Long-term Care Insurance
“How Long Term Care Insurance Works”
A Long Term Care Insurance (LTCI) policy will pay a benefit if you need assistance with 2 or more “Activities of Daily Living” (ADLs), defined as bathing, dressing, eating, toileting, transferring (moving from place to place) and continence, or if you are cognitively impaired with Alzheimer’s or Dementia. This type of “custodial” care is not covered by your health insurance or Medicare, which cover only “skilled” care – care which is designed to get you well. As with any potentially large financial loss (a fire in your home, for example), financial advisors recommend insurance to protect your retirement income from a significant, unplanned expense, to assist your family in providing care and from having to make the difficult decisions on which assets will need to be liquidated to pay for your care. To file a claim, your physician must certify that you will need this ADL assistance for at least 10 days or that you have Alzheimer’s or Dementia.
LTCI reimburses your expenses up to your daily benefit if you receive professional assistance in a Nursing Home, Assisted Living Facility or in your own home. You may choose an “Indemnity” option which pays the full daily benefit regardless of expenses. You also choose the initial daily benefit and the number of years you wish to receive the benefit, up to an “unlimited” benefit period.
Your benefit would begin following an Elimination or deductible period. This means you pay for your care during the deductible period, then the insurance benefit kicks in. LTC Insurance companies offer 0, 30, 90 and 180 day Elimination Periods. A-90-day elimination is most common since there is some possibility of Medicare or a Med Supp policy paying for LTC for a short period of time.
The current cost of care in an Assisted Living Facility in the South ranges from $100 to over $200/day, depending on where care is received and what is provided. This proposal includes a 5% (compound interest) annual benefit increase rider to keep the benefit up with the cost of care. At 5%, the benefit is guaranteed to grow to double in 15 years and quadruple in 30 years. 3%, 4%, and 6% options are available. LTC benefits are income tax free.
LTCI premiums are designed, but are not guaranteed, to remain level and are considered reasonable by State Regulators, based on today’s experience (interest rates, claims, and lapse experience). To raise premiums, insurance companies would have to petition each State’s Insurance Commissioner and be able to prove their current pricing is inadequate to pay future claims.
