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Affordability is a key ingredient in any successful long-term care plan. Which is why the premium cost is often the most important elements to consumers who are considering the purchase of LTCI.  One of the most common questions I hear is: ” Will my premiums ever increase? ” The answer is this: there are lots of scenarios in which LTCI premiums could increase. I will try to explain one in this article and follow up with the second in a future article.  The first scenario involves a choice the policyholder makes regarding inflation protection. Most of the LTCI policies have automatic inflation protection built into the policy design from the very beginning; in such cases the premium is designed to stay level for the life of the policyholder. The benefits can increase each year, but the long term care insurance premium remains the same.

Inflation Protection: What You Need to Know

There are some insurance carriers that offer a different kind of inflation in which the policyholder starts out with no automatic inflation protection instead, benefit increases would be offered every three years or so. These increases can usually be accepted or declined by the policyholder. This means that your premium would increase every three years for the rest of your life or until you start receiving policy benefits.  The only problem with this inflation protection choice is that the policyholder is three years older when each offer of extra benefits is made. The expense of the added benefits is based on the later age, not on the age of the policyholder at the inception of the policy. This can result in a significant increase in premiums in later years. Some consumers simply drop these policies after a while, as they just can’t afford to continue paying long term care insurance premiums that are so much higher than the cost of the original premium.

Long-term Effects of Premium Increases

Group policies often offer this kind of inflation protection to stay competitive with individual LTCI policies. Before they start finalizing their decision, it is very important for consumers to understand the long-term effects that these premium increases can have. Unfortunately, there are lots of policyholders who did not understand the ramifications of this kind of inflation protection when they purchased their policy. They sometimes find themselves locked into a policy that is constantly increasing in price and have few options for switching to a more affordable LTCI product due to their age and/or home health care circumstances. It is actually true that automatic inflation protection increases that are built into the premium cost from the inception of the policy will initially be more expensive than a periodic increase offer. But in my opinion, in most circumstances, it is better to lock in your inflation protection costs at an early age, and know that your premiums will remain stable, than take the chance on an ever-increasing premium that may eventually be too much to afford.

For long-term care, health insurance is vital, and LTCI (or Long-Term Care Insurance) can be an effective tool for protecting your estate and assets from the high costs of senior care. The best long-term care insurance should cover many care solutions, and even if you don’t think you need it now, it’s best to purchase LTCI early on.  Though the average nursing homes length of stay is significantly higher than most people believe, 2.4 years according to a report conducted by the National Center for Health Statistics, less than 20% of long-term care is nursing home care. Home care, home health care, adult day care, assisted living facility care and others constitute the overwhelming majority of senior care services.  Generally, the people who are in need of care are the ones responsible for paying the costs. Long Term Care is usually not covered by your personal health insurance plan or by the policy you may currently have from a present or previous employer. Medicare is usually the one that pays for only a small percentage of skilled nursing costs, while Medicaid provides health care coverage to Americans with lower incomes and can pay almost half of all nursing home costs.

Though in the future you will need long-term care, no one can predict the kind of care that may be needed or what are the exact costs involved. With Long-Term Care Insurance, you can plan and budget for a known and quantifiable premium for a policy that can protect you from potentially large out-of-pocket expenses. It can be beneficial to learn about the different types of long-term care health insurance policies available to you in order to match the most appropriate policy to suit your needs.

Types of Long-Term Care Health Insurance Policies: Some of the most commone type is indemnity which pays a maximum fixed benefit. A benefit amount is chosen at the time the policy is issued and actual expenses, up to a fixed predetermined dollar amount, are reimbursed as they are incurred. Integrated policies that pool benefits are becoming more popular today. The provisions which allow for a total dollar amount that may be used for various long-term care services with expense limits on a daily, weekly or monthly basis.

Because of the rapid increase in long term costs, most long-term care health insurance policies are now offerring inflation adjustments to help offset high anticipated future costs. Take note that long term care insurance policies only take effect when an individual is unable to perform activities of daily living or becomes cognitively impaired from dementia or related illnesses. Home care services such as physical therapy, skilled and unskilled nursing care and home health aide support provided by licensed agencies are generally covered as are intermediate, custodial and skilled care services provided in licensed nursing facilities. It should be noted that if any conditions are preexisting, benefits are often denied if care is needed within six months of the policy’s issue date for that condition.

What to Consider When Selecting the Best Long-Term Care Insurance: There are now over 100 Long-term Care Insurance products on the market today. Before selecting a long-term care health insurance provider and policy, please consider the following: Verify that the insurance agent is licensed to sell long-term care health insurance in your state and review ratings to ensure that the insurance provider is financially secure since you will likely need the policy for years to come.  Determine exactly which services are covered, e.g., skilled nursing home care, unskilled nursing facility care, home health care, adult day care, etc. in order to select the best when it comes to long term care insurance policy.  Examine the length of time benefits are provided for the various types of services covered; look for maximum lifetime benefit amounts.

Identify the length of time before pre-existing conditions are covered. Find out how long you must wait before benefits begin for services.  Inquire regarding coverage of Alzheimer’s and other related illnesses, the best long-term care insurance provider should allow for this. Review any premium provision waivers.  Analyze cost requirements to make sure your ability to make policy payments during retirement years.  As with all complex and important decisions, you should talk to friends and relatives to obtain recommendations on the best long-term care insurance and share experiences regarding various policies, review all paperwork, with the consultation of your attorney if needed, to ensure that you understand policy provisions and discuss economic implications with your financial advisor.

For those who are not familiar with the term, underwriting means the acceptance of risk in return for payment. In long term care insurance, this happens once an applicant becomes a policyholder, paying the insurance company in accepting the risk involved that may require them to pay out claims on the applicant’s behalf. A lot of people often wonder what the application process and the underwriting process for long-term care insurance are about and how all of it works. I’ll discuss all of that in this article. Why is underwriting necessary? The answer to this question has to do with how insurance functions.

Think of this kind of insurance as a pool of money into which different parties and events have made deposits. These funds can then be used to pay for the financial losses of individual depositors who have had to make a claim due to unforeseen circumstances. In the case of long-term continuous care, the funds could be used to pay for custodial care for the individual policyholders who may have developed a need for this type of care.

One primary objective of underwriting is to spread the risk among the pool of policyholders as equitably as possible in such a manner that is also profitable for the insurance company. The premiums in which each of the policyholder needs to pay are directly affected by how much money the insurance carrier expects to have to pay out for claims. This means that the insurance company has to manage the risk that it will have to pay money out of that central pool of funds. The more money they have to pay out, the higher the cost of the insurance for everyone. Risk management involves analyzing the potential risks for each applicant (and the associated costs of those risks) in order to set premium rates for policyholders and mitigate the potential financial losses for the insurer.

How are long-term care insurance premiums calculated? To manage the payout risk, each insurance carrier employs underwriting procedures to make sure that applicants with high-risk medical histories are not allowed into the insurance pool, which would thereby drive up the cost for everyone else. Obviously, while the risk involved is taken by the insurer directly informs the premium rates that policyholders must pay, there are different levels of risk which are reflected the different premium rates. This is actually how a long term care insurance company determines the premium rate that you will pay, which I will discuss further in a future article.  What underwriting procedures are employed? One of the first thing of underwriting that all carriers use is the application form where the applicant lists his or her relevant personal health history and authorizes the insurance company to examine their medical records.

Often the carrier will schedule a phone health interview that lasts for about fifteen to twenty minutes. One of the main purposes of this telephone call is to assure the carrier that the applicant should not have any cognitive problems that would become evident in the way the phone conversation is conducted.  Afterward the carrier will often request a copy of the medical records from the applicant’s primary care physician to verify that person;s overall health. If the applicant has been treated by a specialist for any serious illness in recent years, a copy of those medical records may be requested as well.  This is then where the whole process can sometimes bog down for a few weeks if the doctor’s office does not process the record request quickly. However, once the carrier receives the medical records, a final underwriting decision usually follows very quickly.

Long term care insurance is a good financial protection vehicle for anyone who has enough assets to protect and can comfortably afford the premiums. It can help ensure that all of the time and effort you have spent on getting enough retirement income is not lost due to the rising costs of long-term care. There are so many specific advantages for couples purchasing long-term care insurance. Consider this: most often, the healthier spouse acts as the primary caregiver.

If long-term care insurance did not exist, the healthy spouse often takes on the bulk of caregiving duties, just to try avoiding the expensive costs associated with either in home care or institutional care. In the long run, this will leave the caregiver almost as ill as his or her spouse. Long-term care insurance helps provide the necessary funds so that the healthy spouse can make sure that quality care is provided for the ill spouse while not further endangering his or her own health.

Will We Save Money? Couples can even save money on the purchase of long-term care insurance, as all major carriers will discount the cost of a policy by thirty to forty percent when both spouses are on the same policy. This can result in significant cost savings for married couples. The great news is that even those who are still single but have lived with someone else with whom they are in a committed relationship for more than a year may also receive the same discount for long-term care insurance.

What Should We Do If One of Us is Declined? If one spouse is approved for a policy but the other has significant health issues that preclude him or her from qualifying for long-term care insurance, this does not mean that the couple should decline coverage for the healthy spouse. Long-term care insurance is still an advantage for this couple because no one knows which spouse will need long-term care first. If there is or was a major reversal of health for the previously healthy spouse, the one who had health issues originally would be in an even more disadvantaged position as a caregiver.

The fact is, long-term care insurance would provide the funds needed for great quality care without damaging the health of the other spouse who was declined for the long-term care insurance policy. It is no longer reasonable to forego health insurance for one spouse simply because the other cannot qualify for a major medical plan. This is also true for  continuous care insurance. It may be disappointing that both cannot be covered, but the financial risks for each of them are still prevalent and should not be ignored.

The New York Times have just published an article entitled, ” Caring for the Caregivers ” and while I read the piece, I merely shook my head a few times thinking about the implications in the article and what I know from my perspective in the eldercare industry. One of the first things I learned in this business is that when it is acceptable people would want to age in place, meaning live in their homes with whatever help, be it homecare and/or technology, they will need for as long as they can. America’s aging population is increasing and there is a shortage of homecare aides to help this burgeoning group do what they want, which is to stay comfortably in their own homes.

But, as the article pointed out:

” According to the Labor Department, personal and home care aides are expected to be the second fastest-growing occupation in the United States from 2006–2016, increasing by 51 percent, slightly behind the expected growth in systems and data communications analysts. “

And who exactly are these people who come into the home to care for your parents? The NY Times article points it out succinctly, ” most home care aides are women, low income and minority, and many of them are immigrants. ” And although some of the states have taken steps to give them basic labor protections, most of these women work for agencies that under the existing federal guidelines are allowed to mark them as companions, leaving the caregivers with no rights to minimum wages and overtime. This is not to say all agencies take advantage of this fact, there are lots of agencies that have realized the efficiency of low-staff turnover and treating their workers accordingly. This sector of healthcare is growing rapidly and yet many of its workers are not protected. And they should be, because they are the backbone of the aging in place movement; the ones supporting and tending to the needs of our elders in their homes.  So what’s being done about this issue?

Right now, the Service Employees International Union is working to unionize homecare workers in every state. Washington and Montana have unionized homecare workers, while here in California, in-fighting is still ongoing between unions. Many have voiced the opinion that new laws and legislation has to be passed by the Labor Department to offer greater federal protection for homecare workers. I believe this is the best way to keep these workers safe. (Yep, that’s a nudge, President Obama, but I do realize you are very busy these days.) In the end, it all circles back to quality of care. Happy, well-paid, well-trained workers who work for agencies with low turnover are, and will always be, the ones delivering the highest quality of long term care to our mothers, fathers and possible even us one day.

Recently, I wrote about selecting a daily benefit for your long term care insurance (LTCI) policy. Ensuring that you start your policy with a daily benefit amount that matches the current cost of continuous care is vitally important. But there are a couple of additional steps you’ll need to take if you really want to ensure that the buying power of your policy benefits do not erode over time. Take note that inflation constantly eats away at the true value of LTCI benefits. This can only mean that a daily benefit that is adequate this year may be seriously insufficient once you actually need the care several years from now. That is the reason why LTCI policies typically offer some form of inflation protection to help ensure that your policy benefits will continue to keep pace with rising costs of the industry.

What are my options for inflation protection? Inflation protection options offered to policyholders can differ greatly from one carrier to another. But there are two options that are almost universally used by the majority of insurance companies: a 5% compound option and a 5% simple inflation protection option. Compounding interest will have a dramatically greater effect on the amount of total benefits available to you over a long period of time. Most investors know that to see the true effects of compounded interest, you need to be patient;as it can take several years to become readily apparent. This is also true of inflation protection in LTCI policies.

Now how to decide which choice will work best for me? Generally speaking, the more you wait to access the policy benefits, the more compound interest will benefit you. A lot of people seem to access their policy benefits after the age of eighty. For example, a person who is fifty years old could have thirty years or more before needing care. On the other hand, a person who is 65 may not see as much benefit from compounded interest. Another factor to consider is the how fast the cost of care has increased in the state where you plan to retire. There are some states in the South that have historically had much lower costs of long term care than other parts of the country. Other states, particularly those in the Northeast, have had regular and significant increases in the cost of care. A great place to start is with Genworth Financial’s interactive map, which shows the state averages for costs of care across the United Sates. The figures include nursing home, assisted living, home health care and home care costs. One cost-effective option is to raise the daily benefit along with simple inflation protection. This gives your benefits an initial head start and pushes the break-even point between simple and compound interest farther out on your timeline.

The Bottom Line: Weigh Your Options First. Since compounding costs more than simple inflation protection, it’s a good idea to ask for quotes on both to see how each choice works on your premium. A very good LTCI consultant will be happy to work with you as you select which inflation protection that will work best for you. There are no fast and hard rules in this area of policy design, but a healthy dollop of common sense and reason will usually help you make the best decision for your unique situation.

Private insurance companies sell LTCI policies to offset the costs of long term care. LTCI, like all insurance policies, requires premiums to help recipients avoid paying large amounts of money in the event of an illness or an accident. Premiums are based on the individual’s age at the time of purchase and are usually locked in for the life of the policy. LTCI covers the following, {depending on the policy you choose: and is dependent on the policy that you choose:}

1.Care in a skilled nursing facility

2.Care in an assisted living facility

3.Home health care

4.Adult day health care

When buying a LTCI policy, it allows the policyholder to select from many options, such as the amount of the daily benefit, the number of years the policy will pay benefits, and, after the applicant qualifies for a policy, the number of months or days before the policy will begin paying benefits.

It’s very important to evaluate policies carefully to see which of them offers the benefits you require with a premium that fits your budget. Policies differ in their benefits, contract conditions, deductibles and premiums. It is also important to consider the rising cost of health care. Be sure the LTCI policy provides inflation protection for benefits to increase as health care costs continue to rise. Policies are generally labeled according to the place in which benefits are paid.

Homecare-only policies pay for care at home and in an adult day care or adult day health care facilities. Make sure the policy includes both types of day care. Facility-only policies pay for care in a skilled nursing facility and in a good assisted living facility. Comprehensive policies pay for care in a skilled nursing facility, assisted living facility, adult day care or adult day health care facility, and at home.

Since LTCI claims are always paid many years after the purchase of the policy, it is imperative to check the following:  Financial strength of the company. The industry’s major rating services are A.M. Best , Duff and Phelps, Moody’s, Standard and Poor’s and Weiss Ratings . Reputation and claims-paying history of the company. Contact your State Insurance Department for more information on specific private insurance companies.

Applicant must be healthy at the time of application. Each insurance company has individual requirements and/or limitations. Not sure when is the right time for you to buy an LTCI policy? Or how to assess what you will need from a policy? Visit our Expert Column on Financing Long Term Care to find out more.

A vital ingredient in any successful long-term care insurance plan is to have an affordable policy without sacrificing good coverage. If you have recieved quotes from several highly rated insurers and yet find that the premiums are still too much to bear, there is no need to panic and assume that long term care insurance costs too much. You can just adjust the benefit amounts of the original quotes to bring the premiums more in line with your expectations, and ensure an affordable policy.

Know the Costs of Long-term Care Where You Live

One way to lower premium costs is to make sure you know what the actual costs of care are in your area. There are lots of statistics used when talking about long-term care costs and often these are based on national averages. The actual cost of home care, assisted living facilities and nursing homes in your particular area may be much lower. You can always find out more about local long-term care costs by either downloading the latest Genworth Cost of Care Guide or by calling a few local home care agencies and long-term care facilities to ask for comparison rates.

Adjust Your Benefit Period

Another way to lower long-term care insurance premiums is to use a shorter benefit period. Many consumers feel that unlimited benefits are necessary for quality coverage. A recent study published by the American Association for Long-Term Care Insurance in their 2009 Sourcebook discovered that only eight percent of those people who bought a three year benefit period exhausted the policy and yet still need care. Only a little over one percent of those with a five-year benefit period will see their claims closed due to policy exhaustion. This can only mean that lowering the benefit period is actually a practical way to lower insurance costs without sacrificing vital coverage.

Reexamine the Elimination Period

One way to bring down long-term care insurance premiums is to increase the elimination period (the number of days after your care begins that precedes the insurance company’s first payment of claims).

Take note that almost 90% of individual continuous care insurance policies use an elimination period between ninety and one hundred days based on the same 2009 Sourcebook referenced above. If you have initial quotes used a thirty-day or sixty-day elimination period, you may be able to significantly lower the premiums by choosing a ninety-day elimination period instead. Remember that there are other ways that an experienced long-term care specialist can help make this kind of insurance which is affordable for you. If you ask for suggestions on lowering your premiums, the specialist will be happy to work with you to craft a long-term care insurance policy that is effective and affordable.

No one likes to pay insurance premiums of any kind and long term care insurance is no exception. The ony why we pay these premiums is because the alternative leaves our retirement income and investment assets exposed to high risk if long-term care becomes necessary and we have to pay for the care ourselves. It is no secret that the cost of health care facilities care can quickly drain your retirement funds and force a retiree into financial ruin. With purchasing a long term care insurance, a policyholder is accepting a small loss each year in the form of premiums paid. This small loss helps ensure that he or she will not be wiped out financially by unmanageable long-term care costs in the future.

3 Choices for Premium Payment Periods

People who are unfamiliar with long-term care insurance often wonder how long the premiums will need to be paid. The answer is that there are three choices for the premium payment period usually offered by insurance carriers. The most popular choice by far is a ” lifetime ” payment period that requires the payment of premiums until death or until the policy is activated. Some object to paying these premiums for such a long period of time. My reply to these objections is that I usually ask prospective clients to consider other forms of insurance that they currently have right now. For instance, would they expect to only pay premiums for health or would they prefer medical insurance for a short time only, or do they plan on paying those premiums for life? Would’t they expect to pay auto insurance premiums for as long as they drive? Isn’t it reasonable to pay homeowners insurance premiums for as long as they own a home? As long as the financial risk is present, the payment for the insurance premiums will always be there. Since the risk of needing long-term care is present for as long as we live, long term care insurance premiums can be expected for the remainder of our life.

Shorter Premium Payment Periods Equal Higher Premiums

The second and third options for payment of long term care premiums gives the policyholder to condense all of those expected premium payments into a shorter time period. For those under fifty-five years of age, a ” pay to age sixty-five ” option may make sense. For others a ” ten-year pay ” option may be a good choice. Because the expected premium payments over a lifetime are simply condensed into a shorter timeframe, the cost of these premiums is much higher. Therefore, these options usually make sense for policyholders who can take advantage of tax deductions that help them reduce the overall cost of their long-term care insurance.

Planning for long term care is complicated. Each person’s needs are unique, therefore, the cost of long-term care varies greatly. Some social and physical assistance is available for free or at a low cost, while very expensive nursing home or home health facilities can cost upwards of $200 per day. There are many different ways to finance long-term care. You will probably need to use a combination of payment sources, which may include long-term insurance, Medicare, Medicaid or other programs, in addition to your own resources.

It is essential to consult a professional such as an elder law attorney, financial planner or an accountant when planning for long-term care, this person should be well versed in estate planning, public programs like Medicaid, and the issues and needs of older persons. These long term care professionals often work as a team. Gilbert Guide would like to suggest getting a second opinion before making any final decision especially on financial matters. Check out our Learning Centers and Expert Columns where our long-term care assistants will point you in the right direction, raising awareness of the issues you need to know about when planning for your future.

Here are many of the options available to reimburse for senior care: (Click on the links below to see what else is covered outside of long-term care.)  Medicare, which for long-term care, covers some skilled nursing care either in a nursing home or in the home along with hospice care.  Medicaid, which is the partially federally funded yet state-operated program provides medical care for certain low-income individuals and families who have limited resources. Medicaid usually covers nursing home care, however for some certain states, funding is available for assisted living, homecare or home health care.

For Medigap, whose policies are available to Medicare, A & B enrollees who are not Medicaid recipients have the option to sign up for and covers some nursing home care.  Managed Care (HMO) provide enhanced services for nursing home care above Medicare’s basic offering along with additional medical assistance outside of long-term care. Long-term Care Insurance (LTCI) actually covers everything, from non-medical homecare to nursing care; however, it depends on the type of policy you purchased. Veterans Benefits will cover adult day health care, home health care, respite care and hospice care.