When you are first investigating the Long Term Care insurance market, one of the early questions is this…how much LTC insurance should you buy to protect yourself? For some people new to Long Term Care, the question is even a simpler one…what exactly are we buying? Life insurance is pretty easy…we’re providing an amount of money in case someone passes away. With Health insurance, we’re covering potential medical bills with certain levels of cost-sharing (deductibles, copays, etc). What about Long Term Care?

First, let’s understand what we’re buying. A Long Term Care event is exactly that…it’s a protracted period of mental and or physical impairment. It might follow a stroke or injury or it might be the result of age. How does the insurance carrier determine if an LTC event has occurred? With life and health insurance, that’s a little more clear cut. With LTC, there are certain qualifying events that have to occur in order to trigger the benefits. This may be the inability to bath one self or to walk. We have an entire article that deals with these benefit triggers. Depending on the carrier, you usually need to show a certain number (say 5) of the different triggers in order to have benefits start. That takes us to our next piece…what exactly is the benefit?

Long term care benefits are generally built around a certain amount of money the LTC carrier will pay or reimburse per day for a period of time, after a waiting period. Let’s break this down a little. Going backwards, let’s start with the waiting period. The waiting periods usually range from 0 days to 100 days. The longer the waiting period, the less expensive the coverage. As an example, if we trigger the benefits on Jan 1st and we have selected a 90 waiting period, the Long term care insurance carrier will start paying a daily amount on April 1st (or there abouts). Next the period of time aspect. At the time of enrollment, you select a period of time during which you’ll receive the daily benefit. For example, if you select 3 years, the daily benefit will be paid starting April 1st in the above example for up to 3 years (as long as benefits remained triggered). Finally, the easiest part. Long Term Care is built around a daily benefit. Why daily?? Well, a time element is built right into the name of the coverage. “Long Term” establishes that care is needed for a period of time and the daily amount is the best approach. How much daily amount should we choose?

That partially depends on the type of long term care insurance plan we select in terms of what will be paid for. It usually breaks down into three main categories. Let’s start with the most traditional which is nursing home. Essentially, this benefits means that the carrier will reimburse (after waiting period for period of time) for actual expenses associated with facility based care.

The second category, which was a major expansion of the market, was home health care. Essentially, this means the carrier will reimburse for care given at home. The final and most recent addition is cash benefit. The carrier will pay a full daily amount one benefits are triggered.

The type of benefit affects how much since each increase in flexibility (nursing to home to cash) will cost you more in premium per dollar of benefit. $1 of nursing premium might buy you 80 cents of home health care and 60 cents of cash benefit. That being said, how much is enough. Based on current costs, it safe to assume $150 daily nursing home costs. Equivalent home health care might translate into $170. Our recommendation is to insure 80% of the potential risk (think of it as an 80/20 plan) to help reduce premium costs. If you are closer to the expected age range of LTC events (approx 65-75) then inflation protection may not be needed. We have written extensively on inflation protection and its importance. Keep in mind that $150 daily today is not the same in terms of what it can afford as $150 15 years from now. These amounts are a general guideline but we would be happy to help you with your specific Long Term Care needs.

Author Bio: Dennis Jarvis is a licensed Long Term Care insurance broker with extensive knowledge of the LTC plan market. Quote Long Term Care Insurance

Category: Finances
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