Let's talk about the Necessary Components of LTCi (Long Term Care Insurance). Where will you be in 5, 10, 20 years? Where will you be living? Who will you be living with? Will you be living at all?
No one knows the answers to these questions. As much as a person likes to assume they will maintain their independence and health, anything and everything is subject to change. As our older population ages and life expectancies continue to increase, the reality of protecting ourselves is becoming more and more apparent. The life savings of many are rapidly being depleted due to the high expense of long-term care. The 2006 average daily rate for a private room in a nursing home is $206 ($75,190 annually)1 – 6.8% increase from the 2004 rate of $192. This is an expense that most Americans cannot self-fund on an annual basis. By 2030, many retirees will not have enough income and assets to cover basic expenditures for any expenses related to a nursing home stay or service from a health care provider.2 Below is a projected chart of where health care costs will be over the next 30 years. 3
| IF COSTS GROW 10% ANNUALLY | |
| Year | One Year of Care |
| 2007 | $94,000 |
| 2017 | $243,000 |
| 2027 | $630,561 |
| 2037 | $1,633,152 |
One way consumers are taking on this high risk is by taking out private insurance or Long Term Care Insurance (LTCi). This protection is to help stabilize the sometimes overwhelming cost of care. However, the premiums paid for LTCI can become very expensive as well depending on how you design your coverage. Since this is true, LTCI is not designed for everybody. If you have assets greater than $150,000 to protect than LTCi would play an important role in preserving those assets. The question remains though, that if a person takes out coverage, what are the necessities to have included in your plan. This article will focus around the major components of a policy, which relieves the financial burden one may face out of pocket. Along with these components will include important care-giving features that are very necessary for adequate coverage.
The major components and features necessary for an adequate policy:
Daily Benefit - A very important component is the daily benefit is the dollars per day that the insurance provider will pay out to assist you with your care. Insurance companies offer daily amounts ranging anywhere from $50 - $500. It is important to investigate the cost of facilities in your area. One must remember to set their maximum amount around what is truly affordable. You do not want to adjust your way of living to make the premiums.
Benefit Period/Multiplier This is another necessary component where you are trying to determine the length of your coverage or how long you want your benefits to pay out. The overall average length of stay computed from the CURRENT resident data shows that an average length of stay of 901 days, which is 30 months or about 2.5 years, in a skilled nursing facility. The average length of stay for DISCHARGED residents is 388 days, or just over 1 year. 4 The CURRENT residents figure is the one most commonly reverted back to when designing coverage. The most commonly chosen Benefit Period is somewhere between 2-5 years. There is a 1-3% chance that coverage will be exhausted longer than 5 years. 1
Elimination Period – This is the length of your deductible. For long-term care insurance the deductible is paid by the number of days chosen, not by a fixed dollar amount. The typical deductibles range from 20 – 100 days. You must self-insure during this time frame. Keep in mind that assistance on your deductible includes Medicare, if of age. Like any insurance, the larger your deductible is, the less expensive your premium will be. The opposite applies if you take a smaller deductible.
Inflation Protection - Due to the increase in life expectancy and the dramatic rise of cost of care in this country, inflation protection is extremely important to have included in your plan. Without it, your plan could very well become inadequate. This ranges from person to person. Make a personal and family profile of your expectancies. Evaluate your current health, age, longevity in your family, family health history, etc. This will make the decision of which or if any inflation protection is of importance to your policy. The cost of inflation will increase your premium significantly, but will assist in the maintenance of your policy.
Levels of Care – It is very important to make sure that policy you invest in is 100% comprehensive. This will provide you protection in skilled nursing facilities, assisted living residences, adult day care centers and most importantly, home health care. The goal of LTC coverage is to help you maintain independence at your own home for as long as possible. In turn, it would make sense to have access to 100% of your benefits for the place people want to be the most. Home.
Benefit Triggers – Most carriers require that a person meet one of two triggers to access their benefits.
· Any form of cognitive impairment. (Alzheimer’s, senility, dementia,etc.)
· Unable to perform 2 out of 6 activities of daily living (ADL’s).
1) Eating
2) Dressing
3) Toileting
4) Bathing
5) Incontinence
6) Transferring
It is important to note, when being medically assessed to qualify for the triggers, to make sure your own primary care physician does this evaluation.
Informal Care Giving – This feature is included in most all-comprehensive policies. Registered Nurses sent out from an agency typically provide home health care. When someone is in need of assistance and has a complete stranger assigned to his or her case, it is easy for personality conflicts and trust issues to arise. This has been noted and due to this major carriers have included the feature of Informal / Independent Caregivers. This is where it does not have to be an RN sent out to your house. It can be a friend, a neighbor, sometimes-family members, someone you know and trust. This will put the person in need of care at ease along with the family and friends around him or her.
Waiver of Premium – LTCI is a lifetime payment. If one is to go on claim then all premium payments will be waived for the duration of the claim. If he or she recovers the policy and premium will pick back up accordingly.
The way one designs their coverage will determine what they risk and what they will protect. It is not always feasible to design the “Cadillac policy” for complete peace of mind. It comes down to finding a median between adequate coverage versus what one can or is willing to afford. For more information on LTCi (long term care insurance) to help further your knowledge in protecting and maintaining your assets, please review the contacts below.
Bibliography
1) MetLife Market Survey of Nursing Home and Home Care Costs, 2006. www.metlife.com
2) LTCIP Academy
3) Stucki, B.R., and J. Mulver. Can aging Baby Boomers Avoid the Nursing Home? Long-term Care Insurance for Aging in Place. Washington DC: American Council of Life Insurers, 2000. www.acli.com
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