Long Term Care Insurance for Wise Bloggers

by Nora Dunn on 16 October 2007 10 comments
Photo: Ping News

You, your parents, or your siblings may at some point, at any age, need help with the daily tasks of living. Who will provide this help, and at what cost? Long Term Care (LTC) insurance might be a solution.

LTC insurance was originally intended for elderly people who find themselves in a position where they can't entirely care for themselves any longer, and need financial help when standard health insurance, Medicare, and Medicaid don't come through. The benefit would be used to fund care, whether it is in a full-time facility, a home-calling nurse, or even to allow family members to take time off to care for their aging parents.

 

But here's an oddball situation where LTC once came into play: Bob was in a car accident. Nothing major though - just a fender bender. Unfortunately the rear view mirror had a stress crack and shattered on impact, and shards of glass actually impaled his eyes.

So there Bob was, blinded and waiting for ocular restorative surgery. Due to wait times and special circumstances with regards to his condition though, he had to wait four months for the surgery.

Bob had to learn to live as a blind man for those four months. His long term disability insurance didn't kick in for three months, but he couldn't work and was at home without an income. His wife had to take a leave of absence to stay at home and help him function. Meanwhile during this time no income was coming in. Not only that, but Bob and his wife almost killed each other in frustration with the situation!

So, Bob's wife went back to work and they hired a nurse to come in and help him. Her entire paycheque went to the nurse's fees. So again, there was no money to cover the bills.

This is just an example of how somebody who has insurance (car insurance, disability insurance) slips through the cracks of coverage and ends up in financial duress because of an unforeseen circumstance.


Here are the nuts and bolts of LTC:


  • It kicks in when you are unable to (for any reason) perform any two of the "Activities of Daily Living". These include: bathing, dressing, toileting, eating, and transferring (from bed to chair for example). Cognitive impairments also factor into the Activities of Daily Living, since illnesses such as Alzheimer's can affect basic functionality.
  • The premiums paid might be tax deductible.
  • The benefit paid out upon claiming is a regular income (daily, weekly, or monthly), and is usually tax free.
  • Premiums are determined by the applicant's age, amount of income benefit they need, current health (including family history), and how long the benefits are for.
  • Once you have the policy, the insurance company cannot cancel or change the coverage. It is guaranteed renewable for life. (At renewal though, the rates may increase).
  • Most policies have a waiting period (typically one to four months) before the benefits start to pay out. The longer the waiting period chosen, the less expensive the premiums will be.
  • There are many "riders" or add-ons, such as Return of Premium (which will give you all or a portion of your money back if you don't make a claim). These will of course add to the cost of the policy, and each rider should be weighed for its effectiveness for the individual.

Here is why LTC is something everybody needs to think about for themselves or those they love:

  • The largest demographic of people (baby-boomers) is currently aging. As people age, the incidence of an illness or injury that affects the Activities of Daily Living increases. Work-provided pensions and health care programs are disappearing, and the cost of care is increasing (a trend that will only continue with time).
  • If you are a baby-boomer, consider your own health and retirement years. What sort of fallback plan do you have if you need care? Who can you rely on, and at what cost (financially and otherwise)?
  • If you are the child of a baby-boomer, what are the chances of your parents becoming dependant on you for care? How will this affect your own family situation? If your parents are not in a position to purchase LTC themselves, does it make sense to buy it for them? You may end up paying premiums now, but reap the benefits later when your parent needs help and there is money to provide for them without having to quit your job to personally care for them, sending your own nuclear family into financial peril.
  • The cost of care is expensive! For example, a home health aide costs $72/visit, and at five visits per week, it adds up to almost $20,000/year. A licensed practical nurse will cost $37/hour. These expenses can add up quickly.
  • Although primarily and originally intended for the elderly, the terms of the policies and associated benefits have started to appeal to a younger and younger crowd. In fact, today approximately 40% of LTC claimants are between the age of 18 and 64.

LTC is also similar to Critical Illness insurance, in that the same condition could bring in a claim for both types of insurance. What CI does is provide a lump sum benefit, whereas LTC provides a regular income to offset ongoing costs. What will work best for you depends on the coverage you currently have, as well as what makes you sleep a night more comfortably.

Everybody doesn't need every kind of insurance simultaneously. The variety of insurance products on the market are meant to provide for a variety of needs and desires for protection. So while you're sifting your way through Life Insurance, Disability Insurance, Critical Illness, Annuities, Health, Auto, and Property Insurance, do yourself a favour and take a peek at Long Term Care Insurance (LTC) too.

Read the fine print on all quotes, ask lots of questions, and insure yourself enough, but not too much!

 

Disclosure: I am not affiliated with any insurance companies or the sale of insurance policies.

Getting Started:American Association of Long Term Care Insurance


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Guest's picture
Guest

This month's Money magazine has an article on a similar topic that some might find interesting.

Guest's picture
Joel

Most people also ignore LTC insurance because they think Medicare or Medicaid will take care of them. But Medicare only covers the first 100 days in a nursing home, and even though only covers those 100 days if 1) you are receiving skilled care, and 2) your nursing home visit begins immediately following at least 3 days in a hospital. Medicaid only becomes available after you've pretty much spent all your assets.

Guest's picture
shawn

Bob should've had 3-6 months of income banked as an emergency fund to cover the gap between his accident and LTD. How many people do you honestly think are going to require LTC insurance prior to retirement? If you're that worried about it put more money in the bank/investments instead of buying insurance there's almost no chance you'll ever use.

Guest's picture
Sam

LTC is the biggest scam running. The insurance companies deny the claims after being with them so many years. So you hire an attorney to defend your rights. So you sue, get called to take a deposition and wait 4 years to get to trial. Let say you win, they appeal, and that takes a couple of years more. They hoping that you wont last that long and so they end up winning and you lose. When it get to that point, I'll either go to Panama where you can hire 24 hour nursing for less than 40 a day and if I cannot afford that, I'll just shoot myself.

Nora Dunn's picture

@Shawn: Bob absolutely should have had an emergency fund in place. In terms of requirements of LTC prior to retirement, as I said approx 40% of claimants are between the ages of 18 and 64. Take a look at the Michael J Fox's and Christopher Reeves' of the world....both lost functionality at a young age, and needed long term care. You may say they're the exception to the rule, but I'm not so sure.

Again, LTC is simply an option; one that will work for some and not for others. Critical Illness insurance might be more appealing to the younger demographics.

@Sam:  I'm not so sure LTC in particular is a scam in reference to what you're talking about. All insurance policies can be difficult to make successful claims, as they investigate every little piece of evidence they can. Many people try to scam insurance companies, and they need to cover their butts. 

And it's immensely frustrating for the honest claimants. I know a woman who had a legitimate claim for disability insurance, but it took years of court appeals to get it. By the end, over $90,000 was owed by the insurance company retroactively. She did eventually get it, but it was a painful process.

That's why I tend to choose large blue-chip insurance companies with good payout history. The larger companies won't be as likely to go belly-up just when you need them, and they don't want bad press by refusing to pay out legitimate claims. It's not failsafe to be sure, but it is a measure we can take to ensure we're protecting ourselves properly without resorting solely to Panama care or scuicide!

Guest's picture
shawn

40% of claimants may be between 18-64. What percentage are between 18-50? What percentage are between 60-64? What percentage of the general populace between 18-60 needs LTC? I'd guess it's a miniscule percentage.

Amy B. Scher's picture

I learned of long-term care insurance after my father (young father) fell ill and it cost our family a fortune (and a bankruptcy) to care for him. My mom ended up becoming an LTC insurance agent to try to help other families. So, I know all the horror stories of people who didn't have it when they needed it. And with all insurance, once you need it, it's too late to get it if you haven't already.

Shawn: with more and more young people getting sick, you can bet a huge number will need long-term care before retirement. I was deemed permanently disabled at 25 years old after getting bit by a tick and getting Lyme Disease. I have a host of friends with MS, one with ALS and hear story after story of young people who can't work or take care of themselves. Health insurance doesn't pay. "Emergency funds" won't do it to fill this kind of need. It can easily cost $50k+ a year for care in the U.S.

Sam: As for your comment, "When it get to that point, I'll either go to Panama where you can hire 24 hour nursing for less than 40 a day and if I cannot afford that, I'll just shoot myself." I can't tell you how many times I've heard this one and I can assure you that if you were actually in the position of being sick, you'd most likely do neither. If you were ill enough to need long-term care, you'd probably have to talk someone into getting you a gun. My feeling is that's a decent fantasy but not real realistic. A lot of people receiving long-term care insurance are collecting because of dimentia or other related diseases; they don't have the capacity to carry out the suicide plan they theorized when they were thinking clearly. I've been suffering for years and struggling to pay for care but killing myself just isn't one of the options. And, although I could get cheaper medical care in Panama too, when you are in the position, moving your life isn't as easy as it sounds when you are healthy and just thinking about it. Also, nothing against Panama, but have you been there? It's most likely far from everything and everyone you know. Nice to vacation but maybe not to live....sick and alone.

A huge percentage of wealthy people have LTC insurance. It's all part of protecting their assets. Even those who have plenty of money to pay for care if they should need it, still choose to purchase insurance. If you have plenty of money, is that really what you want to spend it on? For a fraction of the cost, you can pay the insurance premium and keep all your hard-earned cash. Plus, it unburdens your kids from ever having to worry about either changing your diapers someday or paying for someone else to do it. Now, that's reason enough for me.

Insurance is all about risk management. If you want to chance it, that is your right.

Well done article!

Nora Dunn's picture

Awesome response, Amy - thanks! You add to the whole picture a very personal element, and a compelling one at that.

Thank You!

Guest's picture
Itstarted

We bought into LTC in 1993... 2 persons age 58, $100/day benefit
cost 1993 $1100 yr.
current 2007 $2400 yr.

Started with Travellers Ins. Bankruptcy 5 years ago... Current transferred company may not be much better.
Cost to upgrade to more appropriate daily benefit of $150 is about double the $2400 actual quote was $4150/yr... (current age 72)

Scared to death that if something does happen, the legal beagles will find an undotted "i" or an uncrossed "t", and deny benefits. (happened to two friends for inadvertantly leaving minor health history item out of original appliction.) (in one case, an allergy, not applicable to current condition...)

Based on the real questions of Ins. Co. solvency due to underfunded reserves (blue chip today, junk tomorrow) there are no firms that I've researched that seem to be reliably stable.

In any case, after having spent (current value) about $34,000, we'll keep the coverage, but had i known what I know now, I doubt that I'd do it again, unless I was independently wealthy and well beyond "critical mass" assets.

Statistically, it doesn't make sense, but life's a gamble.
Yous should do a lot of personal research on the negatives, before taking on an LTC salesperson.

Nora Dunn's picture
Nora Dunn

Thank you so much for relaying your personal experience with us. I believe it is so valuable to everybody here.

And you're right - you can research something ten ways to Sunday, but sometimes that stable company goes belly-up, and that allergy you didn't figure was relevant on the application becomes a sticky point at claim time.

Life is indeed a gamble, and although I believe that some insurance is good, the perfect formula is different for everybody.