Long-Term Care Insurance Basics
What is "long-term care insurance", and how does it work?
Long-term care insurance is becoming one of the hot topics today in discussion. The baby boomers are starting to see their parents needing long-term care. In fact, some of the baby boomers themselves are needing long-term care. What a long-term care policy is, is a promise from an insurance company, a contract just like a life insurance contract, in which the insurance company, a life insurance company, says that should you be unable to take care of yourself as you get older and things happen, you have strokes, Alzheimers, severe dementia, or back disorders so severe you can't even get out of bed. One of the problems is that you have to hire people or you have to go into a facility where they can take care of you. The cost of this is astronomical. So a long-term care policy handles this need, it pays you a certain amount of money per month to take care of the costs, whether you are in a facility or whether you're at your own home and someone's hired to take care of you.
Do I need long-term care insurance?
Long-term care insurance should be considered by any person who sensibly recognizes that his or her health could possibly deteriorate over time, and that they might need somebody to take care of them if they become really unable. For example, if they develop Alzheimer's or have a severe stroke and need someone in their home 24/7 to take care of them. They know that they're going to have to have some way of paying for this expense. Now, people that are fabulously wealthy can write a check for this kind of cost, but in today's world it's anything from 6 to 7 thousand dollars a year, and it's obviously going to go up in the future. I have clients that are spending over $1, dollars in long-term care. If you think about somebody coming into your home, and you need 24-hour service, you might have 3 people working for you in a day's shift. Well, if you think about it, nobody works for less than 3 or 4 thousand dollars these days, so the cost is astronomical. The insurance companies have these lonng-term care insurance policies specifically designed to take care of the burden of this financial risk off your shoulders, and they pay for it themselves. The insurance company handles the rest.
When should I buy long-term care insurance?
How do I qualify for long-term care benefits?
When you open up a long-term care insurance policy, it specifies how and when they are going to pay you. To qualify for benefits with all long-term care policies for all companies in America, typically you have to be unable to do two activities of daily living. They sometimes call them ADL's, Activities of Daily Living, and the typical activity of daily living is bathing or being able to bath yourself, continence, dressing yourself, being able to eat by yourself, toileting yourself and transferring yourself in and out of bed. If you can't do two of those activities, then you qualify for long-term care benefits. Any two out of six activities of daily living, if you are unable to do those, the insurance company says that you are able to qualify now for benefits. If you have any type of severe cognitive impairment like Alzheimer's' or severe dementia, that alone triggers the benefits on a long-term care policy. You have to have proof of that you are unable to do these things and then you are eligible to make a claim.
How do I determine how much long-term care coverage I need?
Well, the first thing you ask have to ask yourself is, "how much is it going to cost today for long-term care?" The second question is, "How much is it going to cost in the future?" or "How much is it likely to be in the future?" We don't really know what it's going to cost in the future, but in today's world most articles that are written say that you need at least a hundred and fifty dollars a day; forty-five hundred dollars a month, of benefits for long-term care. When I see a client, I don't necessarily recommend that they buy a hundred and fifty dollars a day; I ask the person first of all, "Do you have any income-producing assets that if you needed long-term care, you could draw upon to pay for long-term care?" As people get older, they always say, "Well, I have my social security," but sometimes people say "I have money in the bank" or money in a stock portfolio or "I own apartment buildings." A lot of people say "I have nothing other than my house." Depending on how they answer the question I help guide them through the questions of how much they should have. I tell them that the typical amount, the minimum amount that I think a person should have is a hundred, to a hundred and fifty dollars a day benefit. Sometimes my prospective client will say, "Wow, I don't think that's enough. I think I need two hundred to two hundred and fifty dollars," because they personally know somebody in New York that might be spending nine or ten thousand dollars a month. So, if it's an emotional response like that, I will say, "Well, I'm not going to tell you not to buy two hundred dollars a month, but you should understand that if you have other income-producing assets you could use some of that to defer the costs."
How are policy sizes determined for long-term care insurance?
Most policies are a daily benefit policy or a monthly benefit policy. The daily benefit is what most companies use and ultimately, if you buy $150 a day benefit, you're going to get $4,500 a month. If you buy $200 a day benefit, you're going to get $6,000 a month. It's just for the purposes of making things simple to somebody because a lot of people think, "What do I need to hire somebody in my house per day?" Along with that, sometimes people think that "I may only need somebody two or three days a week," and they're usually talking about daily benefits.
What is the difference between "skilled care", "intermediate care" and "custodial care"?
What is an "RN" and an "LVN", and what is the difference between them?
An RN is a Registered Nurse. It is a highly trained person who goes to nursing school and they're able to give shots, to take your temperature, they're able to do a lot of pretty significant things. An LVN, a Licensed Vocational Nurse is not allowed to give you a shot typically, and they're knowledge base is a lot less and they get paid a lot less.
If I need long-term care, why can't a family member take care of me?
Well, a family member can take care of you, but would you really want a family member to take care of you? First of all, your family member may have a career and have children and have all kinds of responsibilities. You might have a single child that can take care of you but would you want to do that? One of my clients many years ago told me that the last person he would want doing personal hygiene on him would be a family member and it's completely understandable. There are some policies however that will allow you to use a family member and they'll still pay benefits even to that family member but the majority of policies issued do not allow you to use a family member.
Isn't long-term care covered under Medicare?
How does the cost-of-living rider work?
The cost of living rider is one of the most important parts of a long term care policy. When you buy a hundred dollar a day benefit, that means you are going to qualify for three thousand dollars a month benefit should you become ill and need long term care. The problem is that twenty years down the road if you don't have an inflation factor or inflation rider in your policy the policy will still be a hundred dollars a day benefit. Twenty years down the road a hundred dollars a day may only buy thirty or forty dollars a day of current benefits. So insurance companies in their infinite wisdom figured out that they can put an inflation protection device in the policy and the way almost every insurance company that sells long term care insurance handles this is that every year on the anniversary of the policy, lets say for example your policy is approved on April 1st, April 1st the following year your policy will automatically increase five percent compounded. At the end of ten years your hundred dollar a day benefit is one hundred sixty dollars a day and in twenty years it is almost two hundred fifty dollars a day benefit. The premium of your policy does not increase because you have an inflationary benefit. You pay a higher premium when you initially buy the policy, but once you have this inflation rider, the benefit continues to increase every year usually with no cap. That means that if you live thirty years that benefit could go to a very high number.
