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Long Term Care

Long Term Care

As we age, our physical condition may deteriorate.  It may become more difficult or even physically impossible to perform our day to day living activities. Activities such as dressing, bathing, mobility, transferring from one position to another, toileting may require assistance.  These activities are known as ADLs: Activities of Daily Living.

In many situations, the ability to perform these activities is limited as a consequence of aging, not as a result of a medical condition.  This is an important distinction.  Since, in many cases this is not a health or medical condition, health insurance does not provide financial coverage for the costs for assistance with these activities. Medicare is a health insurance program and provides very limited financial assistance for these expenses. 

The cost for assistance varies with the level of assistance chosen.  For example, in-home visits from care givers will range from $25,000 to $40,000 per year.  The average national cost for a one year stay in a skilled nursing home is about $80,000.  These are significant costs which would seriously impact a retired family’s nest egg.

There are ways to minimize this risk to the retirement nest egg.  One way is to self-insure; many wealthy people will assess their risk position and determine that they can handle these potential costs on their own.  Another way is to depend on the government programs available to qualified people with economic needs, to receive the necessary assistance.  And a third way is to purchase a Long Term Care Insurance policy.

Long Term Care Insurance(LTC) is used by many people, who find themselves not wealthy enough to self insure, nor do they qualify for the needs based coverage available through government assistance. Policy premiums are dependent on the coverage requested.  It is important to have agents quote a baseline set of features that you require.  There are so many features available in these policies it becomes confusing to people and almost impossible to objectively compare policy costs because the agents are designing policies with different benefits.  So, this is just like shopping your auto policy: understand the coverage you need and ask the agents to provide quotes on this baseline set of benefits.

So what are some of the features in LTC policies? 

  • Daily Coverage maximum amount – for example, $125 per day.
  • Years of Coverage amount based on the daily amount. – for example, 2 years at $125 per day.
  • Inflation rider – to adjust the daily coverage amount by inflation rate.
  • Elimination Period – a time period where the individual qualifies for the benefits of the policy, but will use their own funds before the policy benefits start.  A longer elimination period will lower premium costs.
  • Facility coverage –think about where you want coverage: in your own residence, in an assisted living facility, in a skilled nursing home, adult day care, continuing care retirement communities
  • Premium waivers – remove your responsibility to make premium payments while receiving long term care benefits.
  • Premium which is largely determined by the chosen set of benefits.

There are many more including respite care, shared or pooled benefits for couples.

Besides researching the benefits and coverage, research the insurance company to determine its long term viability. AM Best, Fitch Ratings, Weiss Ratings will review and publish reports on the financial strength of financial institutions such as banks and insurance companies offering these products.

In closing, this is a decision usually made by people in their mid-50s to early 60s, when they are in good physical condition.  Younger people may find that paying for 40 years is not a wise choice; while older individuals may find that the premiums are excessive when the policies are purchased in their 70s or 80s.