Personal Finance Essentials

The LTC Insurance Solution

Long-Term Care Insurance > The LTC Insurance Solution

Long-term care insurance is the most effective and most efficient way to protect yourself and your family from the financial consequences of a care need.

Long-term care insurance is the most effective and most efficient way to protect yourself and your family from the financial consequences of a care need. It preserves your assets, protects your family’s finances and gives you control over the quality and location of the care you receive. 

The math makes the case clearly. For a 45-year-old, the projected cost of care is more than $1.2 million. Saving enough on your own to cover that cost would require setting aside $4,732 per year. A comparable LTC insurance policy could cost as little as $734 per year. Even for a 60-year-old, the comparison is stark: self-funding would require $16,738 per year in savings, while a policy might cost just $1,709 per year. Buying insurance is the more financially sound approach – even for those who might be able to afford to self-fund. 

That last point is worth emphasis. Even if you have sufficient assets to cover LTC costs out of pocket, spending them on care means they won’t be available for your family or the causes you care about. LTC insurance allows you to transfer that risk to an insurer – at a fraction of the cost of carrying it yourself.

Seven Features to Look for in a Policy

Long-term care policies are among the most complex insurance contracts in existence. Unlike life insurance, where the only question is whether you died, LTC policies require careful attention to how benefits are triggered, calculated and delivered. Some carriers, for example, sell a policy advertised as $150/day coverage – but the contract language says the insurer will pay “100% of your cost up to 60% of your daily benefit.” That means the maximum payment is $90 per day, not $150. Never buy a policy based on price alone, and don’t try to navigate these contracts without professional guidance. 

When evaluating policies, look for these seven features:

1

Adequate daily benefit.

Coverage of approximately $230 per day approximates the cost of nursing home care in metropolitan areas. Costs vary significantly by geography, so adjust the benefit level based on where you live.
2

At least three years of coverage – and ideally five or six.

While fewer than 12% of nursing home residents stay more than five years, long-term care extends well beyond nursing homes to include assisted living and home care. If there’s a family history of chronic conditions like Parkinson’s disease, Alzheimer’s or dementia, consider even longer benefit periods. Couples who can’t afford unlimited lifetime coverage should look for a shared-care rider, which allows you to draw on your spouse’s unused benefits if you exhaust your own.
3

A 90-day waiting period.

The waiting period is the gap between qualifying for benefits and when the insurer starts paying. A 90-day wait reduces your premium meaningfully, and it aligns with the reality that most care needs don’t last fewer than 90 days. Make sure your cash reserves are sufficient to cover that gap.
4

Inflation protection.

The cost of care will rise substantially over the years before you need it. Compound Inflation Protection is recommended for anyone under 70; Simple Inflation Protection is appropriate for those over 70. Without inflation protection, the benefit you buy today may cover only a fraction of the actual cost when you eventually need care.
5

Your doctor as gatekeeper.

The policy should specify that your physician – not a representative of the insurance company – determines whether you qualify for benefits. You want a policy that requires only that you need substantial assistance with two of the Activities of Daily Living, or that you have a severe cognitive impairment. Avoid policies that require hands-on assistance rather than substantial assistance – the distinction can mean a delayed or denied claim.
6

Waiver of premium.

Once you’ve received benefits for 90 days, the best policies waive your premium payments. This feature ensures you’re not paying for the policy at the same time you’re relying on it.
7

Home health care coverage equal to nursing home coverage.

Most people wait as long as possible to enter a nursing home and return home as quickly as they can. Your policy should cover adult daycare and in-home assistance – including help with medication, dressing, bathing, meals, toileting and light housekeeping – at the same benefit level as facility care. Some policies pay only 50% to 75% of the facility benefit for home care. Look for one that also covers home modifications, such as wheelchair ramps and grab bars.

Partnership-Qualified Policies

Certain LTC policies carry a special designation: partnership-qualified. These policies offer an important benefit for those who may eventually need to apply for Medicaid. For every dollar your LTC insurer pays out in benefits, you can exclude one dollar in assets from Medicaid’s spend-down rules. If your insurer pays $500,000 in benefits, for example, you could shield $500,000 from Medicaid – preserving those assets for your heirs. 

Partnership-qualified policies are not available in every state, and the rules governing them are complex. Work with a financial advisor who is familiar with these programs to determine whether you qualify and whether this approach makes sense for your situation.

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