Insurance & Long-Term Care

What is long-term care insurance (LTCI)?

Long-term care insurance, or LTCI, is a contractual arrangement that pays a selected dollar amount per day for a selected period of time for skilled, intermediate, or custodial care in nursing homes and other setting, such as home health care. Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bills: their own assets--either cash or investments, Medicaid, and long-term care insurance.




What is life insurance?

Life insurance is an essential provider of financial protection for dependents that are left behind when an individual dies. After an individual’s death, the financial support he or she provided to the family ends, even though, of course, the family's need for income continues. Most families will have an ongoing need for housing, transportation, medical care, food, clothing, and possibly education and day care. 

In addition to the above, life insurance has a number of other uses. It can be used to pay for one’s final expenses at death, and it can also be used to pay off a number of debts--a home mortgage, automobile loan, credit card, or any other debt that may have accumulated, relieving family members of the financial burden. It can also be used to pay off estate taxes--both state and federal--and can also actually be used to create an estate.


What is the difference between the two?

Life insurance provides no immediate benefits to help defray the costs of long-term care, unless you have a policy that allows you to tap your death benefits early. Long-term care insurance pays for your long-term care costs as they are incurred. If you choose benefits correctly, long-term care insurance pays for care anywhere: assisted living, at home or at a nursing home.



The risk of contracting a chronic debilitating illness--and the resulting catastrophic medical bills incurred--is considered by many to be one type of risk best passed on to an insurance company through the purchase of a LTCI policy. A number of factors can increase your risk of requiring long-term care in the future. For one thing, your health status affects your likelihood of incurring a long stay in a nursing home. Indeed, people with chronic or degenerative medical conditions (such as rheumatoid arthritis, Alzheimer's disease, or Parkinson's disease) are more likely than the average person to require long-term nursing home care. Because the cost of long-term care can be astronomical and may exhaust your life savings, purchasing LTCI should be considered as part of your overall asset protection strategy.



Although purchasing LTCI seems to be the easy answer to the problem of escalating long-term care costs, the premiums for LTCI can be, depending on benefit levels selected, quite expensive.

Your yearly premium for a LTCI policy depends on a number of considerations, including your age when you purchase the policy, your health, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, and whether you purchase inflation protection. When buying an LTCI policy, you must also consider not only whether you can afford to pay the premiums now but also whether you'll be able to continue paying premiums in the future, when your income may be substantially decreased.



During the "golden years," when income typically declines, the purchase of LTCI should be carefully considered. People with significant discretionary income and substantial resources to protect for spouses, children, and other loved ones should seriously consider purchasing LTCI. Individuals with modest resources (for example, less than $50,000 net worth) may find the premiums unaffordable, and may qualify for Medicaid by spending down their assets and/or engaging in a little Medicaid planning.



Insurance protects against an event that might happen in the future. Therefore, buying enough protection is important, but affordability must also be considered. In terms of cost, you need to consider the amount of the daily benefit you want to purchase and also the length of the benefit period.

Daily benefit  Most policies will let you choose your amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Also, note that the cost of nursing home care varies greatly from one metropolitan area to another, so you need to know where you'll be living out the remainder of your years. 

Note: Consumers should generally buy enough coverage to cover 50 to 100 percent of nursing home costs. If you don't plan on using your own income to supplement, you should buy enough insurance to cover 100 percent of the nursing home costs.

Length of benefit period  When purchasing LTCI, you'll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You'll want to choose the longest benefit period you can afford. If you can't afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid, which is five years.

*Fixed insurance products and services offered through CES Insurance Agency.