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Long-Term Care Insurance Information
Like many of life’s realities, the issues surrounding long term care and the need to be prepared to deal with them are often something people prefer not to think about. Having a plan in place to address the possibility can go a long way toward easing some of the related concerns.
Because of old age, mental or physical illness, or injury, some people find themselves in need of help with eating, bathing, dressing, toileting or continence, and/or transferring (e.g., getting out of a chair or out of bed). These six actions are called Activities of Daily
Living–sometimes referred to as ADLs. In general, if you can’t do two or more of these activities, or if you have a cognitive impairment, you are said to need “long-term care.”
Long-term care isn’t a very helpful name for this type of situation because, for one thing, it might not last for a long time. Some people who need ADL services might need them only for a few months or less.
Many people think that long-term care is provided exclusively in a nursing home. It can be, but it can also be provided in an adult day care center, an assisted living facility, or at home.
Assistance with ADLs, called “custodial care,” may be provided in the same place as (and therefore is sometimes confused with) “skilled care.” Skilled care means medical, nursing, or rehabilitative services, including help taking medicine, undergoing testing (e.g. blood pressure), or other similar services. This distinction is important because generally Medicare and most private health insurance pays only for skilled care–not custodial care.
How Long Term Care Insurance Works
Long Term Care Insurance is a retirement planning tool. It can help protect your assets and family from the high cost of long term care services. Long term care insurance policies provide great flexibility in benefit design. This lets you choose long term care insurance protection that best suits your financial and personal needs. Long term care insurance can cover all types of settings: Home care, adult day care, assisted living facilities, nursing facilities and hospice care.
Like life insurance, you select a long term care insurance policy value such as $250,000, $500,000 or a $1,000,000. The table below outlines the process of choosing your long term care protection. Some choices will vary by company. We can provide recommendations based on your health history, financial situation and other factors.
Choose Your Long Term Care Insurance Benefits ( AxB = C )
(A) MAXIMUM DAILY BENEFIT
(B) BENEFIT PERIOD
(C) POLICY MAXIMUM AMOUNT
Select a Maximum Daily Benefit from $50 to $500 per day.
This selection is generally based upon the cost of care in your area.
Select a Benefit Period.
· 2 Years (730 days)
· 3 Years (1,095 days)
· 4 Years (1,460 days)
· 5 Years (1,825 days)
· 6 Years (2,190 days)
Your Policy Maximum Benefit will equal the Maximum Daily Benefit Multiplied by the Benefit Period you select.
For Example:$100 (Maximum Daily Benefit) x 730 days (2 year Benefit Period) = $73,000 Policy Maximum
SAMPLE POLICY 1: $200 DAILY BENEFIT X 3 YEARS (1,095 DAYS) = $219,000 POLICY MAXIMUM
SAMPLE POLICY 2: $300 DAILY BENEFIT X 5 YEARS (1,825 DAYS) = $547,500 POLICY MAXIMUM
SAMPLE POLICY 3: $500 DAILY BENEFIT X 6 YEARS (2,190 DAYS) = $1,095,000 POLICY MAXIMUM
Indemnity Vs Reimbursement Long Term Care Insurance Policies
Now, let’s look at Indemnity Vs Reimbursement long term care insurance plans. And there is also a cash benefit plan, which is a close cousin to the indemnity long term care insurance policy. Each type has its advantages, generally based on the needs of the insured at time of claim. Understanding the differences at the time you buy insurance helps you make the best choice for your future needs.
Reimbursement long term care insurance policies pay for the actual daily (or monthly) cost of care. For Example, if your selected daily benefit is $100 and the actual cost of care you receive is $90, your long term care insurance policy will pay $90. Any excess daily benefit remains for your future care needs. If your care cost is $120 daily, you will receive $100 per day and you must pay the excess amount.
A potential advantage to this type of payout is that your benefits can last for a longer period of time, if your actual cost of care is less than your daily benefit. In other words, the 3-year plan referenced above could pay benefits over 5 or more years depending on how fast you draw down the policy maximum.
Indemnity long term care insurance policies pay your selected daily benefit as soon as you qualify for benefits. You receive this amount regardless of the actual cost of care. For example, during early stages of home care a person may incur a lower cost of care due to more limited needs. Or care costs could be lower because their spouse is providing some care. A reimbursement plan pays the actual cost of care, while the indemnity plan pays the maximum daily (or monthly) benefit. Indemnity plans even allow you to put money in the bank. The advantage of an indemnity long term care plan is the potential to receive more money each month than you incur in expenses.
Cash Benefit long term care insurance policies pay a cash benefit regardless of your actual expense. This allows you to use the payment for anything or anyone (caregiver can even be a family member), even anywhere in the world. There is little difference between an indemnity policy and a cash benefit policy when receiving care in an expensive long term care facility. Yet, there could be a big difference between a cash benefit and a reimbursement policy when receiving care at home. Because a cash benefit policy will pay for anyone or anything. For example, typical reimbursement and indemnity long term care plans exclude payments for family members providing care. But a cash benefit policy would not limit you in this respect. It pays your “cash benefit” as soon as you qualify for benefits.
Long Term Care Annuity Products
Long Term Care Annuity Definition
A long term care annuity is a type of long term care hybrid product. By definition it is an annuity with a long term care rider. These policies have gained significant popularity in recent years.
Long term care annuities are also referred to as asset based long term care plans. The term asset based is because they are funded with assets rather than ongoing premiums. For those with the assets to fund this type of policy there can be significant advantages. Linked benefit long term care plans is also a synonymous term for long term care hybrid products. Linked benefit referring to the long term care insurance linked as a rider with the annuity.
How A Long Term Care Annuity Works
Long term care annuity hybrid policies combine an annuity with a long term care rider. The policy creates a pool of money to cover long term care costs. Annuities with long term care benefits include the advantages of a traditional annuity, with the added benefit of long term care protection.
A popular way to fund a long term care annuity is by repositioning an existing annuity or other existing asset. Such as bank CDs, savings, annuities, life insurance, IRAs or retirement plans. You may be able to increase your current return while protecting yourself with tax free long term care benefits.
Long Term Care Annuity Advantages
No Premium Increases – Long term care annuities can be funded with a single premium payment. This gives you the benefit of never having to be concerned about future premium increases. With traditional long term care insurance, guaranteed level premiums are typically not available. Knowing you will never have premium increases can be a significant advantage of a long term care annuity. Avoiding unexpected premium increases can provide peace of mind beyond the long term care protection.
Simplified Health Requirements – Long term care annuity policies may also have less stringent underwriting criteria compared to traditional long term care insurance. This can make an annuity with long term care benefits a great fit for someone who cannot health qualify for traditional long term care insurance.
Premiums Invested Are Not Lost – Unlike traditional long term care insurance, premiums invested are not lost if you do not use your long term care benefits.
Long Term Care Life Insurance Hybrid Products
Long Term Care Life Insurance Hybrids
This type of LTC protection combines life insurance with a long term care rider. These policies have grown in popularity in recent years. With the best long term care life insurance hybrids having gained significant market share.
Linked benefit long term care plans is a synonymous term for long term care hybrid products. Linked benefit refers to a long term care insurance rider linked to a life insurance policy. This linked benefit long term care protection joins life insurance, whole life or universal life policies, with a long term care insurance rider.
You can fund a long term care life insurance policy with either a single premium payment or over time. Like traditional life insurance, there is a death benefit that will transfer assets to your heirs. Or, the death benefit can accelerate to cover your long term care needs.
Asset based long term care plans is another term for this type of LTC protection. Here are some ways that long term care life insurance differs from traditional long-term care insurance:
- Premiums invested are not lost if you do not use the insurance.
- Asset based long term care life insurance can be a great fit if you want to protect your assets against long term care costs and want to transfer assets tax free to your heirs.
- Health underwriting varies by company and may be more or less restrictive than a traditional long term care insurance policy.
Long Term Care Life Insurance Advantages
Estate Planning Benefits – Life insurance has many uses in estate planning, including: Estate liquidity to pay taxes, debt repayment, income replacement and wealth accumulation. Because a hybrid life insurance long term care policy is built on a life insurance policy, any unused policy value passes tax-free to the named beneficiaries.
Guaranteed level premiums can be an advantage of asset based long term care plans. The premium payment can be in the form of a Single Premium or spread out over several years. Guaranteed level premiums are generally not available with traditional long term care insurance. Knowing that premiums can never change allows clients to avoid unexpected premium increases.