Long Term Care Insurance – JDInsuranceServices

Studies show there is a greater than 78% chance a spouse over age 65 will need some type of long-term care.

Long term care (LTC) is a relatively young type of insurance concept, really only entering the marketplace in North America and Great Britain in the late 80’s and gaining further acceptance during the 90’s. The fact that studies tell us there is greater than a 78% chance that at least one spouse over the age of 65 will need some sort of care (such as assisted living, nursing home care, home health care, memory care, hospice) during their senior lifetime makes at least the consideration of insuring against this risk an absolute necessity.

Although it can come in different forms, long term care insurance is a monthly (or daily) benefit that helps the insured pay for living and medical care expenses. Generally speaking, the insured must “qualify” for the benefits which is usually triggered when the insured needs assistance doing at least 2 of 6 activities of daily living (ADLs).

Activities of daily living are routine activities that people tend do every day without needing assistance. There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence. A person’s ability to perform ADLs is important for determining what type of long-term care is needed (such as nursing-home care or in-home care) and what type of health coverage is needed (such as Medicare, Medicaid or long-term care insurance).

Like most types of insurance products, LTC policies are not “one size fits all”. There are a few different kinds of LTC policies, each type with its own unique policy features, optional benefits and pricing components. Your chosen LTC advisor should be presenting you all four of these flavors, then after learning your specific goals he or she should be able to guide you with the best way to purchase your LTC benefits.

Learn about the different kinds of long term care policies below.

Stand-Alone Policies

SLTC Rider Added Onto a Cash Value Life Policy

Stand-alone, comprehensive coverage policies have historically represented the bulk of policies sold. These plans strive to cover all long-term care services and are usually purchased with monthly, quarterly, semiannual or annual premiums which are paid for the life of the insured. Abbreviated payment options are also available with policies fully paid up after 20 years, 10 years or 1 year of payments. Comprehensive stand-alone policies are very much like the typical modern group or individual health insurance policy. They try to cover as many different care alternatives as possible.

Here the insured adds a LTC Rider. (A rider is a specific option the insured can add to provide additional policy benefits during a policy claim.) Under this arrangement, the policy represents two separate coverages. One coverage is a traditional life insurance death benefit, and the other coverage is the LTC benefits provided under the LTC rider. The premium is split up to pay for both coverages.

This LTC rider should not be confused with the "accelerated death benefit" which is a popular feature of many modern life policies. Accelerated death pays part of the death benefit for terminal illness or doctor-certified, terminal, long-term care confinement while the insured is alive. Since very little long-term care could be certified as terminal, the accelerated death benefit feature is a poor substitute for "real" long-term care insurance.

So under this product style, the LTC insurance is as an "either/or" feature in life insurance. When the insured dies, a death benefit results. If the insured needs long-term care before death, stipulated benefits are paid instead of life insurance. If all benefits are paid before death, the policy expires. Any benefits not used result in a reduced pay-out at death. These policies can be purchased with periodic premiums for the life of the insured or with a single one time premium. These policies offer the advantage that the insured is guaranteed a benefit, since everyone eventually dies. A disadvantage is you may not need the life insurance, but because the policy needs to cover the mortality risk of death as well as the morbidity risk, premiums are higher than an equivalent stand-alone LTC policy.

Integrate Into a Single Premium Deferred Annuity

Part of the earnings on this annuity pay for the morbidity risk of the LTC insurance. Thus, an annuity that would normally yield 6% might only yield 4.9% when combined with LTC insurance due to the cost of the LTC. One advantage of this arrangement is that LTC premiums are paid with tax-deferred earnings, but since they are expensed inside the policy, premiums become tax free. In fact, the annuity sum will continue to grow larger even with the expense of the LTC attached to the account. A disadvantage is that removing money can reduce LTC coverage with some contracts.

Combine with a Disability Income Policy

Prior to age 65, this kind of policy can only be used for disability income. Premiums paid after age 65 provide long-term care coverage. Premiums for such a policy will be higher than a stand-alone disability policy since long-term care coverage requires a portion of every premium be set aside as reserve for future claims. Usually under this arrangement, upon age 65, the disability policy is "converted" from its income-protection purpose to a LTC policy to be there to help pay for the necessary LTC benefits.

Buy as a Combination Product

These contracts are typically lump sum premium policies that are very interesting. As an example, one might place $100,000 in the policy at the onset of the contract with no further premiums ever needed. If you need the $100,000 at any time, you simply call the carrier and ask for a redemption. You will typically have it within seven business days. If, however, you end up needing LTC benefits, then you would receive approximately $7,500 per month for the next 36 months ($270,000 of benefit). Or, if you passed away the contract would pay out $200,000 of benefit. This is a great way to put “safety money” away since you can always get 100% of it back, guaranteed.