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Top FAQs About LTC (2 of 2)

by smeneshi - Nov 08, 2014

6) How much and for how long will a LTC policy pay you?

The answer to this question also depends on the policy that you bought. For example, some policies will cover the entire cost of care for each day that you need, no matter what the cost actually is. Other polices will pay up to a certain amount of benefit per day. Other policies only cover a certain percentage of what your care costs. A lot of insurance companies will cover some or all of the costs needed during a nursing home stay, assisted living facility, Alzheimer’s facility, or adult daycare center. In-home health care, custodial care, and hospice care could be covered and even family members that are caring for you could get paid.

As for the amount of time benefits are paid, LTC policies have either a:

  1. defined benefit period, or
  2. lifetime maximum benefit payout

which is the total amount of time or total amount of money that will be paid out for your care.  Most policies treat the defined benefit period or lifetime maximum benefit payout simply as the overall amount of money that the policy will pay out to you or your caregiver, so they don’t actually limit the number of days they will pay for your care.

 Here’s how it works:

 Once you’re eligible to start getting a payout, typical benefit periods for long-term care policies last from two to five years and some companies offer coverage for your lifetime. Unlimited payment of benefits is another choice you could go with, but this option is so expensive that most of you in the public sector usually pass it up. Options to get benefits paid for more than five years but less than until the end of your life are also available from insurance companies.

 When you buy an LTC policy, you’re going to choose a maximum or total lifetime benefit. In other words, this is the total amount the insurance company will pay out to you. Once you’ve used up this amount, then no more benefits will be coming your way. So, let’s say you pick a policy with a total lifetime benefit of $200,000. What this means is if you need long-term care every single day (after you’ve passed the elimination period) for 3 years exactly, then the insurance company will be paying you a benefit of $182 per day.

Be aware though the insurance company may have a daily or monthly cap on benefits paid. So looking back at the example I just gave, it’s true the insurance company will pay you $182 a day but only if you are at or under the daily limit. For example, your daily limit may only be $150 a day and if so, that’s all you’re going to get. You have to make up the other $32 per day.

 When looking for a policy, consider going with one that has a monthly benefit cap, not daily. Why? As a simple example, let’s say you need LTC for exactly one day, and the cost of care is $300 but your daily benefit cap is $150. This means you’ll have to foot the bill for the other $150 of care. BUT, if you have a monthly cap of $4,500, then the entire $300 bill is picked up by your policy!

 Now, this is where careful financial planning and forecasting is so vital and it’s something I’ll be going over more later, but let’s say you buy a $200,000 policy and you need nursing home care for exactly 3 years. If you’ve done a little bit of research and found that the average nationwide annual cost of a private nursing home room is a little over $94,1703, you can easily figure out the cost of care per day is $258. If your policy’s daily benefit maximum is only $182 a day, then you’ll have a shortfall of $76 per day, or $27,740 on the year.

 Of course, you may only need care at an assisted living facility, which in 2013 averaged $41,1243. That means the daily cost of care at an assisted living facility was $112 and if your maximum daily benefit is $182, then you’re in the clear and you won’t have to worry about running out of benefits for a long time.

7) How much does an LTC insurance policy cost?

You’ll find the average expected cost of a policy just a little further down below, but keep in mind the cost of insurance depends on a number of things, such as:

  • Your health and gender
  • Amount of benefit
  • Your location
  • Added policy riders like inflation protection or return of premium
  • The type of services you want covered. Will you insure against nursing home costs only or all LTC expenses?
  • Elimination period
  • And many other things. Again, it just depends on the policy that you’ve designed with your insurance broker or agent

So, the bottom line is policies can range in price quite a bit, but I don’t want you walking away not having at least a ballpark idea of what you can expect to pay if you go the route of insuring against a drawn-out illness or injury.

And the answer is…

In 2014, the average cost of an LTC policy for a single male age 55 with $164,000 of benefits is expected to be $925 a year. If the age 55 male adds an option to have his benefit amount rise every year with inflation, then the average cost jumps to $1,7654

Women, who received two-thirds of the LTC benefits paid out in 2013, pay higher premiums than men.   A single woman age 55 will pay an average of $1,225 a year for $164,000 of benefits in 2014.4

A married couple each buying $164,000 of coverage that rises every year with inflation will pay an average of $3,840 annually.4

 How does $164,000 of benefits breakdown? It comes to about $150 a day in paid benefits for three solid years, which is a decent amount of coverage for the typical public sector employee or retiree.

 

8) LTC Insurance Seems Expensive. Are there Alternatives?

Most policies are comprehensive, meaning they pay for care at a nursing home, for in-home care, and all points in between. An alternative to a comprehensive policy is “institutional care” or “facility only” policies.  These pay for care in a skilled nursing home or maybe at an assisted living facility, but not for care at home or a community center.  These policies might include hospice or respite care but only when those services are provided in a facility.  “Facility only” policies cost less than comprehensive policies.

Home health care insurance policies only cover care provided in the home but depending on the policy, might cover community-based services also.

9) Can I Depend on Medicare for My Long-Term Care?

In general, it’s a good idea not to depend on Medicare for long-term care. The services are very limited.

10) Are LTC Insurance Policies “One Size Fits All”?

Absolutely not! When looking into the benefits of long-term care insurance, you can add “riders” to your policy. Just like how you can upgrade from cloth to leather seats when buying a new car, insurance riders are optional ‘upgrades’ that you buy to guarantee extra benefits that aren’t part of a standard policy. Of course, your premium will get bumped up, but so will your benefits and most importantly, your peace of mind.

Generally speaking, there are about 10 or so riders to choose from. The good thing for you is the insurance industry has been moving away from “one size fits all” policies toward policies that can be built piece by piece. The huge benefit is you get to keep your price down and choose just the features that best fit your overall financial plan and the all important bottom line.

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