Archive for August, 2012

Some (not so) Trivial Facts About Long Term Care Insurance*

August 25, 2012

Industry-wide 2011 sales by Elimination Period:  The Elimination Period is really the “deductible” for a long term care insurance policy.  It is measured by the number of days that a policy owner needs to qualify before receiving benefits.  Almost all policies sold today have a single Elimination Period that can be satisfied by any combination of  home care, adult day care, assisted living, or nursing home days.  The Elimination Period needs to be satisfied only once in a lifetime (for most policies). 

Less than 30 days, 0.9%.  30-89 days, 3.1%.  90-100 days, 92.0%.  Over 100 days, 4.0%.  A 90 day Elimination Period seems the best compromise between holding down premiums and dealing with a large out-of-pocket cost if care is needed in the later years.

Industry-wide 2011 sales by Inflation Protection options: 5% Compound for life, 33.8%.  5% Simple for life, 11.6%.  3% Compound for life, 23.5%.  CPI-based formula, 8.1%.  Future Purchase Option, 8.2%.  None, 4.0%.  Other, 10.8%.  As 5% Compound has become increasingly expensive, I expect fewer new policies with 5% Compound and many more with 3% Compound inflation protection.

New claims opened by attained age in 2011:  Under age 50, 0.3%.  Age 50-59, 1.7%.  Age 60-69, 8.4%.  Age 70-79, 24.1%.  Age 80 and over, 65.5%.  In every age grouping, women account for more claims than men do.  Why do you think that is?

So why should long term care insurance be purchased before age 50?  First, because the younger you are when applying, the lower the policy cost per $1,000 of benefits.  And the longer you wait, the more $1,000s of benefit you will need to buy because of inflation.  Second, the longer you wait to buy, the greater the likelihood that and illness or injury will have caught up with you…then you will only qualify at a higher premium rate class, or not at all.  Third, the peace of mind you enjoy knowing that you and your family are protected simply will not be there while you are waiting.  Fourth, and a new reason for not waiting:  Available new policy benefits are being reduced as policy costs are rising…this is happening now.

Where Newly Opened Claims Began (in 2011):  Home Care, 50.0%.  Assisted Living, 19.0%.  Nursing Home, 31.0%.  The trend is more home care and less nursing home stays. 

Industry-wide 2011 sales by Benefit period:  Less than 3 Years, 11.5%.  3 Years, 33.8%.  4 Years, 25.5%.  5 Years, 20.0%.  6-10 Years, 5.5%.  Lifetime, 3.7%. 

The Benefit Period is the length of time the policy total benefit pool would last if benefits were constantly paid out at the maximum daily or monthly rate.  Another way of looking at the Benefit Period is it is the minimum length of time that policy benefits could be paid.  If your policy reimburses you for what you spend on qualified care up to your daily or monthly limit (most do), and you spend less than your daily/monthly limit, then your benefits will continue to be paid out for a longer period of time than indicated by your Benefit Period.  The concept of “Benefit Period” causes more confusion than any other part of a long term care insurance policy.  Please contact me if I have not made this clear.  By the way, most of my new clients are purchasing policies with either a 5 year or 3 year Benefit Period.  A lifetime Benefit Period has become all but unavailable.

Industry-wide sales to couples and singles in 2011:  Couple and both purchased, 46.5%.  A couple but only one purchased, 32.0%.  Purchased by a single individual, 21.5%.  “Couple” means either a married couple or two people living together in a committed relationship (no judgement intended).  Most insurance companies offer a significant discount to a couple purchasing long term care insurance together.

*Data reprinted by permission: American Association for Long Term Care Insurance, 201202013 LTCi Sourcebook, www.aaltci.org.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2012