Lawyers Journal

The family long-term care insurance decision

  1. Despite the recent economic downturn, more and more people of all ages are buying long-term care insurance policies. You too may be wondering if long-term care insurance is the smartest decision for you and your family. Below are some of the key factors in making the long-term care insurance decision.

    Public interest in long-term care insurance is quietly and steadily growing. In fact, more than four million people held individual long-term care insurance policies at the end of December 2005.1

    The recent interest in long-term care insurance is likely due to four factors:

    - The evolution of these insurance products;

  2. - The ability to 'age in place' with care at home;
  4. - Limited alternatives for financing; and
  6. - Growing consumer awareness of the benefits of long-term care insurance.

    Product evolution

    Long-term care (LTC) insurance policies have evolved over time to be far more flexible than they were in the early days, when they were known as nursing home policies. Today, our policies allow the insured to receive care in the setting of their choice, whether this is at home, in an assisted living facility, adult day care center or nursing home.

    HIPAA regulations established by the Federal Government for Tax Qualified long-term care insurance require benefits be paid when a person can no long perform two out of six "activities of daily living" (such as bathing, dressing, toileting or eating), or when they need substantial assistance due to a cognitive impairment.

    Age in place with care at home

    New benefits have come on the scene, such as additional cash allowances on top of basic coverage, which pays for extras like home modifications and home safety checks. Benefits like this make it easier for people to receive assistance at home.

    Limited alternatives

    Almost every day we read that the public safety net is slowing disappearing and the Social Security system may be in jeopardy 20 years from now. Even today, publicly available options for managing long-term care expenses are severely limited.

    For example, Medicare typically covers only certain types of care for a limited period of time, leaving many long-term care costs uncovered. Medicaid also is an imperfect solution because it requires people to spend down their assets to state-required levels to qualify. In addition, Medicaid primarily pays for care received in a nursing facility, not at home. Perhaps this explains why even the government recently decided to offer federal employees the option to buy long-term care insurance through the special Federal Long Term Care Insurance Program.

    Consumer awareness

    In part, LTC insurance sales have been driven by a growing consumer awareness of the benefits of long-term care insurance coverage. With more than 25 million adult caregivers in the U.S today, many people are experiencing long-term care within their own families.2 Some have witnessed the positive effects of long-term care insurance, which may have allowed their loved ones to remain in their own homes by paying for in-home care. But many families without long-term care insurance coverage in place have seen the opposite effect: that is, limited choices and the impact of the high costs of long-term care on their family's financial foundation and security.

    What advisors recommend

    For the majority of the population who cannot afford to significantly self-insure this risk, financial planners are now recommending LTC insurance as a core element of a family's financial plan.

    The advantages of planning ahead and purchasing the insurance at younger ages (under age 60) include:

    - The younger you buy, the less expensive the premiums.

    - Younger buyers are more likely to be in healthy condition to qualify for coverage.

    - If long-term care is needed at an earlier age, the family's finances will be protected as the policy will help to covers the costs of care.

    - The coverage can pay for caregivers to come into the home, where most people prefer to receive care.

    This may explain why the average age of a long-term care insurance buyer has dropped from 72 years old in 1990 to almost 58 years old today.3

    Is it worth it?

    Few people regret purchasing car insurance or homeowner's insurance policies when an accident takes place. The coverage earned is far greater then the annual premiums paid, especially when you consider the alternative: paying for a new car or a new home out-of-pocket. The same is true of long-term care insurance. The benefits paid out under a long-term care insurance policy for one year alone often exceed the cumulative premiums a client pays into a policy over many years.

    For example, if a 55-year-old man purchases a policy that costs $1,500 per year and pays premiums for 20 years until he needs long-term care at age 75, he will pay a total of $30,000 in premiums over those 20 years. Compare this to the cost of care a skilled nursing facility in New England which can reach $80,000 per year and is expected to grow at 5 percent each year. In 20 years, the average annual costs of long-term care may well be in excess of $190,000.4

    Tips for a positive buying experience:

    1. Engage in a family discussion and plan ahead. If you are helping your parents, make sure you understand their future wants and desires. If you are a couple planning your own long-term care needs, think through your own priorities and those of your children. Long-term care is a family issue.

    2. Seek assistance. Long-term care insurance is best understood with the help of an insurance agent or financial planner who can asses the family's situation and specific needs. LTC insurance advisors who have earned an industry designation for Long-Term Care (CLTC, LTCP) are especially adept at helping you navigate the buying process and implement a proper level of coverage.

    3. Investigate your LTC insurance carrier. When you look at the various LTC insurance carriers, consider their relative financial strengths and stability, in addition to their years of experience in the long-term care insurance market. S&P (Standard and Poor's), Moody's, Fitch IBCA and A.M Best rate most long-term care insurance carriers.

    Joseph G. Pulitano, CLTC, is the President of Advanced Resources Marketing, a long-term care insurance marketing company. For more information on the MBA's long-term care insurance program, please contact us at 800.LTC.ATTY.

    1 2003 LTC Insurance and Medicare Supplement Sales and In Force Survey, LIMRA International.

    2 "The Economic Value of Informal Caregiving," Arno, P.S., Levine, C., and Memmont, M.M. Health Affairs, Vol. 18, No. 2 1999.

    3 Long-Term Care Insurance in 1998-1999, Health Insurance Association of America (HIAA), 2002.

    4 MetLife Mature Market Institute Study, 2005.


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