As a society we are living longer, and we are living with medical issues longer. This places greater need for long term care insurance policies – insurance that covers the gaps left by Medicare and other assistance programs.
At the same time, a growing number of insurance companies are getting out of the long-term care business. Quite simply, it has become nearly impossible to forecast what individuals will need for health assistance, and what that assistance will cost, 20, 30 or 40 years into the future.
That makes it especially challenging for retirement planners to stay abreast on long-term care, and to advise their clients on the best plan for them. But long-term care is an important retirement tool for many, especially if they have assets to protect. The keys are to help your customers really understand what a policy covers, how flexible the policy is, and the criteria for receiving payments.
“Long-term care insurance is intended to do exactly as the name says – to care for you when your Medicare or your other health insurance benefits stop,” said Helen Stephens, a certified planner with Aspen Wealth Management in Fort Worth, TX. “Medicare is very limited in what it will pay for beyond 20 days. It will cover skilled nursing for 20 days, and it will do partial for up to 100 days, but after 100 days you’re really on your own.”
Stephens advises all financial planners that deal with the retirement market to include long-term care as part of their advice overview. This is especially important with couples. Without this insurance, should one spouse require long-term medical care, they could quickly burn through the couple’s estate’ leaving nothing for the other spouse.
What policies cover
As noted by California Health Advocates, long-term care insurance policies are not standardized. The retirement planner needs to advise clients on the type of benefits that a policy will pay, the care that will be covered, and how easily the individual can access and start using long term care benefits.
Key points to long-term care insurance you will need to advise customers on include:
- Duration of benefits
- Benefit triggers
- Waiting periods
- Daily benefit amount
- Maximum policy benefits
- Inflation protection
How long benefits last
Long-term care policies are typically sold for periods of 12 months or more, but can cover any length of time up to for long as the individual lives. Obviously, the longer the duration of the policy, the more expensive the policy premiums will be for your client.
“The average long term care policy is about five years, “ said Pam Dumonceau, a financial advisor with Consistent Values Inc., in Greenwood Village, CO. “Family history is definitely a driver. For example, those that have Alzheimer’s in their family history should definitely be looking into this kind of insurance.”
Using the examples of activities of daily living (ADL) is the best way to explain long term care insurance to customers, according to Dumonceau. They are the benchmarks for determining when somebody qualifies for assistance and benefits are paid. Those daily activities include the ability to dress oneself, feed oneself, make a meal, bathe oneself, recognizing the need to relieve oneself, personal grooming, and functional mobility. ADLs also include cognitive impairment or dementia caused by Alzheimer’s disease or other conditions.
“As people need long-term care, the company will use those as benchmarks. For example, you can do a couple of those things but you can’t do them all. When you can’t do four out of five, or three out of four, that’s when you actually quality for a claim,” Dumonceau said.
In the case of California, for example, California Health Advocates notes that benefits must be paid for nursing home care, assisted living and home care when the individual can’t perform two of the ADLs listed in the long-term care policy, or when the individual suffers a serious cognitive impairment or dementia.
How long must your clients wait?
Waiting periods for long term care benefits work much like a deductible in a standard insurance policy. Sometimes knows as the elimination or deductible period, this is the amount of time that must elapse before a policy actually begins making payments to a qualifying individual.
“Long-term care insurance is a lot like your car insurance where you have a deductible,” Dumonceau said. “There is real value in a 90-day deductible, meaning it won’t start until 90 days of impairment. Some polices will start after 30 days, or 60 days, or 180 days. You get a better value, but you have to self-insure for the first three months or six months of the impairment.”
Advise your client that each policy varies in how much it will allow for on a daily basis, and for what types of care situation. For example, a policy might allow for a maximum payment of $100 per day for nursing home care, $70 per day for assisted living, and $50 for home care. Other policies might have a blanket maximum payment no matter where the individual is living.
The individual needs to know what to expect for benefits under the long-term care policy, in order to factor in other assistance. Stephen cites the example of her local market, where the cost of a private room in a nursing home is approximately $208 per day. A typical long-term care policy would therefore cover slightly less than half the cost of care.
It is also important to explain to clients how daily benefits are calculated and paid. Some insurance companies pay on a weekly basis, others monthly.
Long-term care policies have a maximum payout amount once an individual begins receiving benefits. Insurance companies are generally required to disclose what the maximum payout amount is on the policy.
California Health Advocates gives the example of a policy that pays $100 per day for three years. Your client’s maximum benefits would be 365 days x three years x $100 per day, for a total of $109,500. “If you used the full benefit amount every day, your total benefits would last three years. However, if your care costs less or you only used the home care benefit at $50 per day, your policy would last much longer,” according to the organization.
“The other thing that people need to be aware of is to make sure that their coverage options are as flexible as possible,” Stephens said. “People need to be sure that it covers all types of situations, whether they decide to stay at home; whether they decide to go into a facility; who can care for them at home – does it have to be a licensed care giver, or can it be someone in the family? Most of my clients want to be in their home for as long as they can, so what does that look like, and does it cover the same for people coming into your home?”
When explaining long-term care coverage to your client, advise them on the benefits of inflation protection. Inflation protection does exactly what it implies: protects your client from the rising cost of healthcare and aid in general over time. It enables the individual to receive the same level of benefit payments regardless of what is happening in the economy. “Personally, I think inflation protection is really important on a policy,” Stephens said.
Many states require that an individual sign a waiver if they do not wish to receive this protection. The reason is simple: without inflation protection, a person’s benefits could very quickly erode.