This week is devoted to Long Term Care insurance (LTCI). On Monday I wrote, “Look Before You Leap Into The Long Term Care Insurance Pool.” In that post I discussed what you need to review about the insurance company you elect to use.
On Tuesday I wrote, “Do You Know What Your LTCI Requires?” In that post I stressed the importance of reviewing your LTCI every 5 years or so. It can be 20 or more years between the time a person buys insurance to help with Long Term Care and when they need to make a claim. In order to future surprises, you need to remember what options you elected. You need to also remember what is required of you in addition to paying your premiums.
In today’s post, I want to continue with the theme of using insurance to plan for your Long Term Care needs. Regardless of what we “slick insurance agents” tell you, you have several options from which to choose.
COMPREHENSIVE LTCI PLANS
Less than 10% of the American population have true LTCI plans. However, they are the provide the most comprehensive coverage of all the insurance plans that are available.
I will admit that many Americans do not need them. However, I believe that more than 10% of the population needs to take advantage of LTCI.
Perhaps the biggest myth about them is being spread by politicians and the press. They claim that the premiums are just too expensive. I have even seen blog writers showing their ignorance.
I agree, the premiums for people who elect to get all the “bells and whistles” that are available with LTCI policies can get quite expensive. Most plans offer optional riders that cost additional premiums. In some cases those riders are worth the extra money and in some cases they are not. Only you can determine which riders are for you.
The other thing that drives premium is age. The horror stories the politicians site are often with people who have waited until they were in their 70s to buy LTCI. By the time they buy a plan that covers the full cost of a nursing home along with all the additional riders that are available, the premium can be several hundreds of dollars each month.
However, LTCI does not have to cost that much. Baby Boomers, who have the self-control to refuse additional riders that do nothing but increase the “slick insurance agent’s commission” can often get a true LTCI policy for what they are paying for Life insurance.
On our Long Term Care insurance page, you can investigate true LTCI. If it makes sense for you, remember two shopping tips to save money.
- Buy Early – The younger you are when you buy LTCI, the less you will pay. I recommend that you start looking at LTCI when your youngest child leaves your home and is no longer financially dependent on you.
- Be Frugal – Some of the options, like Home Health Care, are fairly inexpensive and worth the extra money. Some of the options are not. Only you can determine which options are right for you.
Many of the LTCI plans that were issued prior to 2006 are obsolete or limited. If you or your parents have an older LTCI plan, make certain that you review it to make sure it covers what you want covered. If it does not, you may need to supplement it with a newer plan.
The Deficit Reduction Act of 2005 authorized states to create Partnership Plans. Since then, most states have created Partnership arrangements with private insurance companies that offer LTCI. Only a few states remain without Partnership arrangements.
Partnership plans allow people to shelter all, or some, of their life savings from Medicaid. They made the old “Unlimited Benefit” plans obsolete in most cases.
If an individual with a Partnership Plan exhausts his LTCI benefits and still needs Long Term Care, Medicaid will waive their “Asset Test” requirements. As long as the individual is able to meet Medicaid’s “Income Test,” Medicaid will pick up paying the Long Term Care bills from that point.
In addition, Medicaid will waive their right to “Estate Recovery” for people who had Partnership plans and used up all the benefits with their private insurance company. That means that you will be able to leave your estate to your children and grand-children if you need help from Medicaid with your Long Term Care expenses.
In recent years there have been huge changes to Long Term Care insurance planning. Much has been said designed to scare Americans about the exit of several large name insurance companies from the LTCI marketplace.
It is true, that the majority of private insurance companies that used to offer true LTCI have stopped writing new LTCI policies. However, what you may have not been told is that several private insurance companies are offering “Hybrid” or “Combo” policies.
These types of policies combine life insurance or deferred annuity contracts with Long Term Care insurance.
Hybrids may, or may not, be less expensive than a Partnership Plan. That will depend on which Combo plan you elect. There are a couple of variables to consider before electing to use a Hybrid strategy.
- Limitations – Hybrid plans are much more limited that true Partnership Plans. When you get your policy, you will have at least 10 days to read it. Make certain that you do. If the limitations are acceptable, there is nothing wrong with using the Hybrid strategy.
- Partnership – At present, I am not aware of any Hybrid plan that is Partnership qualified. If you do not estimate your Long Term Care expenses correctly, you could run out of money. If that happens, you will need to “spend down” your life’s savings until you can qualify for Medicaid. Medicaid’s “Asset Test” and “Estate Recovery” rights will not be waived.
CRITICAL ILLNESS INSURANCE
Believe it or not, there is a form of insurance that you can use that is even more limited than the Hybrid plan. It is also much less expensive.
Critical Illness insurance only pays a benefit if you are diagnosed with one of the covered critical illnesses.
The good news is that the latest statistics I have seen indicate that 85% of people who receive Long Term Care are able to stay in their home as long as they have help.
I have also read, from several sources, that the most common cause for LTCI claims is cancer.
All Critical Illness insurance policies will pay a benefit if you are diagnosed with Cancer, Heart Attack or Stroke. Many, but not all, will also cover conditions like Alzheimer’s, paralysis, coma.
Since Critical Illness insurance pays you a lump-sum of cash when you are diagnoses with a covered critical illness, you can use that money to pay for your Long Term Care expenses while you recover.
Because of changes that many insurance companies make to Critical Illness insurance when you reach your 65th birthday, I do not recommend it as a first choice for Long Term Care insurance for people who are retired.
I do suggest it for people who still have dependent children living at home and have had a parent or sibling suffer from cancer, heart attack or stroke.