After Medicare, long term care insurance is probably the type of insurance that has the most misconceptions surrounding it, which is a shame because it’s a pretty straightforward policy. Let’s start with the basics.
Long term care insurance (LTC) is an insurance plan that pays a benefit when the covered party is unable to perform two of the six Activities of Daily Living (ADLs). ADLs are eating, dressing, bathing and hygiene, grooming, mobility, and toileting. That’s it. That’s all it is. How does it work? There are three main components to a LTC policy: Benefit, exclusionary period, and duration.
Benefit: A dollar amount the policy pays, per specific time period (daily, weekly or monthly).
Exclusionary period: How long after the inability to perform two of the ADLs before the policy starts paying, typically sixty or ninety days, although you can choose shorter or longer periods.
Duration: How long the policy pays the benefit. Four years is the most common, although it can be anything, even for the rest of your life.
Most policies also include an inflation rider which increases the benefit (typically 3%) each year, so that the planning you do today isn’t financially obsolete if you need to use it ten years down the road.
Each policy has a totally value-benefit times duration, after the exclusionary period. So a plan that pays $4,000 per month for four years would have a total value of $192,000. This is the “pot”. The best thing about LTC policies is that they aren’t a use it or lose it proposition. Any funds not used during a specific time period stay in the pot, which means that a plan designed to pay out $4,000 per month over four years will last eight years if expenditures are only $2,000 per month.
Simple concept. Lots of variables. We can break it down for you in as much detail as you’d like. There are, however, a few myths about LTC that we’d like to dispel.
#1 I don’t need LTC, Medicare will pay for my care.
Sadly, Medicare, even with a good Med Sup policy attached, doesn’t have much coverage for LTC. It’s covered under Part A, and LIFETIME maximum coverage is 100 days. After that, LTC coverage defaults to Medicaid, and that’s a place that you don’t want to be. Medicaid will only pay for LTC when your countable assets are less than $2000. Savings, investments, even your Social Security check, all of them have to be gone before Medicaid will step in, and only facilities with Medicaid-approved beds can take you, and as for your chances of staying in your own home? Forget it, because currently most states’ Medicaid programs only cover limited home health care services. Not an optimal choice.
#2 LTC is only good for nursing homes.
Exactly the opposite. Yes, LTC will pay for nursing home care. But the biggest advantage of a LTC policy is to keep someone out of institutionalized care. My grandmother had Parkinson’s disease. Granddad took care of her for her whole life, and when he became physically unable to provide the level of care that she needed, he hired home health workers to assist him. Grandma passed in her home at 88 without spending a single day in a nursing home. LTC gives you the assets to do the same. This is the most important benefit of LTC.
#3 My family will care for me if I need it.
I’m sure they will. Gladly. But LTC gives you the assets to give them a break once in a while. They’re your kids, and they love you, but wouldn’t it be nice to be able to wave them off on vacation, with their kids, without them having to worry about you? LTC gives you OPTIONS. That’s not a small thing.
Simple concept. Lots of variables. That’s where we come in.