care insurance (LTC or LTCI), an insurance product sold in the United States, it helps provide for the cost of long-term care beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform the basic activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer's facilities. If home care coverage is purchased, long-term care insurance can pay for home care, often from the first day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day (up to the policy benefit maximum).

The three main drawbacks to traditional Long-term care insurance are:

1.         Upon death, there is no benefit
2.         The underwriting can be very difficult
3.         The premiums are not locked in nor guaranteed, they increase like medical insurance premiums

Recent Rate Increase History on Current Inforce Business

2014:  39% Rate Increase
2011:  90% Rate Increase
2010:  13% Rate Increase

 For a complete history of rate increase visit:  http://www.tdi.texas.gov/consumer/cpmltchistory.html



Asset Based Long-Term Care Insurance

 



A growing trend in the Long-term care insurance industry are Asset Based Long-term care insurance policies. These products -- called asset-based, combination or linked policies -- typically require one lump-sum premium payment, usually of $100,000 or more. They provide long-term care benefits for a certain number of years, a death benefit if you don't use long-term care and a money-back option that returns the premium in case you decide you don't want the policy after all.

The features answer three big questions from consumers thinking about long-term care coverage:

What if I need long-term care?

What if I never need it?

What if I get into this policy and it isn't really for me?

Today's low-interest rate environment might be fueling some of the demand. Consumers can't earn much on cash they're reserving for emergencies, so they figure they might as well put it into an insurance policy that can provide long-term care benefits worth several times more than the original investment. Or, at the very least, it can provide money to heirs if they never need long-term care.

A few of the key components to Asset Based Long-term care insurance are:

*Applicants have to answer medical questions, but they don't have to undergo a medical exam or get blood tests
*Premiums cannot increase as the benefit is locked-in
*Inflation Protection is an option
*Premiums are returnable to the owner if the owner decides this policy is not for them
*There is a Death Benefit that typically returns all the premium to the beneficiary should the insured die without using the benefits



 Life Insurance with a Long-Term Care Rider

Another growing trend that in today’s Long-term care insurance industry is Life Insurance with Long Term Care or Chronic Illness Riders. These products have become hugely popular because many consumers are reluctant to buy long-term care insurance because they fear that their investment will be wasted if they do not use it.  Some insurance companies have attempted to solve this problem by combining life insurance with long-term care insurance.  The idea is that policy benefits will always be paid, in one form or another.  These products are relatively new and the features are changing as the product evolves. 

The amount of the long-term care benefit is often expressed in terms of a percentage of the life insurance benefit.  Most policies that cover long-term care services, the monthly benefit you can use is typically equal to two percent of the life insurance policy’s face value.

Another positive for these new policies is that the premium is guaranteed to never increase.  Many consumers are growing tired of their Long-term care insurance increasing just as their medical insurance has increased year over year. 

One drawback to these policies is that the benefit is locked in, therefore there is no inflation protection.

Be sure to ask your advisor the difference between Long Term Care and Chronic Illness (ABR) riders.