Long Term Care Insurance

Long-Term Care Insurance

Long-Term Care Insurance

Addressing the potential risks of long-term care (LTC) or "extended care"  expenses may be one of the biggest financial challenges for individuals who are developing a retirement strategy. Extended care is not a single activity. It refers to a variety of medical and non–medical services needed by those who have a chronic illness or disability – most commonly associated with aging.

Extended-care coverage can be complex. It is important to have good understanding of the topic and a list of questions to ask that may help you better understand the costs and benefits of these policies.

Traditional LTC vs. Hybrid LTC vs. Annuities with LTC Benefits

When considering long-term care insurance, it is important to understand the different options available to you. Below, you will find a more detailed review of the three strategies.

Traditional LTC

Traditional long-term care insurance provides benefits if you experience a long-term care event and require at home care or care in a facility. You typically pay an annual/monthly premium for life for these policies. These policies can be customized with options such as automatic compound benefits growth to protect against inflation, choice of elimination period, length of benefit period, etc.



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Hybrid LTC

Hybrid long-term care insurance policies offer life insurance and long-term care insurance bundled into a single product by attaching a long-term care rider to a life insurance policy. Premiums may be fixed for life or funded over a period according to how you design the policy. The long-term care coverage details can be customized the way traditional LTC policies can.

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Annuities with LTC Benefits

Variable, fixed, and indexed annuities can come with riders that increase your monthly annuity payments should you need long-term care. These annuities are purchased with lump-sum deposits so they do not have ongoing premium payments. Long-term care benefit payments are based on the amount of deposit, the type of annuity contract and it's features, and how the long-term care rider is designed.

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Traditional Long-Term Care

Traditional Long-Term Care insurance (stand-alone) is coverage that provides nursing-home care, home-health care, and personal or adult daycare for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. LTC insurance offers more flexibility and options than many public assistance programs, such as Medicaid.

Long-term care insurance usually covers all or part of assisted living facilities and in-home care. Medicaid rarely does. Full home care coverage is an option with long-term care insurance. It will cover expenses for a visiting or live-in caregiver, companion, housekeeper, therapist or private-duty nurse up to seven days a week, 24 hours per day, up to the policy benefit maximum.

You typically pay an annual/monthly premium for life for these policies. These policies can be customized with options such as daily benefit amount, automatic compound benefits growth to protect against inflation, choice of elimination period, and  length of benefit period.


Hybrid Long-Term Care

Hybrid Long-Term Care insurance policies offer two types of insurance bundled into a single product. Premiums may be fixed for life and not subject to increase, as stand-alone policy premiums can be.  Premiums can also be designed to be paid over set period of time, then no more premium is due. Medical underwriting may be less rigorous than it is for a stand-alone long-term care policy. These policies, when a continuation-of-benefits rider is available to add, can also be good for people who are looking for lifetime or unlimited long-term care benefits.

With these types of policies, the amounts spent on long-term care are subtracted from the life insurance policy’s death benefit. At mortality, the remaining death benefit amount goes tax free to the policyholder’s beneficiaries, which can help with estate planning and with reducing death taxes. 


Annuities with Long-Term Care Benefits

Certain annuities can come with contracts that enhance the annuities payments if you need long-term care. Normally, the annuity pays a monthly benefit amount, but if you ever need long-term care and have a long-term care rider on your annuity contract, then the contract will pay out a higher monthly benefit based on the long-term care rider specifications. As with any type of insurance, you are leveraging a relatively small sum to buy the possibility of a much larger benefit should you need it.

Furthermore, any long-term care benefits you receive from the annuity will be tax free. The annuities are purchased with a lump-sum deposit, so they don’t have an annual ongoing premium. Annuities with long-term care riders usually have simpler underwriting requirements than traditional stand-alone long-term care or life insurance policies.

What to Look For in a Long-Term Care Policy

Extended-care coverage can be complex. It is important to have a list of questions to ask that may help you better understand the costs and benefits of these policies.

 

Long-Term Care Insurance - Frequently Asked Questions

  • What is covered by long-term care insurance?
    A long-term care insurance policy provides money to pay for such expenses as at-home care, nursing home care, and assisted living services if you're no longer able to live independently on your own.
  • What is the biggest drawback of long-term care insurance
    Long-term care insurance is expensive: The most obvious drawback of purchasing a long-term care insurance policy is the cost because they are expensive and not everyone can afford them.
  • How is long-term care insurance different from tradtional health insurance or Medicare?

    Unlike traditional health insurance, long-term care insurance is designed to cover long-term services and supports, including personal and custodial care in a variety of settings such as your home, a community organization, or other facility.

  • How much does a long-term care policy cost?

    The cost of your long-term care policy is based on: Your health rating as determined through medical underwriting How old you are when you buy the policy. The maximum amount that a policy will pay per day. The maximum number of days (years) that a policy will pay. The maximum amount per day times the number of days determines the lifetime maximum amount that the policy will pay. Any optional benefits you choose, such as benefits that increase with inflation.

  • When should I buy long-term care insurance?

    Although people put off purchasing long-term care insurance policies due to the potentially high cost of premiums, we suggest looking into the coverage when you're in your early fifties. For couples looking for coverage, the sweet spot is around 55 years old. Beginning to shop at this time increases the odds of buying before your health declines and your premiums rise. The younger and healthier you are, the more likely you are to get the lowest rates.

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