When it comes to long term care insurance, the three most often asked questions by clients are: "What is it?"; "Do we need it?"; and the biggest question of all, "Can we afford it?"
For generations, the elderly or ailing were cared for by members of their families. Today, long-term care involves a broad range of supportive medical, personal, and social services designed to assist individuals in meeting their "ADLs" or the activities of daily living--eating, bathing, dressing, mobility, transferring (moving from bed to chair), toileting, and maintaining continence.
No matter where or how care is provided, it can be expensive and Medicare pays for very little. Below are some key issues that must be addressed before advising clients to purchase a policy.
- Activities of Daily Living--The "benefit triggers" and what will qualify you to begin receiving benefits under your policy. Be sure that the policy covers Cognitive Impairment such as Alzheimer's, senility, irreversible dementia and mental dysfunction caused by stroke.
- Daily Benefit--It is critical that this coverage be for both nursing home and home health care so that your client can remain in their home and receive the care needed to help with ADLs and be covered by the policy.
- Benefit Period--The typical nursing home stay is between three and five years so be sure a policy covers that period of time.
- Elimination Period--This is a waiting period before benefits start and can be 30, 60, or 90 days; the cost of coverage for this time period is what you will need to lay out of pocket. The longer the elimination period, the lower the premium.
- Guaranteed Renewable--You definitely want a policy that is guaranteed renewable, meaning that as long as your client pays the premium, their coverage will remain in force.
- Inflation Protection--The best option is to have an automatic compound annual percentage increase in benefits. Policies also provide a periodic "catch up" provision where a higher level of benefits can be purchased without evidence of insurability.
- Level of care--Policies should cover all levels of care both skilled and nonskilled. Ideally benefits should have the ability to be used for nursing home, home health care, and adult day care or assisted living.
- Financial stability of LTC Insurer--Help your client research the financial ratings of the company so that they have a financially secure company issuing their policy.
A Few Other Thoughts...
For New York State residents, we are fortunate to have what is known as The NYS Partnership Program. This program provides lifetime coverage for long-term care expenses by combining privately held insurance coverage with Medicaid benefits while not having to "spend down" your assets to qualify. You should always advise your clients to check and see there are any programs in their state.
When we prepare a Retirement Capital Needs Analysis, we use a life expectancy of age 100. The response we usually receive from clients is "you've got to be kidding"! Thanks to the medical advances and increased attention to health matters such as nutrition and exercise, the average life span is longer. Understanding the myriad of benefits long-term care insurance offers is one of the most important values that we can offer our clients.
Rosanne Grande, CFP, CSA, RFG
R.W. Roge & Company
Bohemia, New York