What Is Long Term Care Insurance and Why You Need It

by Sara Peak

With more an more people living longer, we must all think about our long term care needs and concerns. Here are some of your basic questions about long term care insurance answered.

long-term-care-insuranceWhat is long term care insurance?

Though a somewhat new concept, long-term care insurance is just like any other insurance policy. The insured makes premium payments to an insurance company in return for the company’s promise to pay for a specific coverage – in this case, nursing home or home health care costs.

Who needs it?

According to Dan Sheets, owner of Kentucky Insurance World, the person who needs LTC insurance is “the individual who wishes to preserve whatever savings they have accumulated for retirement.” With nursing home costs skyrocketing, the danger is that baby boomers will have to exhaust their savings to pay for health care costs. “There is no magic dollar amount of how much you need,” Sheets says, “but a policy that protects and pays for at least two to three years should be minimum.”

What should I look for in a policy?

There is more to look for in a policy than just the cost of premiums. “The two most important things to look for are the commitment the company has in the long-term care industry, and the purchasing of an inflation rider,” Sheets says. The inflation rider allows the policy benefits to grow and keep pace with rising health care costs.

At what age should I consider a policy?

While there are rare cases where a young individual has a need for long term nursing needs (such as a 20 something who  suffered a severe car accident) it is not likely you will need long term care benefits until much later in your life.  In general, age 50 is an appropriate age to start considering purchasing a policy.  The risk of waiting includes that the cost of insurance could increase dramatically or that you could be unable to qualify due to changes in health.

What else should I consider?

Ask your agent if you qualify for any discounts which might lower the premium of your policy.  For example, a husband and wife might qualify for a marital discount.  Other discounts include multi line (you also have life, home, or auto insurance with the company), preferred health discount, and discounts for certain groups such as retired teachers.

This is a weekly featured post on Own The Dollar from Sara Peak, a Certified Financial Planner and a veteran of the finance industry. In addition to her monthly “Money Matters” column in Kentucky Living magazine, she also writes about money and personal finance topics on her blog.

Be sure to look for more great featured articles every week from Sara.  If you have a question or topic that you would like for her to discuss, please contact us.

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{ 5 comments… read them below or add one }

Evolution Of Wealth December 18, 2009 at 11:11 am

The financial strength and stability of a company is more important with Long Term Care insurance than any other insurance policy. The reason I say this is because it is such a new product. There has been and probably will continue to be some pricing issues with these types of policies as the underwriters truly figure out and adjust for the amount of claims and use of a LTC policy. I also haven’t heard of multi-line discounts included with LTC but I would warn against keeping all of these types of insurance with one company. No one insurance company can provide the best coverage in each of these areas. The spousal discount is definitely the best deals I’ve seen with LTC policies and it can allow you to save upwards of 40% on the costs of the policies as well as let you have more flexibility with coverage.

Wojciech Kulicki December 18, 2009 at 8:28 pm

What’s to guarantee that after paying in premiums for 40 years, the company won’t suddenly go bankrupt? I understand it’s not likely, but stability, as EoW points out, is ultra-important with such a long term product.

I’m not sure I’m sold on this product–if we assume most people will need long-term care (if I’m interpreting the term correctly based on your definition) and the pricing models for the insurance reflect that, aren’t we just better off saving the money for decades and profiting off the interest?

And since I’m already ranting, what happened to the good-old-days when family actually stayed home and took care of the grandparents? Most of my relatives who live in Europe have never heard of a nursing home. I know, I know–it’s different here.

Anyways, thought I’d play Devil’s advocate. What do you think?

Evolution Of Wealth December 18, 2009 at 10:16 pm

I think you bring up an interesting point. To me insurance is for the unknown. Unfortunately with Long Term Care we never know when, if or for how long we will need the coverage. What we do know is that that a nursing home averages around $180-$200 per day. That’s about $78,000 a year. If that’s budgeted into your spending you’ll be fine. If not, your money can go pretty fast.

As you brought up people stay in their home. I’ve actually had 3 family members dealing with alzheimer’s. The drain it had on my family and my mother in particular (because she’s a nurse) was really tough. Trying to maintain a full-time job, checking on my family member and dealing with the getting in home care was not only time consuming but expensive.

The best feature to a LTC policy is the ability to to have choices and flexibility. You can stay in your home longer, you can choose when and what type of a facility to go into and most important you can pick the facility. Without a policy, you might be limited on choices by costs or worse yet the state my get to choose where you go.

Larry January 4, 2010 at 2:09 am

Nice post. Before finalizing your insurance policy educate yourself about it. I came across this site, it seems to contain very informative and nice information and also gives you an option to compare quotes.
http://www.long-term-care-insurance-planners.com/information.html

Long Term Care Insurance Policy February 19, 2010 at 1:16 am

Nice post. Before finalizing your Long term care insurance policy educate yourself about it. I came across this site, it seems to contain very informative and nice information and also gives you an option to compare long term care insurance cost.

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