As the large numbers of Baby Boomers start to turn 60, many of them assume incorrectly that Medicare, Medicaid, supplemental policies or standard health insurance policies will cover their long-term health care expenses and needs. Consequently, many people do not plan ahead financially to provide for their care in the event of infirmity or extended illness.
Costs of services provided by a nursing home in Florida (based on 2004 numbers) can exceed $60,000 annually, or more than $5,000 per month. Costs for residing in an assisted living facility or nursing home continue to rise every year. The cost of quality “in home health care” is already approaching that of a nursing home.
A New England Journal of Medicine study stated that 43% of all people age 65 would either have to enter a nursing home or require long term care in their home. Another study by the Health Insurance Association of America has shown that more than 50% of all Americans will need some form of long term care during their lives whether in their home, at a day care facility or in a nursing home.
Based on the above numbers, it is easy to see how a retirement nest egg can be depleted when one major illness strikes an individual, spouse or family. How to pay for this potential expense is, and should be, a major concern for our ageing society.
There are five basic options available on how to finance the cost of care:
Pay for the Cost out of Savings- This option is usually chosen by the extremely wealthy. If this is the option you are considering, you must ask yourself if you will have enough resources to pay this expense and continue to maintain your desired standard of living.
Depend on Medicare/Medicaid – Medicare pays a limited amount, and it only pays under certain circumstances. Medicaid is designed for only the poorest individuals.
Other Medical Insurance – Most medical insurance plans do not pay for long term care expenses.
Depend on Family – This type of care and expense is physically and emotionally demanding- is this what you want for your family?
Long-Term Care Insurance – This insurance is most likely your best choice. A quality Long Term Care Policy will help you pay for the expenses associated with long term care, while helping protect your family and your assets.
If after reviewing the five options above you decide that Long Term Care Insurance is the option you want to pursue, it is important to understand the following:
What is Long-Term Care Assistance?
Long term care is the everyday assistance needed when a person suffers from a cognitive impairment-such as Alzheimer’s disease- or can no longer perform activities of daily living due to age or illness.
Long-Term Care Insurance provides assistance for the following activities of daily living:
What options exist as to where this assistance can be provided?
Assistance can be provided:
- In your home
- In the community (Adult Day Care Facility)
- In an Assisted Living Facility
- In a nursing home
What factors need to be considered if applying for Long Term Care Insurance?
The cost of a Long Term Care Insurance Policy is determined by many factors: your age at the time of application, your general health, medications you are taking, your prior medical history and the benefit options you select. The two factors that have the greatest effect on your ability to obtain a Long Term Care Policy at a lower rate are based on your age and overall state of health. The younger and healthier you are when you apply, and ultimately purchase a Long Term Care Policy, will have the greatest effect on your final annual premium.
The number of insurance companies offering Long Term Care products has continually grown as the product demand has increased. Selecting the correct company is now as important as selecting the correct coverage. Many companies that came into the marketplace priced their product too low and are now increasing premiums on a regular basis.
When selecting a company, the following questions should be asked:
- How long has the company been selling the Long Term Care product?
- Have they ever had rate increases, and if so, how frequently?
- Does the company guarantee that the policy can never be cancelled (except for non payment of premium)?
- What is the insurance company’s rating by A.M. Best Company? (A.M. Best is recognized as the premier Insurance Rating Service Company. Other premier rating companies to look at are Fitch, Moody’s Standard & Poor’s and Weiss. The higher the rating, the more financially secure the company.)
- What percentage of the Long Term Care market do they write? (The larger the number of policies they write, the more likely the company is to know the business.)
How To Get Started.
The best place to start is to contact your local insurance agent and have their Long Term Care Specialist contact you. You should try to locate an agent who deals with Long Term Care as his primary product. The Long Term Care market is very complex and dealing with an agent who has limited access to various markets or has limited knowledge of the product is not a path to take. Have the agent educate you on the Long Term Care product(s) he is recommending and options open to you regarding the various coverages, riders or options open to you.
After you have spent time with the agent discussing the various factors that affect Long Term Care Insurance Coverage, decide on the basic factors you want included in your policy.
The major items to be considered are: the amount of coverage (daily or monthly), duration of benefits, deductible periods and inflation protection. It is also important to remember that there are significant discounts offered by all companies if both a husband and wife apply for and purchase Long Term Care Insurance at the same time. Once these basic factors are determined, the agent will be able to present you with an initial quote.
Once a final program and company have been selected, the next step will be to complete the company application. The agent will complete the application with you. All companies require that a portion of the annual premium accompany the application. Depending on the applicant’s medical condition, the processing of the application can take up to six to eight weeks for approval. Many companies require that a company representative personally interview each applicant and detailed reports from the applicant’s doctors may also be required.
Once the application is approved, a policy will be issued. The premium originally quoted by the agent may be different than that on the final policy. The insurance company’s underwriters determine the final premium based on the applicant’s final health condition. The agent will deliver the policy directly to you and will be responsible for collecting any additional premium that is due. You will have thirty days to review the policy. If during that time you decide not to keep the policy, it should be returned to the agent and a full refund will be issued.