Long-Term Care – Part IV (Long-Term Care Insurance cont’d)

The Greatest Financial Risk for Seniors: Paying for

Long-Term Care – Part IV (Long-Term Care Insurance cont’d)

This article continues our discussion of another way of paying for long-term care: Long-Term Care Insurance.

If I decide to purchase long-term care insurance, how do I find the right policy to buy? There is no standardization of long-term care insurance policies. As a result, comparing policies can be quite complicated because of the large number of options that exist. Buyers need the assistance of a good insurance agent or financial planner, preferably one who represents a number of different insurance companies. This is particularly important as the type of policies available is constantly changing, and new hybrid policies (combining long-term care insurance with life insurance) are now available.

What is the risk you want to insure against? The answer to this depends upon what level of financial risk are you willing to accept. For example, do you want to minimize the risk of paying anything for long-term care? Are you willing to have your income used to pay for such care, but not any of your savings? Are you willing to have a portion of your life savings used to pay for long-term care, as long as part is protected? Obviously the more protection you want the more you will pay.

What things should I look for in a long-term care insurance policy? Some of the basic provisions you need to consider with the purchase of any long-term care insurance policy are the following:

• Benefits payable: How much will the policy pay? Currently (2017 numbers), the average daily cost of nursing home care in Pennsylvania is about $322, and obviously this cost will go up as time goes on. The amount you will actually have to pay will be the difference between the future long-term care costs and your future income (Social Security, retirement benefits, investment income, long-term care insurance, etc.).
• Inflation coverage: The current cost may be $322 per day, but what will it be ten or twenty years from now, when you are most likely to need the coverage? The younger you are when buying the insurance, the more important it is to include an inflation rider to adjust the benefit payable to meet the likely future cost. Most insurers offer either a 5% simple or 5% compound inflation rider. (“Simple” means the benefit payable is increased each year by 5% of the original benefit amount. “Compound” means the benefit is increased each year by 5% of the prior year’s benefit and so provides a better check against long-term care costs, which grow at a faster rate than overall inflation.)
• Benefit Period: Once benefits are payable, how long will the policy pay? Policies can cover two, three, five years, or for the entire life of the applicant. Obviously, the longer the benefit period, the more the insurance will cost. (With the current “look-back period”, any gifts made more than 61 months prior to the date a Medicaid application is filed do not need to be disclosed and therefore create no period of ineligibility. This means that for the great majority of our Medicaid planning clients a five-year insurance term would be more than enough coverage for them.)
• Elimination period: This is the “deductible” for long-term care policies, defining how long you will have to wait after you are receiving long-term care before the policy will pay: 60 days? 100 days? 180 days? The shorter the elimination period, the less you will have to pay out of pocket, but the more expensive the policy. However, if you ever need to use your long-term care insurance, it will be at the front end, and so a shorter elimination period increases your likelihood of receiving benefits.

If you later need to cut back on the policy benefits in order to control the cost if the premiums are later increased, the last thing you would want to consider is increasing the elimination period.

• Range of coverage: In addition to paying for nursing home care, will the policy pay for assisted living or home health services? If only nursing home care is covered, an elder may face a strong financial incentive to move from her home to a nursing facility even though, with some assistance, she could have managed to stay at home or have afforded the increased cost of assisted living.
• Home Care Coverage: Since my clients over the years have all stated a preference for living out their lives at home, adequate home health care coverage would seem to be particularly important in a long-term care insurance policy. However, this feature can add 40% to 60% to the cost of the insurance. Very few of the people who even have long-term care insurance policies at all will have ones that will pay for round-the-clock care. Thus, as a practical matter the home-care option may only be beneficial for people who have a limited need for assistance or who have family or friends available to provide free assistance for at-home care. (For those people, it is important to know whether the policy they are considering will pay family members or friends to provide care, or only licensed professionals.)
• Benefit Trigger: This feature concerns what physical or medical condition is required before benefits will be paid. Typically, this is defined in the policy as requiring assistance with two or three of a list of various “activities of daily living,” such as eating, bathing, dressing, toileting, or transferring.

• Waiver of premium: Once benefits are payable, is it still necessary to pay the premium, or will that be waived? Many, but not all, policies contain a “waiver of premium” clause.
• Non-forfeiture Benefit: This provision will allow you to get back some portion of the money you have paid into the policy if, for whatever reason, you drop your coverage. Without it, you get back nothing, even if you’ve paid premiums for 10 or 20 years before dropping the policy.
• The Insurer: Is the company financially sound so as likely to be in business twenty or thirty years in the future when benefits may need to be paid? (Note: Comparing different financial rating systems can be misleading. An “A+” rating sounds like the highest possible, but by some rating standards it may be third in line, after “A+++” and “A++”.)

How much will a long-term care insurance policy cost? Obviously one of the most important questions for anyone considering buying long-term care insurance is the cost. Unfortunately, there is no simple answer.

• Costs can vary significantly from one company to another for virtually identical coverage.
• Costs will vary widely depending upon most of the variables discussed above, such as benefits payable, range of coverage, benefit period. For example, an inflation protection rider can increase your premium by 50% to 100%.

If you later need to cut back on the policy benefits in order to control the cost, dropping the inflation rider would mean a significant savings while at locking in the increased daily benefit that this feature provided.

• The initial cost will be higher the older you are at the time you purchase the policy, as you are more likely to need long-term care than when you were younger, and more likely to need it sooner. For example, the premium for a particular policy at age 75 can be more than twice what it would have been for the same person at age 65.
  • Of course, by waiting to purchase the insurance you will be paying premiums for a shorter period of time, but not only will your premiums be higher because of your increased age, you also run the risk of not being insurable at all. (Unlike public health insurance under the current Affordable Care Act, you can be denied coverage for long-term care insurance based on pre-existing conditions.)

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The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney.

Note: Contrary to what almost everyone believes, if you or a family member has been admitted to a nursing home, it is NOT too late to protect assets. The Medicaid laws give seniors the option to protect a significant portion of their life savings, even when facing an immediate crisis, with no advance planning. However, “time works against you” when planning for long-term care; every day of delay in a crisis can result in $200 to $300 or more of irretrievable loss, so it is important that families who have a spouse, parent or other loved one needing long-term nursing care contact a knowledgeable and experienced elder law attorney for advice as soon as possible.

Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.