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?

It's usually in your late forties, early fifties. But it could be any time; when you first have an experience with a relative, family member or a friend who has a long term care problem. Someone will tell you one day, for sure, "Oh my goodness, my father, or my mother or my brother is in a long term care facility, or in an assisted living facility and we're paying eight thousand a month. We thought we were going to inherit the house, but guess what? We had to sell the house to pay the costs of this long term care. My mother who is still in good health, she thought that all this money that they had saved over a lifetime was going to be there for her retirement as well. Now we're decimating the retirement and we maybe as the children are going to have to start taking care of our mom's expenses because the money is going to be dissipated overtime." It's an emotional purchase for the purchase of long term care insurance. The day that you realize someone is really burden with the cost of long term care is a day that you start thinking about it. Young people never think about it because they don't have very man friends who need long term care. As you get older, it starts becoming more prevalent and you start being nervous that you don't have that type of insurance. I would say that the average time for most of my clients buying long term insurance is about fifty-two, fifty-four, fifty-five. I do sell long term care insurance even to people in their seventies or eighties, but the cost is unbelievable. And also, people are not necessarily in good health and can't qualify for it. Several months ago I was at a client's house- the husband and wife both wanted long term care insurance. And I noticed that the husband didn't talk very much. The wife was very aphetic that they buy long term care insurance. I was amazed that this policy on the husband was not approved though, by the insurance company, and when I found out why- it was because the person had a very severe memory problem. And when he was interviewed by the people on the telephone, he couldn't remember anything. And I realized afterwards that the fact was that his wife was aware that sooner or later her husband was going to either be in a facility of some sort or she's going to have to hire around the clock nursing.

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 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"?

Skilled care, intermediate care, and custodial care are very important terms when we look at long term care insurance. Skilled care means that you are getting care by an RN. Certain types of conditions require an RN to take care of you. For example, let's say you have a significant case of diabetes or you have problems with your blood pressure needing to be monitored on a very regular basis. When you are at home or in a facility, you might need an RN to watch over you round the clock. In that case, the cost of that person is quite expensive. But some people don't have significant problems like that. They just are unable to get out of bed and they can't move too much, and they can use an LVN - a licensed vocational nurse, a lot less expensive professional and you can use that kind of a person if you have a long-term care policy. Or sometimes you can stay at home and you can hire just a person who is a custodial person, a person - a homemaking type of person that watches over you, is able lift you to the toilet, lift you to the bed, feed you. You don't really need a professional person like a nurse to do those types of things. So the policies say that you have a choice of using any of those types of people to take care of you if you ever suffer a long-term care illness.

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?

That is a big fallacy. A lot of people think Medicare covers long-term care. If you are hospitalized for three days or longer, Medicare will pay for approximately a hundred days of skilled nursing. But the problem is a lot of people or never in a hospital first and they started going downhill over her quickly and it need long-term care and also hundred days is not a very long time. The purpose of long-term care insurance is to cover a very long period. Some people are in need of care for twenty years. I have a travel agent who was sixty three years of age. When she was sixty two, her husband call me up and said “my wife has severe dementia”. Just a year prior than that, she was eligible for super preferred rate on life insurance so she may live a long time. But she has severe dementia. Now my client has a few million dollars that he saved over his lifetime and as retirement plan. If he had to payout a hundred thousand dollars a year for a long-term care for his wife, he would ultimately dissipate all of his savings and his lifestyle would be ruined so the purpose of long-term care is really long-term and not whether you need tariff for thirty days or hundred days. That is really if you are going to need care for a long period of time.

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.