Long-Term Care Insurance

Elderly woman in wheelchair with nurse What is long-term care?

Long-term care is the kind of help you need if you are unable to care for yourself because of a prolonged illness or disability. It is provided by home care agencies, senior centers, adult day care centers, traditional nursing homes, and continuing care retirement communities. Family members often provide long-term care as well.
As you begin to plan for your long-term care needs, you will undoubtedly hear references to various types of care. It helps if you understand what these mean.
- Skilled nursing care is needed for medical conditions that require care by skilled medical personnel.
- Intermediate nursing care is needed for stable conditions that require daily, but not 24 hour nursing supervision.
- Custodial care helps a person perform activities of daily living.
Note: Long-term care services are often provided in a person’s home.

How much does long-term care cost?

Long-term care can be expensive, depending on the amount and type of care needed and on the setting in which it is provided. In 1991, the cost of 1 year in a nursing home averaged about $30,000. If you received skilled nursing care in your home and were visited by a nurse 3x per week for 2 hours per visit for the entire year, the bill would have come to about $12,300. If you received personal care in your home from a health aide 3x a week for 1 year, with each visit lasting about 2 hours, the bill
would have amounted to about $8,400.

Who pays for long-term care?

Nationally, more than half of all nursing home expenses are paid out-of-pocket by individuals and their families, and somewhat less than half are paid by state Medicaid programs. Neither Medicare, Medicare supplement insurance, nor the health insurance provided by your employer will pay for most long-term care expenses.
- Medicare will cover the cost of some skilled nursing care in approved nursing homes or in your home. It doesn't cover custodial or intermediate care or prolonged home health care.
- Medicare supplement insurance is private insurance designed to help pay for some of the gaps in Medicare coverage.
These policies do not cover long-term care expenses. Medicaid pays for nearly half of all nursing home care. To receive Medicaid assistance, you must meet federal poverty guidelines for income and assets and may have to “spend down” or use up most of your assets on health care.

Should you buy long-term care insurance?

Not everyone should buy a long-term care insurance policy. For some, long-term care is an affordable and attractive form of insurance. For others, the cost is too great and the benefits they can afford are insufficient. Buying a long-term care policy should not cause a financial hardship and make you forego other more pressing financial needs. Each person should carefully examine his or her needs and resources to decide whether long-term care is appropriate. It’s also a good idea to discuss such a purchase with your family.
It is difficult to predict who will need long-term care, but there are studies that help shed some light on the likelihood of needing such care. For example, one national study projects that 43% of those who turned age 65 in 1990 will enter a nursing home at some time during their life. Among all persons who live to age 65, about 1 in 3 will spend three months or more in a nursing home; but only about 1 in 11 will spend five years or more in a nursing home.
The risk of needing nursing home care is greater for women than men; 13% of the women in this study, compared to 4% of the men, are projected to spend five or more years in a nursing home. Risk of needing nursing home care also increases with age.

What kind of policies can you buy?

Today, there are no standardized long-term care policies as there are for Medicare supplement insurance. Many companies provide policies with many combinations of benefits and coverage. Most policies available today pay a fixed dollar amount each day you receive care. Unless these policies provide a way for benefits to increase as nursing home costs rise, you may be left with a benefit that is too low when the time comes to use the policy.
You can also buy long-term care benefits as part of a life insurance policy. Under this arrangement, a certain percentage of the policy’s death benefit is paid when the policyholder requires long-term care.

How policies work:

What's covered?
- If you buy a long-term care policy, you'll want to make sure you have coverage for a variety of services. Some policies cover only stays in nursing homes. Others cover only care in your home. Still others cover both nursing home and home care. In addition, some policies also cover services provided in adult day care centers or other community facilities.
Where is service covered?
- With a long-term care policy, it is not enough to know what services are covered. You also need to know where services are covered. If you are not in the right type of facility, the insurance company can refuse to pay.
What's not covered?
- Generally insurance companies do not pay benefits if services are needed for:
  1. mental and nervous disorders or disease, other than Alzheimer’s,
  2. alcoholism and drug addition,
  3. illnesses caused by an act of war,
  4. treatment already paid for by government,
  5. attempted suicide or intentionally self-inflicted injuries.
- Note: Insurance carriers cannot exclude coverage for Alzheimer’s disease in states that have adopted the National Association of Insurance Commissioners’ long-term care insurance model law.
How much coverage will you have?
- Insurance companies offer policyholders a choice of daily benefits, usually $100 to $1,000 a day for care in nursing homes. It is important that you know how much nursing facilities in your area charge before you select a benefit amount for your policy.
When do benefits begin?
- With most policies, your benefits won’t begin the first day you enter a nursing home or begin using home care. The policies come with an elimination period (sometimes called a deductible or a waiting period). That means benefits begin 20, 30, 60, 90, or even 120 days after you go to a nursing home.
What happens when nursing home costs rise?
- Inflation protection can be one of the most important additions you can make to a long-term care policy, but protection you may hesitate to purchase since it adds to a policy’s cost.
What are some of the optional provisions of long-term care policies?
1. Waiver of premium: This provision allows you to stop paying premiums once you are receiving care at and the insurance company has started to pay benefits.
2. Nonforfeiture benefits: These return to policy holders some of the premium that has been paid into the policy if coverage is dropped. Without this benefit, a loss could be substantial if a policy is dropped say 10 or 20 years later without ever using any of the policy’s coverage.
3. Death benefits: These refund to your estate any premiums you paid minus any benefits the company paid on your behalf. To receive these benefits, you must have paid premiums for a certain number of years.
Eligibility for benefits once you own a policy:
- All policies have “gatekeepers” — restrictions that determine whether you are eligible for benefits. Just because you have a policy doesn't mean that you will actually receive benefits. In your policy, you'll find these discussed in a section called “eligibility for benefits”, or “benefit conditions”. Gatekeepers are an important feature of a long-term care policy and one you should pay careful attention to as you shop.
Note: Gatekeepers that a company uses for home care coverage may be different from those it uses for nursing home care.

Are you eligible to buy a policy?

Companies selling long-term care insurance “underwrite” their coverage. That means they look at your health before they will issue a policy. Some companies do what is known as “short-form” underwriting. On the application for coverage, they will ask you to answer a few questions about your health; for example, they may want to know if you have been hospitalized in the last 12 months or are confined to a wheel chair. If you answer “no” to all of the questions, most likely the company’s agent will issue
coverage on the spot.

Can you renew your coverage?

Almost all policies currently sold are guaranteed renewable. Than means you will always be able to continue your coverage even if your health worsens after you buy.

What do policies cost?

A long-term care policy can be expensive, and you will need to be sure you can pay the premium for it as well as premiums for your Medicare and Medicare supplement coverage. The annual premium for long-term care policies with good inflation protection can run into the thousands of dollars for someone aged 65.

Note: Beware of the word “level”. Some agents might tell you that your premium is “level” and imply that it will never rise. The National Association of Insurance Commissioners has written a model law that now prohibits insurance companies from using the word “level” in connection with a sale of guaranteed renewable policies. New rules require companies to tell prospective customers that the premiums on their policies may go up. Look for that warning when you shop.

All of the information presented here has been taken directly from the NAIC document noted above. Kensington Financial is in no way responsible for this information or any action or lack thereof which you may take based on this Fact Sheet.
Before purchasing ANY insurance policy you must consult with a qualified financial professional and ensure that you have a complete understanding of all options, coverages, and riders you may be purchasing.
Taxes/Legal - This material should not be considered tax advice or legal advice. You should consult your Tax and Legal Counsel for advice and information concerning your particular situation. You should consult your Qualified Investment Advisor at Kensington Financial Services, before making any investment or insurance decisions.
Sources - All information presented in this publication has been gathered from sources which we believe to be reliable. However, no guarantee is given or should be implied as to the accuracy of the facts and figures presented herein.