Long-Term Care Insurance - What Type of Policy is Right For You?

This summer, I helped two separate families who experienced life changing medical diagnoses and now require long-term care services.  Many of you know that Linnea and I were caregivers for her father for five years following his stroke.  Given our experience with the physical, mental, and emotional toll caregiving can have on a family, long-term care discussions have always been an important piece of the work I do.

For many clients, long-term care insurance can play an important role in these discussions.  A policy that is structured properly can help ensure the family is able to pay for care.  In addition, by making funds available, the family can focus on spending quality time with their loved one rather than the heavy lift of day to day caregiving activities.  This month’s article will provide the answers to frequently asked questions about long-term care insurance.

What is the purpose of long-term care insurance?

Long-term care insurance is purchased by an individual to cover expenses such as at-home care, assisted living care, and nursing home care.  These expenses are not covered by Medicare or medical insurance, so they present a significant financial risk.

How much does long-term care cost?

According to a 2019 survey completed by Genworth, the average cost of care in the Chicagoland area is:

$19,141 per year for adult day care services

$56,880 per year for assisted living facility services

$57,200 per year for homemaker and home aide services (Home Health Care)

$98,550 per year for semi-private room nursing home services

$111,325 per year for private room nursing home services

Please visit https://www.genworth.com/aging-and-you/finances/cost-of-care.html to determine the average cost of care in your area.

What types of long-term care insurance policies are available?

There are three main types of long-term care policies:

1. Traditional stand-alone policy

2. Hybrid policy

3. Life insurance or annuity policy with long-term care rider

What are the advantages and disadvantages of each policy?

• Traditional stand-alone policy

  A traditional policy offers the most robust long-term care benefits.  Like most insurance, the policy owner pays a premium on a set schedule (monthly, quarterly, semi-annually, or annually) until they go on claim. Once a policy holder goes on claim, long-term care benefits are paid and continue until all benefits are depleted or until the policy holder dies.  When the policy holder dies, there is no death benefit paid out to the beneficiaries so any long-term care benefits that were remaining are lost.

• Hybrid policy

  A hybrid long-term care policy is a life insurance policy with long-term care benefits. It is designed to minimize the death benefit and maximize the long-term care benefits. The hybrid policy ensures an individual will use the policy one way or the other.  If an individual requires care, then they will receive long-term care benefits.  If the individual dies prior to needing long-term care, the beneficiaries will receive a death benefit. The death benefit tends to be equal to or slightly larger than the premiums paid.  In addition, this type of policy will often offer a refund of the premium after five years. This allows a policy holder to close the policy and receive their premium dollars back if they no longer need or want the policy in the future.

  One of the key differences between a hybrid policy vs. a traditional policy is the way premiums are paid.  Hybrid policies require a significant lump sum to be paid when the policy is issued, and then no additional premiums are paid on the policy.  There are hybrid policies that allow the lump sum premium to be paid over the first five to ten years of the policy but this means an individual would need access to cash besides what is held in non-retirement accounts.

  Another key difference between a hybrid policy vs. a traditional policy is found in the long-term care benefits that are offered.  A hybrid policy typically provides less long-term care benefits than a traditional policy.

• Life insurance or annuity policy with long-term care rider

  A life insurance or annuity policy with long-term care rider is designed to maximize life insurance or annuity benefits while providing a small benefit for long-term care services.  The key difference between these policies and a hybrid policy is the hybrid policy seeks to maximize the long-term care benefit whereas, this type of policy is seeking to maximize the life insurance or annuity benefits.  The payment of premiums will depend on the type of life insurance or annuity selected.

Once I have an active policy, when am I eligible to submit a claim to the insurance company for long-term care benefits?

A policy holder can submit a claim with the insurance company once they need help with at least 2 out of 6 activities of daily living (ADL’s).  The six activities of daily living are as follows:

1. Bathing

2. Dressing

3. Eating

4. Transferring (Getting up out of a bed or chair)

5. Toileting

6. Continence

Will I be approved for long-term care if I already have pre-existing medical conditions?

As you would expect, this will depend on pre-existing medical conditions.  The insurance companies have become firm with their underwriting standards, so it is not uncommon for an applicant to be denied coverage.  Long-term care underwriters are looking for medical conditions which make an individual more susceptible to needing care in the future.  A few common conditions include:

1. Arthritis or joint issues

2. Depression or anxiety

3. Alzheimer’s, Dementia, or signs of memory loss

4. Stroke

5. Kidney Failure/Dialysis

When applying for long-term care insurance, a medical history is sent to the underwriter for a preliminary evaluation.  The preliminary evaluation ensures the quoted premium is as accurate as possible and that the proper insurance company is selected based on an individual’s pre-existing conditions.  Each insurance company has slightly different underwriting standards.  There have been several instances where a specific medical condition results in a declined application, but another company is willing to approve the application.

How do I determine if long-term care insurance is right for me?

Long-term care insurance can be an important piece of a financial plan and it is important to work alongside a financial planner who understands the policies available.  If you want to discuss long-term care insurance, please use my scheduling link to book an appointment.