When you ask for an LTC insurance quote, you should already understand how long-term care insurance works.
At its most basic, this is a policy that pays you money if certain things happen to you physically. The insurance company doesn’t reimburse you for medical costs like health insurance. It simply pays you a predetermined amount of money if you “qualify.”
How do you “qualify” for LTC benefits?
Each insurance company differs, but basically there are six or seven “activities of daily life.” These activities include being able to move around (ambulate), dress yourself, bathe, etc. The policy you buy will pay you a fixed daily amount if you are unable to perform one or two or three of these activities and you incur expenses as a result.
Who determines whether or not you can perform these activities?
A doctor has to do so.
Who gets to decide how many of these activities you have to be unable to perform in order to collect the benefits?
Each company spells this out in the policies they sell. That’s why it’s so important to actually read the policy.
How is the benefit determined?
You determine the maximum allowable reimbursement. You can buy a $100-a-day maximum benefit, a $200-a-day maximum benefit or more. The higher the daily benefit, the greater the premium.
What about inflation?
You can buy an inflation rider that pays you more as the years pass, but that rider means your premiums will be higher too.
How long will the company pay you?
You get to decide that too. You can buy a policy that pays you benefits for one, two, three or four years – or as long as you live. The longer the benefit period, the greater your premiums too.
Can your premiums rise?
Yes and no. The insurance company can’t raise rates just because you get older or sicker. They can raise rates for everyone in a certain age group – and this is happening more and more. They can’t do it whenever they want to. Depending on the State they operate in, the State Insurance Commission usually has to approve these increases.
What if you need to pay for someone to come to your home to help out?
Most people buy coverage for home care and facility care. One way to reduce your premium is to only buy coverage for care in a facility.
Another way to reduce your premiums is to increase the “elimination period.” This is the time during which you pay your own expenses. Think of it like a deductible. Your “deductible” might be the first 90 days. That means, if you qualify, you still have to pay for your own care for the first 90 days. After that elimination period, you’d start to receive the benefits.
Is long-term care insurance for you?
According to the American Association for Long-Term Care Insurance, 32.5% of the people who make claims are men and 67.5% are women. So if you are a woman, coverage might make sense. If you are a couple and you only have enough money to insure one of you, it’s probably best to cover the woman.
But the analysis doesn’t stop there.
According to those same people at the American Association for Long-Term Care Insurance, the coverage doesn’t pay off too well. They reported that over 8 million people are covered, but only 180,000 people receive benefits. According to my calculations, that means only 2% of the people who pay for policies make claims.
The industry goes on to tell us that one in four people age 65 or over are going to need long-term care at some point before they die. I don’t know if that’s true or not. But it could be that many of those people who need care get it from family or friends. Possibly, they need care but they die before they have satisfied their “elimination period” and as a result, don’t get payments.
Some people do need long-term care coverage. But others are able to generate enough income during retirement to self-insure. Others don’t need the coverage because they don’t need to leave a pile of money to anyone so they are willing to spend down their assets should the need arise.
If you do decide to buy this insurance, it’s important to buy quality. I am a big fan of buying the cheapest term insurance you can from decent companies. But when it comes to long-term care, I would only deal with the best companies possible.
What is your position on long-term care insurance? Have you included the cost of this coverage when you calculate how much money you need to retire?