What Is Long Term Care Insurance?

Long term care insurance policies will reimburse you for costs related to caregiving expenses when you are determined to be chronically ill. Your private health insurance and Medicare will not typically pay for caregiving costs. Custodial care (help with activities of daily living) is a specific exclusion under Medicare. Thus, should you need caregiving, long term care insurance will help to cover the costs of your care in a wide range of settings including:

• Your home
• Adult day care
• Assisted living
• Residential care facilities
• Nursing homes

To qualify for benefits with all long term care policies your doctor will need to certify that you are Chronically Ill.

Long term care insurance policies define Chronic Illness as either a severe cognitive impairment such as Alzheimer's or dementia; or

an inability to perform 2 of 6 activities of daily living which are:

1. Eating
2. Bathing
3. Dressing
4. Toileting 
5. Transferring 
6. Continence

To receive your benefits, you will only need to be impaired either with one of these benefit triggers, either physically or cognitively. You do not need to be both physically and cognitively impaired.

So, for example, my 81 year old stepmother has severe dementia. She still resides at home in Pittsburgh and is able to fully perform all activities of daily living such as eating, bathing and dressing independently. However, she requires a home health aide 24 hours a day to ensure she is safe. She is no longer able to shop for food, or pay bills, or manage her medications. She is at risk to wander away from home and become lost. Medicare will not pay for any of her home care, and neither will her UPMC For Life Medicare supplement. Long term care insurance would help to cover her home care costs.

Meanwhile, my 86 year old father has advanced Parkinson's disease. He has dysphagia and can no longer swallow food. He also can not stand up on his own. He needs help with all 6 activities of daily living, and is currently residing in a nursing home. Medicare will not pay for any of my dad's nursing home bills. Long term care insurance will help you to pay for these costs. 

How Does Long Term Care Insurance Work?

With long term care insurance, you will choose the amount of coverage you want. 

There are 3 choices you will need to make when you design your policy benefits. The 3 components to your long term care insurance plan are:

1. Monthly benefit amount
2. Benefit period
3. Inflation protection

Your 1st choice is your monthly benefit amount. monthly benefit amount is the amount of insurance coverage you will receive in today's dollars should you need care either at home, or in a facility. 

Long term care insurance policies will allow you to select an amount anywhere between $1,500 month and $20,000 month in today's dollars.  

Yes, you have a wide range of monthly benefit amount for designing your plan. To arrive at how much monthly long term care benefit you may want to buy, I would encourage you to research the cost of care in your area. Once you understand what care costs in your area, think about what you can comfortably pay on your own from your income sources and your liquid assets, and how much insurance coverage you may want as a supplement. 

Your 2nd choice for your plan is your benefit period length. This is the number of years that your insurance company will pay your monthly benefit to you. 

Most policies will let you select from a benefit period duration of 2 years, 3 years, 4 years, 5 years, 6 years, 7 years 8 years or Lifetime. 

Long term care insurance policies do not have a running clock. You may start and stop a claim.

The benefit period choice is simply the multiplier to determine how much total LTC insurance coverage you have purchased.

So, for example $7500 month x 6 year benefit period (72 months) equals $540,000 of insurance money. You would have coverage until you have received the entire $540,000 of insurance, however long it takes for you to fully exhaust your coverage. You would own the $540,000 of coverage amount for your entire life.

Your 3rd part of your plan is the inflation protection option.  

Do you want to automatically grow the money you are purchasing in today's dollars to keep up with rising health care costs on an annual basis?

If so, by what percentage do you want to grow your money.

Companies almost always offer you choices of 3% compound growth or 5% compound growth. Today, due to pricing by the insurance companies most people elect annual 3% compound growth.

So if you include 3% compound inflation protection on the above example of $7500 month and $540,000, your monthly long term care benefit and your total benefit amount will grow annually by 3% on your policy anniversary, even if you are receiving benefits from your policy.

Why Buy Long Term Care Insurance?

Well, as I have mentioned, Medicare and health insurance does not cover long term care insurance.

You will have to private pay for the cost of your care with your assets and your income, or you may elect to take the sting out of the cost of care through the purchase of some insurance.

Most people buy long term care insurance for 3 reasons:

1. To protect assets
2. To provide you with more choices for care
3. To not burden your family with caregiving issues

When my wife and I bought our policies in 2011 while in our mid 40's, I would say our primary motivation at the time was certainly to protect our assets. We knew the cost of long term care was expensive, and we wanted to ensure that a long term care need for one of us would not impact the retirement lifestyle of the other. It also was important for us to protect our nest egg to leave for our 2 sons.

Fast forward 12 years.  Today, however, with presently experiencing caregiving needs for our parents, I would say that the other two reasons above - providing us with choices for our care if needed, and being relieved from burdening family are the prominent reasons in our minds today.

With our parents caregiving needs, we have seen first hand the options that become available with being able to private pay for care. Spending down your assets and having to apply for state Medicaid support once your assets are totally exhausted would not be an optimal situation.

Most importantly however, I fully understand now that we are helping our parents with their caregiving needs, the emotional and the physical toll it takes, whether being the caregiver or managing the care. We are so thankful today that our long term care plan will help to make the issues easier for our children should we need care when we are older. We feel they will have enough responsibilities with their own careers and families in 25 years and we certainly would not want to burden them.

What Are The Tax Advantages Of Long Term Care Insurance?

Long term care insurance can have certain tax advantages for you.

Premiums for long term care insurance policies are generally tax deductible as medical expenses if you itemize and meet a certain threshold, subject to age based limitations.

The 2023 federal tax deductible limits are:

age 40 and under: $480

age 41 -50: $890

age 51 -60: $1790

age 61 - 70 $4770

age 71 and over $5960

You may make a tax-free withdrawal from use your health savings account (HSA) up to the above limits.

The long term care benefits and the life insurance benefits that you receive from your policy will be tax free.

What Types Of Policies Provide Long Term Care Insurance?

You may obtain long term care insurance through a few different types of long term care policies today:

1) traditional stand-alone policy

2) hybrid life/long term care policy

3) hybrid annuity/long term care policy

The traditional stand-alone long term care insurance policy is a "use it or lose it" policy, like your auto insurance or homeowner's insurance policies. Traditional LTC policies will not provide you without any cash value should you not need care. With traditional LTC policies, your premiums are not guaranteed and may be subject to a rate increase by the insurance company

The hybrid long term care life insurance policies will provide you with a cash value life insurance benefit should you not need care.  Additionally, the premiums with the hybrid life/long term care policies are guaranteed not to increase.

If you are healthy, the life insurance-based long term care plans will be better values for you than the long term care annuity-based plans.

The annuity based plans could work for you either if you are much older (in your 70's), or if you possibly own an annuity that you want to transfer on a tax-free basis through a 1035 exchange.

The hybrid long term care policies are much more popular today with consumers than the standalone LTC policies.

What Are State LTC Partnership Programs?

Most states have LTC Partnership programs to encourage consumers to buy long term care insurance. State Partnership programs allow you to disregard assets to meet state Medicaid spenddown requirements if you purchase a long term care policy that includes benefits that meet your state guidelines. Generally, inflation protection is required.

For the purposes of Medicaid spenddown, your state will allow you to shield assets in the amount equal to the insurance coverage that you have received from your policy prior to your Medicaid application.

Only traditional stand-alone LTC policies are eligible for State Partnership benefits.

With the rising popularity of hybrid LTC policies, many states are now exploring State LTC Partnership program revisions to include alternative types of long term care policies within their guidelines.

How Much Does Long Term Care Cost Today?

In short, the cost of long term care today is very expensive.

As I mentioned above, my father is currently in a nursing home.  His care costs $380.00 day, or $138,700 year.

My mother-in-law is in assisted living here in  my town of Alpharetta, GA.  She is in a very nice facility. Her care costs $8900 month, or $106,800 annually. We could have found an assisted living facility for a lower cost for her, if needed. Of the facilities we considered, the lowest monthly cost we found was $6500 month, however my mother-in-law planned very well and her long term care insurance policy covers the full cost of $8900 month for the facility we selected.

My stepmother has dementia and needs home care 24 hours a day. Home care is $26.00 an hour if you use an agency to provide care.  

For home care, you almost need to have family nearby that can be the primary caregiver. If you use an agency round-the-clock for 24 hours a day, your care will cost $20,000 month. This cost of care was the catalyst for our family to move my mother-in-law from Florida into assisted living nearby us.

When you consider long term care planning, I would recommend that you call a few assisted living facilities in your town to find out what the cost of care is for you locally. When you contact assisted living facilities, be sure not just to find out what the monthly room and board fee is, but also inquire as to the cost of care in addition to the monthly room and board. Many assisted long facilities will assess you individually upon entrance to determine how much care you will need and what the care will cost.

Which Insurance Companies Provide Long Term Care Insurance?

Long term care insurance is a very concentrated arena today. There are approximately only a dozen underwriters today that make available long term care insurance.

For traditional LTC insurance policies you have 6 primary insurance companies: Mutual of Omaha, Northwestern Mutual, New York Life, National Guardian Life, Bankers Life, and Thrivent Financial.

For hybrid long term care/life insurance policies your primary insurance companies are: Nationwide, OneAmerica, Lincoln, Securian, Brighthouse, New York Life, MassMutual and Northwestern Mutual.

For hybrid long term care annuities, your primary insurance companies are OneAmerica and Global Atlantic.

The majority of these companies are very strong financially, and are rated either A+ or A++ by AM Best.

What is the cost of long term care insurance?

The cost of your long term care insurance plan will depend upon many factors including:

Your age and health at the time of purchase - Premiums are lower for younger applicants, and some policies offer Preferred health discounts.

Your marital status - Married applicants receive discounts.  It is not necessary for each spouse to buy coverage to receive the marital discount.

Gender -Woman pay more for long term care insurance than men. Women are expected to live longer and require more care.

Your insurance company - companies will charge different premiums for the same amount of coverage.

The amount of coverage you buy - Stronger benefits cost more premium  The primary drivers of the pricing are the level of initial monthly benefit you buy, and whether your plan has inflation protection included. 

How To Find Your Best Long Term Care Insurance Policy

Long term care insurance is certainly a niche arena.  Most financial advisors are not well versed or highly experienced with the underwriting of long term care insurance policies. In fact, most financial advisors will bring in a wholesaler from an insurance company to delegate the responsibility of obtaining your application. If you really want to receive the best objective and unbiased advice and direction, you should contact an independent agent with (hopefully) decades of long term care underwriting experience.

There are no costs or fees to use the services of an experienced agent, such as myself.  I come for free.

The reason you do want to use an expert is twofold:

First of all, you want to ensure you are receiving proper advice in selecting the right policy for you with the proper level of coverage. Most agents only represent 1 company and although well intended, simply can not work in your best interest.

Secondly, and most importantly, you need to work together with the agent that will be successful in getting your application approved.

It is not uncommon for an insurance company to decline a long term care insurance application. You certainly need the most experienced agent in your corner should you have health issues that will need to be navigated successfully. I receive a lot of phone calls from consumers throughout the country that have been declined for coverage through an application with their financial advisor, who has given up. I often turn these declines around through calling my personal underwriters. Health pre-screening and appealing declined applications is an art-form that only comes through decades of experience. You should work with the most knowledgeable agent.

Get Long Term Care Insurance Quotes

I will be pleased to work together with you to help guide you through your best long term care policy options. To discuss your current needs and objectives, please call me direct toll free at (800) 891-5824. Or you may complete my online quote request form. I will be in touch shortly once I receive your request.

Thank you for visiting my blog.

Jack Lenenberg, J.D.