When to Buy Long Term Care Insurance
Long Term Care Insurance: When You Need to Buy It
Long term care is a concern that we all need to address at some point in our lives. Long term care includes nursing home care, wound care, personal care, housekeeping and even socialization services. While it is obvious that almost everyone will need some form of long term care at some point in their lives, many people don't plan ahead for the costs that their long term care needs will incur. As a result, many people are caught off guard when these expenses start added up. One of the ways you can finance the cost of long term care is by buying long term care insurance.
What Is Long Term Care Insurance?
Long term care insurance is a special insurance product that is designed to fill in the coverage gaps that Medicare and major medical insurance have when it comes to long term care. Long term care insurance covers things like extended stays in a hospital, extended stays in a nursing homes, medical supplies and home health care. The cost of your long term care insurance is going to be based on the insurance company that you select, the age you are when you buy the insurance and the coverage options that you select.
When to Buy Long Term Care Insurance
There is no one right time to buy long term care insurance. However, the rule of thumb is to buy it before you need it. Unfortunately, it is difficult to gage when you are going to need long term care services. For example, some people don't need long term care until they are in their 80s or 90s while some people need it in their 20s. The best way to gage when you will most likely need long term care coverage is to look at your current lifestyle, your job, your current health and your genetic risk factors.
Saving Money on Long Term Care Insurance
As mentioned earlier, the cost of your long term care insurance policy is going to be based on a number of factors. However, one of the main factors is when you buy the insurance coverage. The younger you are when you purchase the insurance the lower your monthly premium is going to be. The drawback to buying long term care insurance when you are younger is that you can end up paying for the insurance decades before you actually need it. Therefore, you want to buy your ltc coverage as close to when you expect to need it as possible.
Long Term Care Insurance: How Do You Know if it's a Smart Decision to Buy?
If a senior has an extended stay in a nursing home, it can financially devastate them and suck up all of their assets. Living in a nursing home costs tens of thousands of dollars a year, and it's not getting any cheaper. Fortunately you can hedge against this cost by purchasing some quality long term care insurance and keep your inheritance in place for your children, and your children's children.
Long term care insurance does not make sense for everyone. If you're under the age of 50, there's no reason to get long term care insurance. People under the age of 50 are usually still in relatively good health and the likelihood of them needing to be in a nursing home is very unlikely. Even if your work is offering it at very inexpensive rates, just don't bother. It would be like buying hurricane insurance in rural South Dakota, you just don't need it.
Another case where long term care insurance doesn't make a lot of sense is if you're either extremely wealthy, or are as close to broke as one can be. If you have a lot of assets, say several million dollars, you'll easily be able to absorb the cost of a nursing home. If you're dirt broke, you don't really have any assets to protect and you'll qualify for a Medicaid or Medicare paid stay.
Purchasing long term care insurance makes great sense for their people in their late fifties and sixties. This is the age that you can buy it at where you'll get a great deal and start having any sort of real need for long term care insurance. If you wait until your 70's or even 80's, you'll have to pay much higher premiums for long term care insurance.
Make sure you go with a quality company. There are some less than stellar companies which make it very hard for you to get paid if you're in a situation where you need long term care. AM Best has rated the following companies with an A++ rating: John Hancock Life Insurance Co, MassMutual Financial Group, State Farm Life Insurance, USAA Life Insurance, Northwestern Mutual Life, and New York Life. Any of these companies would be great to go with for long term care insurance. You'll want to get a few different quotes to make sure that you're getting the best deal, but these are all quality companies in terms of the long term care products offered.
How to Shop for Long Term Care Insurance
One of the biggest challenges someone faces in their life is whether or not there will be a time when they will not be able to take care of themselves. We need help in the first few years of life and often for the last few years of life. As infants we had adults take care of us, but when we are adults (or adolescents) and need assistance who is there to help us and how do we pay for it?
Health insurance and Medicare only cover medically necessary care and only as long as you are getting better. For example if you have an accident or a change of health like a stroke and can't get out of bed yourself or walk, you would be treated until your condition stabilized and then you would be released. If you still couldn't do those things you would either have to go to a facility where the staff will take care of you or return home where your family would take care of you or hire help.
Health insurance, Medicare, and Medicaid do not provide much for home care, assisted living care, custodial care, they primarily cover nursing home care. Where do you want to receive care?
During the treatment and recovery process your health insurance and Medicare pay for about 100 days total or as long as you are improving and also you pay a deductible that starts after day 20. After health insurance and Medicare stop paying you either pay yourself or apply for Medicaid, unless you have long term care insurance. Medicaid is welfare health care and to qualify for Medicaid you may have to 'spend down' your savings to qualify.
Now you know the health care scenario. If you are considering long term care insurance you need to know how to buy it. First, choose a company with strong financial history (Genworth, etc). Next you need to choose a plan. Most companies offer similar plans for similar costs because their risk and costs will be similar (like a Nissan Maxima vs Toyota Camry cost the companies about the same to manufacture and sell).
Long term care insurance premiums are primarily based on 1) your age, 2) the daily or monthly benefit, and 3) how long the benefits pay for. Some other factors are health rating, elimination period (waiting period before benefits start), inflation protection, and survivorship.
If you are reasonably healthy you can pick your own plan benefits. You know your age and can find out what it cost in your area for care (http://guidetolongtermcare.com/whatcost.html), but what you don't know is how long you'll need to pay for care. Some tips for deciding on how long your coverage should be are: 1) your health over the last 10 years, 2) your family health history (Alzheimer's, longevity, cancer, heart disease), 3) statistics (average LTC insurance claim is 3 years, average time in nursing home: 875 days) and 4) the affordability of the LTCI premium. If you have Alzheimer's in your family you may need 4 years or more of care but if you have cancer in your family you may only need a year or two.
Some people insure for the total risk, depending on where they live they choose between a $4000-$10,000 a month benefit and for 2 years up to unlimited (lifetime), but most people insure somewhere in the middle. If care cost you $6,000 a month and you can afford $2,000 a month out of pocket you can get a policy for $4,000 per month benefit. Remember your LTC insurance benefits are tax free but where you get the out of pocket money may not be.
The national average cost for care is $72,000 and rising every year. For two years of care you'll spend $144,000. For a $144,000 insurance policy ($160/day 36-month) a 60 year old might pay with no discounts $3,000 for an annual premium. If they paid in for 15 years before they needed care and put in a claim they'd pay in $45,000. The average time in a nursing home is 29 months. At $6,000 per month they'd break even at 7.5 months of care. If they paid in for 20 years they'd break even in 10 months. So their insurance bought them 21.5 or 19 months of care more than if they paid themselves. (at $6,000 per month $129,000, $114,000). This example does not calculate benefit increases which would be at 5% compound $144,000 in 15 years increases to $289,000 an in 20 years to $368,000.
So you look at the factors and decide on a $5,000 per month benefit 36 month plan and find out that with company A it will cost $3,000 per year which includes compound inflation protection, no waiting period for home care (where most care first occurs), survivorship (if after X years a spouse dies surviving spouse gets a free policy). Company B has the same but with a 90 day home care waiting (elimination) period for $2,700 a year. Which one do you pick?
Consider that if care cost you $150 per day and you pay the first 90 days with company B, you'll pay $13,500 before they start paying. You would have to pay premiums for 22.5 years to end up paying the same as with company A ($13,500/$600=22.5). Maybe you're willing to take that risk for a lower premium, but what if you needed care next year because of an accident or health change and needed care for only a year before you recovered? You'd have paid the $13,500 in the first 90 days of care, the insurance would cover the remaining 9 months.
Discounts: Some companies have a 10-15% preferred health discount, this is determined during underwriting. Some companies offer a "couples discount" to any two people of the same generation that share expenses. Some companies have a multi-life discount for groups and small businesses -- if 3 people sign up within a 90 day period they get an additional 5% discount. Watch out or at least don't plan for discounts that are contingent on both partners being approved, etc.
When considering how much inflation protection you need you also need to consider your age, health and family health history . If you are under 70 you should consider compound inflation protection because it doubles your benefit in about 14.5 years. If you are over 70-75 then consider simple (equal) inflation protection, it has a lower premium since it's less likely you'll enjoy the 14.5 year doubling, and for ages over 75 consider equal or no inflation protection.
So you now may know enough to see if you pre-qualify and to get a quote. To be safe you can request a quote for a $200/day or $6,000/month 36 month plan, with inflation protection based on your age (above), zero elimination period for home care, 100% benefits for home and assisted living/residential care benefits. This "average" policy premium quote will give you an idea of whether or not you can afford long term care insurance or if you should make other plans. Some people plan on spending some of their own money, giving away the rest, including their assets and going on Medicaid. In most states Medicaid can look back 50 months to see if you've transferred any assets out of your name and Medicaid can take action if you have done so. Estate recovery is the process where Medicaid is reimbursed by your estate for the expenses you've incurred during your long term care while receiving Medicaid benefits.
Are you ready to get a long term care insurance premium quote? You can easily get a quote online and followup underwriting applications from the top insurers can also be obtained at these websites:
After you get a quote and you decide you can afford the insurance the next step is to see if you health qualify also called underwriting approval. This process is not done online because states require you sign a form to release your medical records in a way to protect your privacy (HIPPA). The underwriter needs the records so they can determine if you are insurable, and what health rate you qualify for. Don't worry there are plenty of privacy laws in place to protect your health information and you are not yet obligated to buying until you have been approved and receive the policy. In fact there is a 30-day free look from the time you receive the policy to keep it, change it, or cancel it. So in effect from the time you apply for underwriting you have a couple of months to "think about it." The caveat is that your health changes and you become either uninsurable or drop to a more costly health rate. To avoid this risk you should apply for underwriting approval a month before your health changes.
Changing your plan once you are insured: some companies have a window of time that they will allow you to increase your benefits without new underwriting, usually about 30 days. As a rule you can always decrease benefits to lower your premium.