Long-Term Care (LTC) insurance

Is a policy designed to cover the costs associated with long-term services and support.

These services are needed when an individual can no longer perform basic activities of daily living (ADLs) on their own due to a prolonged illness, disability, or cognitive impairment like Alzheimer's disease.

When To Apply

Now, tomorrow maybe too late. LTC insurance needs to be purchased when a person is sound and performing all ADL tasks. If clients are already having trouble with any ADL task, such as needing a cane to walk, they are ineligible as candidates for LTC insurance.

LTC Planning for Secured Healthcare Future

Good planning requires that when client is still able, the individual should estimate the amount of income they will need to live a comfortable lifestyle allowing them to do whatever they and their family or spouse want to do. Are they going to want an extravagant lifestyle? Or are they going to want a somewhat comfortable lifestyle that will allow them to have the community and social they have always wanted to have? We can help by assuring them that LTC insurance can help them realize the dreams they hold for the rest of their life.

Wealth Benefits

Financial Impact of LTC Depending on what you may read, you will find that there are a variety of areas that go into financial planning for an LTC policy. To understand this well, let’s look at how the purchase of LTC insurance affects the client's finances:

Wealth accumulation;

Wealth protection;

Wealth transfer; and

Wealth distribution.

Wealth Accumulation

First, LTC planning will affect wealth accumulation in two ways:

Positively If an individual buy a LTC policy, then needs long-term care, the money from the insurance company will pay the huge cost of care, thereby enable the individual to keep his wealth and where applicable, keep the excess money if payment method is "Per Diem". Thereby having money that can be allocated for savings and investment for more wealth accumulation.

Negatively The premium for the policy will impact the amount of money left from a cash-flow budget that can be allocated for savings and investment; and If an individual does not buy a policy, then needs long-term care, enough assets must exist to pay the costs. If there is not enough, then the costs must come from a person’s cash flow.

Wealth Protection

Wealth protection is affected when a policy is purchased, and then the individual needs long-term care either in a facility or in-home care provided by a professional. By having a policy that pays all or most of the costs of the care, the person does not have to access assets that have been accumulated for other purposes. For example, the average national cost of a semiprivate room in a nursing home is about $94,900.

The impact of such a high amount on an asset base could be detrimental. In addition, the $94,900 figure does not include other costs that are not part of the nursing home fee, such as medical expenses for doctors that are not part of the nursing home staff, medications, and physical therapy. Even items such as private telephones, furniture, and personal care expenses for the resident should be factored in.

Wealth Transfer and Distribution

Wealth transfer and wealth distribution are affected in the same ways. If an individual wants to have assets to transfer to a child or charity, by purchasing a policy to pay the costs associated with long-term care, the asset base is kept intact. If it is not used for other reasons, the asset can be passed by the arrangements in a will, trust, or by beneficiary designations.

The True Costs of Ignoring LTC Needs

It can be an incredibly costly error for a person to take the risk of not planning for long-term care coverage. These costs impact not only the amount of money that is lost for future use, but also the cost of the emotional energy that is expended during times of great stress.

Methods of Paying Benefits

How are benefits paid?

Per diem;

Indemnity; and

Bucket of money.

Methods of Paying Benefits: Per Diem

The per diem method means that if the insured chooses a daily benefit of $200, whenever the insured is in a nursing home, the company will pay $200 per day, even if the actual cost is less, say $175 per day. The excess money is given to the insured to use freely on anything and does not have to be spent on medical expenses.

Methods of Paying Benefits: Indemnity

The indemnity method means that if the insured chooses a daily benefit of $200 a day, and the actual cost is $175, the plan will pay the $175. The remaining $25 is forfeited.

Methods of Paying Benefits: Bucket of Money

The bucket of money method means that if the insured chooses a daily benefit of $200, the company then multiplies the $200 by 365 days in the year for a total of $72,400 per year. Then, the client chooses a number of years, such as six years: $72,000 x 6 = $435,600.

This amount is put into a “bucket” (or in escrow) to be used. Every time a claim is filed, the eligible amount is taken from the money in the “bucket” and the policy will pay all eligible claims until the “bucket” is empty, even if it takes several years longer to empty the “bucket.” Some companies offer “pooled benefits” with this method if the policy covers two people, and the total benefits would apply to both individuals covered by the policy.

For example, if a spouse has claims for $28,400 and then dies, that amount would have been taken from $435,600 leaving the remainder for the surviving spouse.

Restoration Benefit

Do you think it is ever possible to use the “bucket-of-money” concept and come close to using up all the money in the bucket? It certainly can happen, so some companies add a restoration benefit to the policy. With the restoration benefit, a person goes into a nursing home and stays for a prolonged period of time, then fully recovers, and goes home. After the insured has been home for a full year, the company will restore some percentage of the nursing home benefit to the bucket. For example, if the daily benefit is $200 a day and the restoration percentage is 100 times that rate, the company will restore $20,000 to the bucket.

The restored maximum will never be greater than the original policy maximum. As you can imagine, there may be other limitations on this provision that will be explained by the contract language.

Flex Fund Benefit Provisions

Flex fund benefit provisions allow policyholders to use their “bucket of money” to cover a variety of LTC expenses that are not otherwise covered under the policy while living at home. For example, the flex fund benefit might be used to reimburse home health care expenses that exceed the daily benefit amount.

Spousal Survivorship and Waiver Provisions

Spousal survivorship and waiver provisions waive the policyholder’s premium in the event that one spouse dies or goes on claim after a defined period. Conditions to waiver might include the need for both spouses to have policies in force for a certain period of time. All of these benefit options suggest that LTCI is more than an asset protection vehicle. Clients use LTC coverage not just to pay expenses, but to give themselves the freedom to choose care options (e.g., home care as long as possible, use of companion shopping aides, incorporating adult day care services into their routines, etc.).

Triggering the LTC

Claim Going on a claim for an LTC contract is a somewhat different process than going on a claim for medical expense insurance or disability income. In some ways it is a simpler process. The underwriting key for LTC is that at the time of application, the applicant was capable of performing all the daily life tasks in a good mental state. Now, time has passed, and difficulty with these tasks becomes apparent. Perhaps family members noticed forgetfulness, or perhaps the individual suffered a fall resulting in a broken bone that never adequately healed. A doctor’s certification is needed as soon as the individual has difficulty performing two of the ADLs.

There are three ways to trigger LTC benefits

Triggering the LTC Claim: Inability to Perform Two ADLs

The first is the inability to perform two or more of the ADLs listed on the policy. A doctor must certify that any two ADLs cannot be done and that the condition will last at least 90 days. The insured does not have to wait for 90 days before filing a claim, just that the doctor certifies the condition will last for at least 90 days.

Long-Term Care Claim

An LTC policy is triggered when a physician states that the insured has trouble performing two or more ADLs, and that inability is expected to last for a long time, such as 90 days or more. This process of underwriting and going on claim is a functional, not a state-of-health, assessment.

Activities of Daily Living – Listed on Policy You should check the policy to see how many of the activities of daily living (ADLs) are needed to qualify for payment as well as how many ADLs are listed in the policy. Remember there are six ADLs, but some policies list only five. The six are bathing, continence, dressing, eating, toileting and transferring. If bathing is not listed, that will make qualifying for a claim more difficult for the client to collect.

NOTE: In selecting a policy, buyers will want to note if the policy covers five or all six of the ADLs. Some policies eliminate bathing since it is the most common first difficulty.

Triggering the LTC Claim: Cognitive Impairment

The second way to begin collecting benefits is the certified diagnosis by a medical doctor that the insured has a cognitive impairment. Examples of cognitive impairments are:

If the person has a deficiency in their short-term memory;

If the person is not aware of the time, place, or person that should be known; and

If the ability for deductive or abstract reasoning is severely hampered, and the person’s judgment about matters of safety is diminished. Family testimony certainly begins this process, but physician certification is required to make it into a claim.

Triggering the LTC Claim: Alzheimer's disease

One other trigger that will commence an LTC claim is the onset of Alzheimer’s disease. Alzheimer's costs Americans billions of dollars in paid and informal care, and that number is growing. It's important to build a sound financial and legal plan. Alzheimer's disease is a brain condition that slowly damages the memory, thinking, learning and organizing skills. It's the most common cause of dementia. Alzheimer's disease is a progressive brain disorder, the most common cause of dementia, characterized by memory loss, impaired thinking, and difficulty with daily activities, resulting from brain cell death, often linked to abnormal protein buildup. It's not a normal part of aging, progresses slowly over years, and while there's no cure, treatments and lifestyle changes can help manage symptoms and potentially slow progression, with causes involving genetics, environment, and lifestyle.

No Prerequisite of Hospitalization or Skilled Care

A major issue is that there is no requirement for a hospitalization, or a skilled care period, to be used as a trigger. A person may have simply become old and frail, with no disease or accident causing the difficulty. The only criteria are a physician’s certification that a cognitive impairment has occurred or that the ADL difficulty now has an impact on at least two of the life daily functions, the six Activities of Daily Living (ADLs).

Inclusive Nature of LTC Claims In comparison to these limited policies, LTC insurance claims strictly result from an inability to perform the ADLs. An LTC policy has no restrictions on the etiology of the functional problem. Maybe Becky has trouble walking because diabetes forced an amputation of part of her foot, or maybe she has trouble because she insisted on cleaning her upper story windows and fell from a ladder. Maybe she has trouble walking simply from old age. In all of these cases, the cause is not important for triggering the LTC policy.

NOTE: Modern LTC policies are not allowed to require that a hospital stay or skilled care period must precede the claim. Difficulties are regardless of cause, and the functional or cognitive assessment is the only required trigger.

When To Apply

Now, tomorrow maybe too late. LTC insurance needs to be purchased when a person is sound and performing all ADL tasks. If clients are already having trouble with any ADL task, such as needing a cane to walk, they are ineligible as candidates for LTC insurance.

Guaranteed insurability rider (GIR): A form of inflation protection in a long-term care insurance policy where the insured has the right to increase benefits periodically to reflect increases in the cost of care. Increases can be elected without providing evidence of insurability as long as the insured is not receiving benefits at the time. Terms of the GIR vary from one company to another. Also called a future purchase option (FPO);

Inflation protection: A policy option that provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services. This is important since most long-term care polices will not begin to pay claims for many years in the future.