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Using Long-Term Care Insurance to Pay for Home Care

Trying to figure out how to use your mom or dad’s long-term care insurance? Or are you ready to start using the long-term care insurance you’ve been investing in? Having long-term care insurance can make paying for home care easier. But it can be also confusing to know where to start.

If you or your parent chose a plan years ago, it can be difficult to remember what exactly the benefits were or how to go about activating them. And if you parent no longer has the cognitive ability to remember the plan, that makes it even harder. However, you don’t have to go about this alone.

Before making a big decision, make sure you have all the relevant information at your fingertips. We recommend speaking to a Home Care Assistance Care Manager to understand your situation in more detail. They can call the insurance company with you during an in-home assessment to understand your loved one’s policy and the expected benefits. They are also familiar with advising you on the process, complying with any expiration period requirements, and understanding whether your care needs are sufficient to trigger your benefit.

Worried about the headache of all the paperwork? Find specialists, like our Care Managers, who are experts in the administrative setup and ongoing paperwork required to make sure that you receive your benefit. This will reduce the likelihood that you experienced delayed or declined reimbursement and means less hassle for you.

But if you’re like us, you like being in the know before you even start a conversation. That’s why we’re bringing you a crash-course in long-term care insurance.

What is Long-Term Care Insurance and What Does it Cover?

New to the world of long-term care insurance? Long-term care policies vary from plan to plan, but overall, they offset some costs of future care. For example, long-term care insurance comes into play when you have an illness, disability or impairment that interferes with your daily functioning. Most policies require that you meet two of these criteria:

  • The inability to perform two or three specific "activities of daily living.” These include bathing, dressing, eating, toileting and transferring from the bed or a chair.
  • Cognitive impairment. Most policies cover stroke, dementia and Parkinson's disease. Policies may exclude other types of mental incapacity.
  • Medical necessity, or certification by a doctor that long-term care is necessary.

How Much are the Benefits Worth?

Traditional LTCI policies are one to five years. Short term LTCI policies (less common) are around 90 days. Depending on the policy, you can be reimbursed for nonmedical in-home care, adult day care, the monthly fees of assisted living, or the daily rate for a nursing home.

Benefits are usually expressed in daily caps for years of duration. For example, a typical benefit is a $200 daily cap for four years. The benefit almost always kicks in after an expiration period of paying out-of-pocket (30-90 days, usually 90 days).

The policies are worth the daily cap for the duration of the benefit. Typical daily caps are $100-$300 and typical durations are one to four years, depending on the coverage selected. Daily caps can vary depending on whether they are used for home care, assisted living, or nursing care.

Doesn't Medicare Pay for These Expenses?

No, Medicare does not pay for home care, assisted living or nursing home care. Medicare will only pay for short-term stays in rehab or medical home health. Long-term care insurance will not pay for services already provided by Medicare.

However, you may be receiving benefits through Medicare benefits such as short-term home health care from a nurse. In that situation, long-term care insurance will still pay for home health care services if you meet their criteria.

What do the Premiums for Long-Term Care Insurance Cost Every Year?

The cost of long-term care premiums depends on these factors:

  1. Where you live.
  2. What age you purchase a policy.
  3. Amount of time the insurance company will pay for care, varying from one year to indefinitely.
  4. If inflation protection is included.

The annual premium increases every year for many insurance policies.

Long-Term Care Premium Costs by Age

At Age 55

From 2018, here are samples of the annual premium, based on the average of leading insurance companies:

  • Single Male, age 55, will pay $1,870 per year
  • Single Female, age 55, will pay $2,965
  • Couple, both age 55, will pay a combined $3,000 each year

This sample policy provides benefits of $385,000 per person when that person is 85.

60th birthday cake

At Age 60

Notice how the same rates are higher for a slightly older person:

  • Single Male, age 60, $2,010
  • Single Female, age 60, $3,475
  • Couple, Both Age 60, will pay a combined $3,490 per year

This sample policy provides lower benefits, valued at $333,333 when the person reaches 85.

At Age 65

  • Single Male, age 65, $2,460
  • Single Female, age 65, $4,270
  • Couple, Both Age 65, will pay a combined $4,675 per year

This sample policy provides lower benefits, valued at $287,500 when the person reaches 85.

These costs from The American Association of Long Term Care Insurance, September 2018.

golden gate bridge

Live in California? You'll pay more.

Prices vary by insurer and state; the premiums above are national estimates. We used the Genworth Long Term Care Insurance Calculator and found much higher prices than the averages reported above. Using this calculator, a woman age 65 would pay a premium of $5,373 each year to receive a maximum benefit of $300 per day for no more than five years.

However, if that same woman lived in California, her premium would be $11,830. Nursing home costs are higher in California, and there are fewer nursing homes because many have shut down or converted into rehabilitation facilities.

These premium estimates are for illustrative purposes only and do not represent actual policies offered for sale.

What is Not Covered by Long-Term Care Insurance?

Look at the fine print of any policy under consideration, because long-term care insurance typically does not cover:

  1. Alcoholism or drug addiction.
  2. Any care received in a hospital.
  3. Intentional, self-inflicted injuries.
  4. Any service that is reimbursable by Medicare except where Medicare is the secondary insurance.
  5. Treatment received in a government facility.
  6. Services provided by an immediate member of your family.

What are the Different Types of Long-Term Care Insurance?

There are many types of long-term care policies. Most traditional policies are similar but will have great variability in coverage. Questions to ask your insurance broker (and find the supporting print in the legal document):

  1. Waiting period. Is the waiting period of 60-90 days cumulative over time?
  2. Length of time or dollar amount limits.
  3. Do the benefits increase with the cost of inflation?
  4. Whether the policy covers a portion of nursing home care or also covers care in the home and assisted living.
  5. Do premium rates go up every year?
  6. Are premiums waived during the time you are receiving benefits?

What if I Don't Ever Need the Care Benefit?

You don't get your money back if you don't use long-term care benefits, with most policies.

However, a newer type of long-term care policy is a whole life/LTC hybrid policy that you can draw upon for long-term care.

These insurance policies will return money to your heirs even if you don’t end up needing long-term care. Premiums are locked up front. The downside? These policies are two to three times more expensive than traditional policies. You pay extra for the benefit of getting money back.

piles of coins

I Can't Afford Long-Term Care Insurance. What are my Options?

A short-term care insurance policy covers up to 360 days at home or in a facility. It is easier to qualify for this type of insurance. Unlike long-term care insurance, you might not have to answer as many medical underwriting questions. And the premiums are lower. A 65-year-old might pay $928 per year for a one-year policy with a $150-per-day benefit.

Some short-term care insurance policies allow you to carry forward the unused amount and stretch out the coverage period longer than a year. The potential benefit period is shorter and more predictable. And these policies have a better history of rate stability. However, these policies may not cover all care options and have stricter requirements.

How Long Can I Receive Long-Term Care Benefits?

More limited policies may save you on monthly premiums. Take the time to calculate different scenarios. Policies range from one year to unlimited or a lifetime benefit. There may also be a lifetime dollar benefit amount.

How Soon Can I Receive Benefits from Long-Term Care Insurance?

When you can unlock your long-term care benefits depends on the waiting period according to your policy. To be considered for coverage you will also have to make a claim to the insurance company. You will need to provide all required documentation required by the policy.

Make sure to ask these questions:

  1. How long is the waiting period?
  2. Will I have to pay out of pocket during the waiting period?

When Should I Buy Long-Term Care Insurance?

If you’re wondering what’s the best age to purchase long-term care insurance, the best time to start looking for a long-term care policy is in your 50’s and 60’s. Any later and pricing may be too high or medical problems may prevent you from getting a good policy.

The earlier you purchase long-term care the better, as you can get lower premiums. However, premiums will continue to rise after you choose your plan. Keep in mind that you will need to be able to continue to afford to pay premiums for years.

Can I Use My Long-Term Care Insurance in Another State?

That depends. Some states use different definitions for assisted living or other services. Check the policy you are considering to see if it covers you if you move to another state. You may want to move to be closer to your children or grandchildren, or to a better climate.

woman looking over paperwork

How Does Long-Term Care Insurance Fit into My Will and Estate Plan?

Using a qualified estate planning attorney or financial advisor is a critical part of deciding whether a long-term care policy is for you. During this process, you can explore other possible ways to pay for care if and when you need it.

The last thing you want is to get to a point where you can no longer afford the premiums, because they increased every year, and then have to cancel the policy. Talk with your advisor about the specifics of the plan you are considering. Ask questions about how to maximize your future benefit while keeping premiums affordable.

Should I get Long-Term Care Insurance Now, or Wait?

Just this year, Genworth Financial has requested an average rate increase of 58% on many of their policies. Massachusetts Mutual Life Insurance Company has requested premium hikes of 77%. Some policies offer inflation protection but premiums will be higher.

The best way to avoid sticker shock is to buy a good policy when you are younger.

Can I be Rejected for Long-Term Care Insurance?

Yes; 20% to 44% of people who apply for long-term care insurance are rejected.

  • 20% of people age 49 or younger are rejected
  • 22% of people age 59 to 59 are rejected
  • 30% of people age 60 to 69 are rejected
  • 44% of people age 70 to 79 are rejected

The American Association of Long Term Care Insurance lists these pre-existing conditions that may prevent you from qualifying:

  • AIDs or HIV infection
  • Alzheimer's Disease
  • Amyotrophic Lateral Sclerosis (ALS)
  • Cystic Fibrosis
  • Dementia
  • Hemophilia (other than Von Willebrand disease)
  • Active Hepatitis C, Non-A, Non-B, or Autoimmune
  • Kidney Failure
  • Liver Cirrhosis
  • Memory Loss
  • Mid - Advanced Multiple Sclerosis
  • Muscular Dystrophy
  • Paralysis
  • Parkinson's Disease
  • Post-Polio Syndrome
  • Schizophrenia
  • Sickle Cell Anemia
  • Systemic Lupus Erythematosus

How do I Apply for Long-Term Care Insurance?

Very few companies offer long-term care insurance. You can find insurance brokers at Genworth and The American Association for Long-Term Care Insurance.

Make certain that you select a company that is financially strong. Consider using an insurance broker to help you navigate different plans and companies. Once you have selected the company to use, fill out their application.

Do I Need a Physical to Get Long-Term Care Insurance?

Yes, you will need a physical and medical history.

Some -- not all -- policies have a pre-existing condition clause. This means you received medical treatment within a certain time period before you applied for the policy. Some companies look further back in time than others. Many companies will sell a policy to someone with a pre-existing condition. The company may not pay benefits for long-term care related to that condition for a period after the policy goes into effect. This is usually six months. Some companies have longer pre-existing condition periods or none at all.

Are There Other Ways to Pay for Care?

Consult with your financial advisor or estate planning attorney. Discuss financial alternatives to Long-Term Care Insurance. Some possible options are savings, retirement accounts, or home equity lines of credit.

If you have any questions about your own policy or a loved one’s, our long-term care insurance billing specialists, Eric Tran, would be happy to discuss how your policy might be used for home care and can be reached at 408-484-438.

Resources:

The American Association of Long Term Care Insurance

Genworth Cost of Care

About the Author(s)

Amanda Lambert is the owner and president of Lambert Care Management, LLC which provides care management for older and disabled adults. She is the co-author of, Aging with Care: Your Guide to Hiring and Managing Caregivers at Home (Rowman and Littlefield, 2018). She has worked for over 20 years in the senior-related industry including mental health, marketing and guardianship. She has a passion for topics related to health, wellness and resilience as we age.

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