LONG TERM CARE

Long Term Care

Long Term Care: Common and Costly. But We Can Help

Please also review the hybrid life insurance tab for more information. Studies show that the largest uninsured risk facing Americans today is the cost of providing for Long Term Care. People are now living longer, but not necessarily healthier lives. Conditions that would have caused death only 10-20 years ago can now be treated. You can spend a lifetime building an Estate and have it severely depleted just to provide care for a modest long term care stay, which could leave a surviving spouse in an awful financial situation. Studies show that Medicare, Medicaid, and private donations pay only a fraction of the cost of Long Term Care. It is ‘Private Wealth’ that is paying the majority of Long Term Care expenses.

There has been a dramatic rise in in-home nursing care

We are now seeing a trend in Long Term Care claims where the majority of claims are for ‘home health care’, versus an Assisted Living or Nursing Home facility. A major LTC insurer recently stated that over 80% of their LTC claims are now coming from Home Health Care. People naturally would rather stay in the comfort of their own homes whenever possible and if they have the resources to do so. With costs soaring for long term care, in the DC Metro area, the average cost is over $300 per day (over $100,000 per year), how long could your savings hold out? This is why Long Term Care insurance now plays an integral role in the new retirement environment. With proper planning, you can maintain your quality of life, retain your independence and protect yourself and your family from these financial burdens and tough decisions.

Here are some eye-opening, real-world stats about Long Term Care

Chances are greater than 50% that each of us will require extended care at home or in a nursing home
One in four people who live to age 65 will spend one year or more in a nursing home, and one in three will spend three months or more
The cost of nursing home care in the DC Metro area is about $100,000, or $300 per day
Approximately 48% of long-term care costs are paid for by individuals as out-of-pocket costs
Medicare only pays 8% of long-term care costs

What is long-term care insurance?

Long Term Care (LTC) insurance gives you the independence to live your life on your own terms. It pays for care and assistance that you receive in your HOME or at a facility when it is no longer possible to care for yourself. This need arises through various situations including:

the natural course of aging
an accident
chronic illness
cognitive impairment
the inability to perform certain ACTIVITIES OF DAILY LIVING (known as ADLs) for an extended period of time

When are Long Term Care Benefits Payable?

The most common method for determining when benefits are payable is based on the insured’s inability to perform Activities of Daily Living, commonly known as ADLs – or having a Cognitive Impairment. ADLs include bathing, continence, dressing, eating, toileting, and transferring (moving to and from a bed or a chair). Typically, benefits are payable under most Long Term Care policies when a person is unable to perform at least two ADLs.

When you are considering a policy be sure you understand what it means by the inability to perform a particular activity of daily living. Some policies spell out very clearly what they mean by failure to feed or bathe oneself. A definition that says you must have someone actually help you perform the activity, also known as hands-on assistance, is more restrictive than one that calls for someone to supervise the activity, which is also known as stand-by assistance. The more specific a policy describes its requirements, the less hassle you or your family will have when the need to file a claim arises.

Dementia, Alzheimer’s, and Cognitive Impairment

Cognitive Impairment – having a ‘cognitive impairment’ or mental incapacity is also a benefit trigger where benefits are paid. This type of provision generally provides benefits if the insured is unable to pass certain tests assessing his or her mental function. The provision is especially important if a person has Alzheimer’s disease.

Why is Long Term Care so Chronically Underinsured?

The main reason we have seen that people do not get ‘Long Term Care’ insurance is that there seems to be a lack of knowledge and general confusion as to what Medicare will and will not pay for. The truth of the matter is, Medicare pays less than 10% of expenses associated with Long Term Care. That’s because most of the expenses involved are for custodial care, not skilled medical care which Medicare does pay for.

Medicare and Employer-sponsored plans don’t cover LTC expenses

There is also a misconception that Medi-Gap (Medicare Supplement) policies or employer-sponsored medical insurance group plans will pay the costs associated with Long Term Care and again are mistaken. This can place an enormous emotional and financial burden on an entire family, and it can leave the person in need of care dependent on others. We realize that not everyone has the same Long Term Care needs or the same priorities. That’s why we offer a large range of policies from the most competitive companies so that you can design the coverage that best suits your needs and can best fit your budget.

Families working together to cover the cost of LTC protection

We are also finding that families are pulling together on this matter. We have set up many Long Term Care Policies where the children are sharing the premium cost with their parents so that the premium is not a burden for any one person to bear. We have also seen the children split the entire premium cost among themselves when their parent(s) are not able to manage the premium themselves. This is a good answer for children to ensure quality care for their parents, which they would personally not be able to provide if needed. It also ensures assets that might eventually be passed down to them will not be depleted or gone altogether, due to Long Term Care expenses.

We offer plans designed for your long-term care needs

Call our office today to discuss your questions and concerns, rather you already have LTC coverage or if you are currently not insured. We will review your current policy and make recommendations in light of the new products that have become available. Or if you are not currently covered for long-term care expenses, as independent Brokers we will provide the information you need in order to make an informed decision regarding this extremely important risk.

Long Term Care Traditional

Traditional Long Term care policies work much like other insurance policies you have for auto or
homeowner’s insurance. You pay premiums, usually for as long as the policy is in effect, and make claims if you ever need the covered services. Most policies work on a claims Reimbursement basis.

You can choose a benefit amount for services in or out of your home. Typical policies spell out how
much you can receive daily or monthly (monthly is generally better) and for how long (the policy
maximum benefit period). Most policies cover care in your home, a nursing home, or an assisted living facility. Most claims currently are paid in the home. ‘Inflation Protection’ at some level is usually included on most policies for an additional cost.

You also can choose from policies with varying waiting periods between the time you start needing care and when benefits are paid. A typical waiting period is 90 days, but you can pay more to get benefits after 30 days or pay less to accept a 180-day delay. Likewise, you pay more for a policy that pays out $6,000 per month, lasts five years and has 5% Inflation Protection. Then you would for a policy that pays $6,000 per month for two years with no Inflation Protection.

What LTC insurance covers

Benefits are triggered when you can no longer perform two or more ‘Activities of Daily Living’ (ADL’s), such as bathing, dressing, eating, using the toilet, getting in and out of beds and chairs, and managing incontinence — or become cognitively impaired. At that point, premiums typically are waived while you receive benefits and are on claim.

But if you stop paying the premiums before the need arises, you usually lose the coverage and forfeit
premiums paid. If you never use the coverage, the insurance company usually keeps the premiums.
These are reasons why many people look to hybrid or asset based Long Term Care solutions.

Early LTC policies, sold in the 1990s and early 2000s had generous benefits, such as lifetime coverage
and benefits that grew at compounded rates of 5% per year. But insurers underestimated how much
they would pay in claims and overestimated how much they would earn in investments. The result was financial trouble for the carriers with substantial Long Term Care business. With the permission of state regulators, carriers have substantially raised premiums on existing customers. Many companies stopped selling traditional long-term care insurance. Only a few companies sell Traditional Long Term care policies today, generally with more modest benefits at higher prices.

Historically, 70 to 80 percent of people with traditional policies have seen premium increases.
Companies selling newer policies have repriced their policies to avoid repeating past mistakes. Which
has increased premiums high for Traditional Long Term Care coverage.

People who already own traditional policies should know that if they face a premium increase, they have options. One is to pay the increase and keep the benefits as is. Or make changes to the Benefit Period, Benefit Amount, and/or Inflation Protection, etc. Generally, the offer of a ‘Paid Up’ policy for the total amount of premiums paid is also made with a rate increase.

Many clients also evaluate other Long Term Care options such as Hybrid and Asset based Long Term
care.

Kelley Insurance & Financial will work with you if you currently have a Traditional LTCI policy to evaluate and determine the best options going forward.

If you currently do not have coverage, we will research and present the best options for your review. PROTECT your assets and contact our office for a Long Term Care checkup and review today!

Hybrid Life Insurance: The best of both worlds

Hybrid Life Insurance policies are Traditional Life insurance policies that offer ‘Living Benefits’ for Long Term Care or a Chronic Illness. These policies have been created by insurance carriers as a direct result of a troubled traditional individual Long Term Care (LTC) insurance industry. Unfortunately, many carriers have discontinued selling Traditional LTC policies and have sold their individual LTC business to other carriers. The number of carriers that offer traditional LTC policies has decreased drastically and the few that are left have had to increase premiums for individual Long Term Care policies.

Long Term Care in the United States is very expensive

The need for having some level of Long Term Care protection in place to hedge against poor health in our later years and protect our assets is real. Please review the Long Term Care tabs for more information and statistics regarding the need for long-term care. However, coming up with the right product solution is the question and it may not be the same answer for everyone – there is not a one size fits all solution. Each person’s and family’s situation is different and the need for insuring this risk needs to be analyzed accordingly.

Are Long Term Care policies worth it?

Most people are on a fixed income during their retirement years. The issue of increasing premiums for traditional LTC policies is a big concern for those trying to budget on a fixed income. Nobody wants to get double-digit premium increases over and over again in their 70’s, 80’s, and never mind 90’s. This has become a nagging issue for the traditional LTC marketplace. The other concern is “what if you die after paying years into a traditional LTC policy without needing a day of long-term care”? All the premiums paid are lost unless you include an expensive ‘Return of Premium’ Rider.

Hybrid Policies make the most out of your premiums

How about if you could purchase a life insurance policy that incorporates an LTC benefit? If you don’t need it, your heirs collect on the life insurance policy, and rates can be GUARANTEED! These hybrid policies are getting traction in the market. New policy sales are steadily rising according to LIMRA, the industry research and consulting group. By contrast, sales of new individual traditional LTC-only policies are decreasing.

With a hybrid Life/LTC you win whether you need LTC or die never needing care. If you live and need LTC care benefits are provided – however if you die never needing LTC your beneficiary will receive the policy death benefit. Someone is going to get the benefit of all the premiums you have paid into the policy. There are other hybrid policies where you win rather you live, die, or quit. These policies offer the same features as above, however, include a ‘Return of Premium’ option in early policy years.

Everybody has different protection needs. We can help.

There is no ‘one size fits all’ solution with this type of planning, every situation is unique and needs to be evaluated on its own circumstances. In some cases some or all of a Traditional LTC policy premium can be deducted for income tax purposes, if you are self-employed or have an HSA plan – the deduction can be more attractive. If you are offering coverage to employees, work for an employer or non-profit organization offering these plans as a selective benefit – or if you are an Owner/Employee of a C-Corporation there are other tax advantages to consider.

At Kelley Insurance & Financial we are very familiar with both the traditional and hybrid LTC markets. We can navigate you to the best product solution to insure this very real risk. Please contact our office today so that we may discuss your specific situation and make recommendations for your consideration.

Asset Based Long Term Care (LTC) Insurance is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care. It’s “asset-based” because you’re leveraging the value of an existing asset as a means of paying for necessary care.

The beauty of asset based long term care insurance is, if you don’t need long-term care, the contract retains its value and pays out to your designated beneficiary. And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage.

The best of all worlds – One of three things can happen, or perhaps a combination of them. You will not need long term care and the death benefit will be paid to your beneficiary. You will need long term care and the benefits are paid. Or you want to unwind the deal and get a refund of your premiums – which is generally available after several years.

Because of the guarantees involved, Asset Based Long Term care is truly the only way you can own and control LTC coverage. The premiums on most Traditional LTCI policies are not guaranteed, you are renting the coverage at whatever the stated rent will be each year by the carrier. Most carriers have drastically increased premiums for their Traditional LTCI policies with no end in sight.

The Problem

Long-term care is expensive. Whether it’s a nursing home or other assisted-living facility, or home-based services, the extended duration and continuous care result in quickly mounting costs.

Private nursing homes average around $100,000 per year, and even home-based care comes in at around $50,000. These cost levels can rapidly deplete a retiree’s entire savings, leaving Medicaid as the only option and no wealth to pass on to loved ones.

So, preparing for the potentially enormous expense is a priority in many retirement plans. If an asset based long term care plan is triggered, funds from the contract are applied toward long-term care expenses. Any value that’s left over gets paid out to heirs as a death benefit.

As with just about any insurance product, there are coverage maximums, but they are usually significantly higher than the present cash value of the asset at the time the policy is issued.

Instead of Self-Insuring this risk, you can leverage your own funds with an insurance company for long-term care expenses.

How do Asset-Based Long-Term Care Plans Work?

Asset based long term care insurance plans function similarly to a regular life insurance policy or annuity contract, but with the added benefit of long-term care coverage and the life insurance element is minimal.

After applying for the coverage and going through underwriting, you make premium payments to the insurer.

Lump Sum

In many cases, the premium is paid via a single, up-front, lump-sum payment.

The funds can come from liquidating other investments or through a tax-free exchange that converts an existing contract into an Asset Based LTC policy.

Insurers also offer limited pay arrangements with premium payments extended over a defined period, usually five to ten years, though a larger down payment may be required upfront.

IRA or 401K

For recent retirees, a popular approach is to fund an Asset Based LTC plan using cash from an IRA or 401k. Because money from the retirement account is pre-tax, the transfer to pay the premium is a taxable event. However, the withdrawals can be organized over several years to mitigate income tax liability.

Fixed Premium

If more than a single premium is involved, future premium payment amounts are almost always guaranteed to stay the same for the life of the plan.

Likewise, long-term care benefits are usually guaranteed for life.

And, as with a regular life policy or an annuity, the policy’s value earns guaranteed growth.

So, if the long-term care benefits are never tapped, the money is not just sitting there doing nothing – it’s earning interest that your beneficiary receives on the back end.

Surrender

Most policies allow for a full premium refund should you choose to surrender the plan.

That is, if you decide after a few years that you don’t want the plan anymore, you can get back all or most of the money you put into it.

Of course, if you do so, you will no longer have long-term care coverage or a death benefit.

Benefits Trigger

Long-term care triggering events can vary by policy, but benefits commonly kick in if the insured needs assistance with two or more ‘Activities of Daily Living’ or ADLs (e.g., eating, dressing, bathing).

Some, but not all, policies from the various have a waiting period of around 30, 60, or 90 days from the time a healthcare provider verifies eligibility until benefit payments commence.

Once triggered, benefits can be paid to the long-term care provider directly, as REIMBURSEMENTS for bills and receipts. Or INDEMNITY, in the form of a check to the insured – depending on the policy language. Benefits are typically subject to a predefined monthly benefit cap. Indemnity contracts tend to have an easier claims process versus reimbursement contracts.

Some policies only pay expenses from licensed healthcare providers, while some permit expenses for care provided by an unlicensed family member.

So, if an adult son or daughter takes time off work to provide assistance, the policy can help make up the difference in missed pay.

Income Tax-Free

As long as used for long-term care expenses, distributions are not subject to income tax.

The Pension Protection Act of 2006 provides for tax-free distributions from annuities or life insurance policies when applied to long-term care expenses. This has played a large role in the recent surge in popularity of Asset Based LTC plans. Also, the rate increases experienced by those owning Traditional LTC policies.

Kelley Insurance & Financial will work with you if you currently have a Traditional LTCI policy in order to evaluate and determine the best options going forward. Or if you have no coverage at all and researching your options. PROTECT your assets and contact our office for a Long-Term Care checkup today!