Part 1: What is Long Term Care Insurance, How it Works, Types of Long Term Care Insurance
Part 2: Why is Long Term Care Insurance Important, What Is & Isn’t Covered, Do You Need Long Term Care Insurance
Part 3: Where to Buy Long Term Care Insurance Important, It’s Cost, Factors to Consider While Buying Long Term Care Insurance
Introduction to Long Term Care Insurance for Kids and Teens
This video explains the concept of long term care insurance in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about long term care insurance, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Kindergarten
- Elementary School
- Middle School
- High School
The topics covered are:
- What is Long Term Care Insurance
- How Does Long Term Care Insurance Work
- What are the Types of Long Term Care Insurance
- Why is Long Term Care Insurance Important – What is Covered by it
- What is Not Covered by Long Term Care Insurance
- Do You Need to Buy Long Term Care Insurance
- Where Can You Buy Long-Term Care Insurance, and How Much Does It Cost
- What Should You Keep in Mind When Choosing a Long-Term Care Insurance Plan
What is Long Term Care Insurance?
Long-term care insurance is a private insurance policy designed to cover expenses related to long term assistance with daily living, that are not typically covered by health insurance.
This includes costs of in-home care, adult day care centers, assisted living facilities, nursing homes, etc. It could also cover changes to your living space, like adding ramps or bathroom handles.
It begins paying when someone is not able to perform daily activities on their own due to chronic conditions or aging.
How Does Long Term Care Insurance Work?
For the most part, it works like health insurance. You pay premiums in exchange for getting coverage, if needed. If you stop paying premiums before the need arises, you lose coverage.
When applying for a long term care insurance policy, you are asked questions related to your health and the amount of coverage you want. Once approved, you pay the insurance company premiums every month in order to receive coverage.
You become eligible for benefits when you cannot perform at least 2 of the 6 specific activities of daily living (ADL) on your own, or you have cognitive impairment.
However, there is a waiting period or an ‘elimination period’. For the first 30, 60, or 90 days, you have to pay for long term care out of pocket, and only after this, the insurance starts paying for eligible expenses.
Generally, once you start receiving the benefits, you don’t have to pay the premiums.
There are also daily and lifetime caps on how much the policy will pay, so it’s important to select the right policy for your needs.
Activities of Daily Living (ADL)
- Bathing
- Caring for incontinence
- Dressing
- Eating
- Toileting (getting on or off the toilet)
- Transferring (getting in or out of a bed or a chair)
What are the Types of Long Term Care Insurance?
There are two main types.
Traditional Long-Term Care Insurance is a pure long-term care policy, without any additional components.
You pay premiums to get coverage, but if you never need care or stop paying premiums, you don’t get anything from the insurance provider. This is exactly like a term life insurance policy.
Hybrid Long-Term Care Insurance combines long-term care insurance with life insurance or annuity. This means that if you don’t end up needing long-term care, the policy will still give you annuity payments over time, or provide a death benefit to your beneficiaries.
Even if you use long term care, with the insurance option, whatever is left is given to your heirs as death benefit. For hybrid annuity, you get lower annuity payments at the start, but get double the payment for the years you need long term care.
Hybrid plans are more expensive than traditional long term care, but they ensure that you or your loved ones get something even if you never need long term care.
There are also group long-term care policies offered by some employers, which are usually less expensive but may have limited benefits.
Finally, there is a partnership plan that many states offer, where if you buy a long term care policy and use up the benefits completely, you may qualify for Medicaid without having to fully exhaust your savings.
For instance, if you bought and used up a $150k long term care insurance coverage, depending on the state, you may be able to keep $150k worth of assets over the Medicaid threshold and still qualify.
Why is Long Term Care Insurance Important?
Statistics show that around 70% of people 65 and older will need long term care services, and these services can be quite expensive.
Long term care insurance can provide peace of mind that these expenses will not deplete your retirement savings, or require family members to take on a significant financial burden.
There is a common misconception that Medicaid fully covers long term care.
Remember, Medicaid is only available to low income households, and only after they have spent virtually all their savings. Also, the choice is often limited to nursing homes that accept Medicaid.
On the other hand, long-term care insurance gives you many care options – you can even get in-home care as it pays for a caregiver, housekeeper, therapist, or nurse, up to the policy maximum.
What’s Not Covered by Long Term Care Insurance?
It won’t pay for medical expenses related to treating illnesses, surgeries, or medications – that’s what regular health insurance is for.
Some long term care policies may deny care for drug or alcohol addiction or war related injuries.
Some policies also exclude certain pre-existing conditions like a heart condition or past cancer diagnosis if they weren’t disclosed when you purchased the policy. Even if they don’t fully deny coverage for preexisting illnesses, they may not cover care for pre-existing conditions for a certain period after the coverage starts.
Finally, if you are older than eighty, suffering from memory loss, or not able to perform daily self-care at the time of applying for the policy, you are unlikely to qualify.
Do I Need To Buy Long Term Care Insurance?
Long-term care insurance can be a smart purchase since it can provide immense peace of mind and save you a lot of money.
It’s a good choice if you have a poor family medical history, don’t have family nearby to assist, have a high income and won’t qualify for Medicaid, or can afford the premiums including future increases.
However, it may not be for everyone. If you are confident that you won’t need long term care or not for an extended time, then you can also save for long term care costs yourself.
Also, you shouldn’t opt for long term care insurance if you find the premiums too high for your situation, or you have very few assets and qualify for Medicaid.
A good rule of thumb is that premiums shouldn’t take more than 7 percent of your current income.
Bottom line, as with any retirement planning, long term care should align with your personal situation – what you can afford, what kind of care you need, and what risks you might face.
Where Can I Buy Long-Term Care Insurance, and How Much Does It Cost?
You can buy long-term care insurance directly from insurance companies, through a financial advisor, or through an employer if they offer group plans.
Costs for long-term care insurance vary widely based on factors like your age, gender, marital status, health, and the coverage amount and duration.
The younger and healthier you are, the lower the cost. Similarly, higher limits, longer duration, reduced elimination period, etc. will cost you more.
Men tend to pay less than women, as women usually live longer and therefore have a greater chance of claiming the coverage. Buying policies as a couple, rather than individual policies, often reduces premiums.
For example, a single 55-year-old man in good health can expect to pay $2,100 per year for a long-term care policy with a coverage amount of $165,000.
For the same policy, a single 55-year-old woman would pay $3,600 per year and a 55-year-old couple would pay a combined premium of $5,025 per year.
Premiums can also vary across different providers, so make sure to compare options. Also, the premiums may be tax deductible, and the benefits are usually tax-free.
What Should I Keep in Mind When Choosing a Long-Term Care Insurance Plan?
There are a few key factors to keep in mind.
The first is the maximum benefit amount – both daily and lifetime. Make sure you choose a policy with enough benefits for your needs depending on your personal situation, like your location, health, and age.
It’s also important to consider the benefit period (how long it’ll pay benefits) and the elimination period (wait time before receiving benefits).
Also, the premium could go up after you buy the policy – although it’s not common. If that happens, you can keep the benefits you signed up for by paying the higher premium.
Alternatively, you can reduce the coverage and continue with the old premium.