LTCi Essentials: What You Need to Know

April 14, 2014


With baby boomers entering retirement and more people living longer, long term care is becoming a pressing concern both for the government and people.

Though a point many need to address, this should not cause you to worry. In fact, you can protect your savings and your family against the toll of a long term care event and that is through long term care insurance (LTCi).

What is Long Term Care Insurance?

Long term care insurance is a policy that’s designed to pay for the care expenses of an individual. Apart from skilled care or medically required care, a distinct feature of LTCi is its coverage for custodial care or assistance in the basic activities of daily living, which is not covered in a traditional health insurance.

Though it has something in common with health insurance, LTCi is distinct from disability insurance and health insurance.

How does LTCi work?

Basically, LTCi works similar to other insurance policies. First, you sign up for coverage and pay your premiums. Once you trigger your benefits, you can begin filing a claim. Afterwards, you can receive your benefits.

What care services and facilities does LTCi cover?

Long term care insurance can pay for a variety of care services and settings. Typically, these are:

  • In-home care

This involves assistance given at home. This type of care includes assistance in basic daily tasks such as bathing, dressing, and eating. It can also involve help in other activities such as homemaking and taking medication.

Typically, LTCi will cover these services if it is performed by a licensed caregiver, but depending on the coverage, other policies also pay for the care that is rendered by loved ones and family members.

  • Home modifications

These are changes made in the policyholder’s home in order to make it safer for his or her condition. Examples of this are ramps, wider hallways, and stair lifts.

  • Care coordination

This service is performed by a professional who will help the policyholder and the family in determining the needs, finding the suitable service, and arranging and administering a care plan, and monitoring the performance of the care providers.

  • Adult day care

This setting away from home offers care, social, health services during the day. When the primary caregiver is not available during certain hours due to work or other important things, this facility can provide respite.

  • Assisted living

Typically, this care setting has an apartment-style structure and offers a high level of care, yet allows its residents to live as independently as possible. It offers personal care and other services such as meal delivery. Staff members are on duty around the clock to ensure security at all times.

  • Nursing home

This setting offers a wide variety of care ranging from personal care, skilled health care, rehabilitation, and a variety of daily activities.

Should there be any new care services in the future, having an alternative care plan option in your policy will still allow coverage for it even if it’s not spelled out in the policy’s coverage.

Key Features of LTCi

Knowing the main features of long term care insurance will help you determine the best type of coverage to buy.

  • Benefit amount

This is the amount that your policy will pay, either on a daily or monthly basis. Should your expenses exceed this amount, you will need to pay out of pocket for the difference. Otherwise, what’s left of your daily or monthly benefits will be available for use later.

  • Benefit duration

This is how long your policy will pay your benefits. LTCi may last for the rest of your life or for a predetermined number of years.

  • Inflation protection

This feature or rider, though it usually comes at an extra cost, increases your benefit amount over time. This enables your benefits to stay at pace with the changes and increases on cost of care.

  • Elimination period

This is otherwise called as the waiting period or deductible. It begins once you trigger your benefit and can last from 0 to 100 days. During this time frame, you will need to shoulder your own care expenses.

How much does LTCi Cost?

It depends. The cost of LTCi is influenced by a lot of factors and these differ from one individual to another. Below are among the things that influence the cost of a policy:

  • Age and Health

These two factors have a huge influence on how much your premiums will be. Younger and healthier policyholders are charged lower amounts (and even offered discounts) because generally, this a group which is farther from tapping their benefits as opposed to older applicants. In effect, the insurer assumes a lower risk in insuring them.

  • Coverage

The more comprehensive the coverage, the more expensive it will be. How much you’ll pay will greatly depend on the type of coverage and features you want to have in your policy.

For instance, a policy that has a $200 daily benefit, 3-year duration, and 5% simple inflation protect is more affordable than a policy with a $250 daily benefit, 5-year duration, and 5% compound inflation protection.

  • Company

Insurers charge policyholders differently. In fact, two companies can have a sixty percent price difference for an identical policy.

  • Riders

Riders are additional features that offer more flexibility to a policy. However, these come at an extra cost.

What should I consider before buying LTCi?

If you decide to get insured right away, you need to remember that buying this policy involves making a major decision. To help you, here are several factors that you need to consider:

  • Ability to pay

Before signing up for LTCi, you need to determine if you have the financial capacity to pay for premiums. Experts say that your premiums should not exceed 7 percent of your present income and even in retirement. Furthermore, they advise that your assets should at least amount to $250,000, excluding the home.

  • Location

Care costs are different from state to state. Therefore, how much your insurance will cost will depend on where you live or intend to receive care services. Before you buy, learn the cost of care in your respective location so that you can gauge how much benefits you will need.

  • Age and health

Again, these two are main points of consideration before you buy LTCi: If you’re healthy, approaching retirement and have a family to protect, buying LTCi is a smart move for you; also, you might want to check in to your family’s health history and assessing your current lifestyle to see if you’re at risk for any chronic or cognitive condition. If so, a policy that covers for care related to these conditions is suitable for you.

  • Insurance company

Buy from a company that’s financially strong enough to be in business by the time that you need to use your benefits. It’s important that you check an insurance company’s ratings, claims payment history, and rate increases in the past. Organizations like A.M. Best and Standard and Poor provide rate insurers.

  • Support system

Determine if you have loved ones who will be available and willing to take care of you. If so, you can streamline your policy. Otherwise, buy a comprehensive coverage that covers different kinds of care, as you will likely to rely on paid services.

Buying Tips

  • It’s important to know what your requirements are. Be specific on these needs so that you’ll know the best type of coverage that you will purchase.
  • Buy early. Purchasing long term care insurance ahead of time has a lot of advantages such as good rates, discounts, and yes, being protected against long term care early.
  • Deal with a reputable insurance company. You should work with an insurer who will fulfill their promise and who will not go under down the road. Working with a financially strong insurer brings peace of mind and ensures your money’s worth.

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