Long Term Care Insurance
Long-term care insurance has come a long way in the nearly 30 years that it’s been available to the public. Most people don’t realize long-term care policies have been around that long. The earliest versions required someone be in a hospital first. Then came policies that provided coverage just in a nursing home. But those days–and policies– are gone now, replaced by policies that offer coverage in either a nursing home or for care at home. Most people would rather receive care in their own home for what’s now known as aging in place.
A COMBINATION LIFE & LONG-TERM CARE POLICY
Life insurance with long-term care benefits.
There are five aspects to this type of policy that make it different from a simple life insurance or simply a long-term care policy.
- The policy will provide a death benefit at any time.
- It will provide long term care coverage and it’s appropriately priced for long-term care.
- You can get all your money back.
- The prices are fully guaranteed.
- Simplified, easy underwriting.
Fully refundable. This type of combination policy has quite a bit of long-term care benefit available to the individual. If at any point the insured decides that they don’t want the policy any more, it can be surrendered for full return of premium, be it two months, two years, or twenty-two years, all you have to say is, “I’ve changed my mind” and you get your premium back.
Fully guaranteed price. In a traditional long-term care policy, insurance department regulations give carriers the right to change the premium if they find somewhere down the road that the policies are not supporting themselves enough. Many of today’s long-term care policies are underpriced and we think we will see more premium increases coming in the future. With this product, once you make the payment, you’re done. The company cannot come back and ask for more money.
Easy, fast underwriting. Often times we can get a decision within a week of having a telephone interview. Often times we don’t even need doctors’ reports.
LONG-TERM CARE INSURANCE: WHEN’S THE BEST TIME TO BUY?
There’s no longer a magic break point in long-term care premium pricing. A client of ours called a week before his fiftieth birthday, saying, “I must do it now because it’s going to be too expensive if I wait until I’m fifty!”
The answer is, a policy purchased at age 50 costs a little bit more than one bought at age 49 and a little bit less than age 52. There’s no sharp jump at any point. Later in life policies do get very expensive. That’s why we’re seeing people write policies as young as their early thirties.
No matter your age, you’ll never buy a long-term care policy cheaper than you can buy it today because, as time goes on, chances are your health will decline (or at least stay the same). Few people get healthier as they get older. Plus, long-term care premiums have become more expensive in general as carriers come out with new products and new pricing.
So as soon as you think you’re ready, we can write a policy.
HOW LONG DO I HAVE TO PAY THE PREMIUM ON A LONG-TERM CARE POLICY?
If you’re young enough, you can write a policy that’s paid-in-full after 10 payments and guaranteed not to require any more premium. If you start when you’re 47, for example, you’ll probably still be working so you don’t have to worry about having a large bill due but no revenue coming in. Your policy will be fully paid up prior to retirement.
THE CATCH-22 OF COST
The two primary reasons people give for not buying long-term care insurance are clear opposites of each other.
Older people often wish they had purchased it when they were younger, when the policies are more affordable. But younger people usually say, “it’s something I can deal with later because I’m not gonna need it for so long.”
So, people often avoid buying it in their 40’s and 50’s. Then, by the time they hit their 60’s and 70’s, they’re shocked at the cost of the policy and have to scramble to get coverage.
Our advice on when to buy long-term care insurance is always “the sooner, the better.”
WHEN DOES A LONG-TERM POLICY BEGIN TO PAY BENEFITS?
Two types of events trigger payment of Long-term care benefits.
Cognitive impairment. Most people think of this as Alzheimer’s disease, but it encompasses more than just Alzheimer’s. It’s a whole slew of organic brain conditions that lead to some form of dementia.
Assistance with Activities of Daily Living. Also called ADLs, the six Activities of Daily Living are standard across the industry and not to a particular insurance policy. They are standard in life. The six Activities of Daily Living are:
- Transferring –the ability to get in and out of bed or in and out of a chair,
If you need assistance in performing any two or more of these tasks and that assistance is expected to last for 90 days or more, then you qualify for benefits. It may not last that long but it’s expected to last 90 days or more, benefits will be paid.
These ADL’s are not just things affecting the elderly or those at the end of life. If you break your leg skiing and it’s a bad break, you may need long-term assistance. If it’s not so serious, you may only need assistance for a few weeks or a month or two. All that’s required is that you expect to require assistance for 90 days or more.
Elimination Periods. All long-term care policies available today have a waiting period, or deductible, like disability insurance. During the first 30-60 days, no benefits are paid and then, after the waiting period, the policy kicks in. This elimination period requirement is only once a lifetime.
So, let’s go back to our skiing example. If you had that accident at age 48 and were laid up for 106 days–and your policy had a 100-day waiting period, you would have satisfied your criteria because you were expected to need care for 90 days or more, you met your 100 days and were paid for 6 days before you got better.
After your recovery, you put your long-term care policy back in a drawer. Thirty years later or forty years later, if you begin to need assistance due to aging or dementia, or any other condition preventing you from handling two of the six ADL’s, you’ve already satisfied the policy’s waiting period, so you’ll start to receive benefits on day one.
Many of today’s policies have a zero elimination period for receiving care at home. So the 60, 90 or 100 day waiting period is only for care in a nursing facility.
THE COST OF LONG-TERM CARE
Cost of care in a nursing home is expensive and rising. In New Jersey, semi-private rooms run up to $340 a day. Nursing care at home can easily run $40-$50 an hour, making an eight-hour day about $400. And these are the costs whether you have insurance or not. The natural reaction from most people is, “but I can’t afford a policy that will pay $350 a day. The premium is just too high.” Our answer is: “if you can’t afford to insure all of it, that doesn’t mean you should insure none of it. If you can get part of the way, that’s that much more that you don’t have to pay out of pocket.” Many times our clients will write a policy that will pay 200 a day, leaving them only looking at an expense of $150 because the long-term care insurance covered the rest.
HOW DO I RECEIVE MY LONG-TERM CARE BENEFITS?
The benefits are paid directly to the policyholder on a reimbursement basis. At the end of each month, you would send in the bills for the qualifying expenses that you’ve incurred in the prior 30 days and the insurance company will send a check back, usually within a week or two. All the preliminary claim work is done up front.
So, as an example, let’s assume there was a 90-day waiting period on your policy. During that 90 days you get all the documentation– the doctors’ reports and other information–everything in place so all you have to do is submit the receipts. That way the insurance company will pay very promptly.
We’ll help if the client allows us to, but the insurance companies, by law, can’t talk to us about the claim. But, usually it takes seven to ten days to get a check, so it’s very quick.
DISABILITY VS LONG-TERM CARE INSURANCE
People often say, “I don’t need long term care. I’m still working. I need disability insurance.” There’s a lot of truth to that. However, long-term care insurance can also be used from time to time as a substitute for disability insurance, such as when a person doesn’t qualify for disability through their employer. A long-term care policy can be thought of like a disability policy during your working years, even though disability insurance is fundamentally different.
Disability replaces your income, as opposed to long-term care, which pays the bills. One is income driven; the other expense driven. In a disability policy, the claim trigger is the inability to perform your regular occupation while needing assistance in two out of six ADLs triggers the long-term care policy. But, chances are, if you can’t do two out of six ADLs, you can’t do your job either. And if you can’t do your job, it’s because you need assistance with two out of six ADLs. In 89-90 percent of cases, if you qualify for a payout for one, you qualify for a payout for the other.
HOW WILL I KNOW MY LONG-TERM CARE INSURANCE WILL BE THERE FOR ME WHEN I NEED IT?
At Schechner-Lifson, we address the issue of a very long-lived contract by conducting a thorough examination of the financials. We don’t pretend that we’re smarter than Moody’s, Standard & Poors or AM Best. We rely on outside agencies such as these, but we also keep a very careful eye on the insurance contracts that we sell and the carriers that we represent. We are brokers, not agents. Our business cards do not have the name of one particular insurance company on it and if a company starts to have issues we’ll abandon them in a heartbeat and move on to a stronger company.
But there are carriers that still have policies out there. There are state guarantee funds, but people should not rely on those. We advise all our clients to do a little bit of due diligence. Make sure the carrier has a good history, a good reputation, and is fairly priced.
Profits, prices and financial strength.
Several years ago, a client of ours was shopping for long-term care insurance. We looked at prices from about seven or eight different companies, picked one and showed the financials to the client. He looked them over and saw the company had made 80 million dollars of profit the previous year and said “well, this company made an awful lot of money. Does that mean their prices are too high?”
Our agent’s response was probably a bit sarcastic: “well if you want, we find you a company that lost money last year.” He paused for a moment and said “no, no, no, that’s not what I meant!”
We then explained why he wanted a company that’s financially strong. It may not always be the least expensive company but there are a lot of criteria to using when picking a carrier. We look at more than just price. Ease of underwriting; financial stability and the quality of the product are just a few of the many factors we evaluate to find the best insurance solution for our clients.