Long Term Care Insurance for Wise Bloggers
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