Archive for October, 2012

Short Term Care Insurance: Why My Wife And I Bought It

October 23, 2012

Here is an update on a new kind of emerging care insurance…to pay the cost of short term, or recovery care.  Policies are far less expensive than traditional long term care insurance and medical qualification is a little easier.  What is it and for whom may it be appropriate?

Let’s first look at what short term care insurance does not do.  It does not pay for extended care beyond a year.  Other than that, it works much like traditional long term care insurance. 

Short term care insurance policies generally have short Elimination Periods of zero, 15, 20 or 30 days.  The Elimination Period can best be thought of as the policy deductible…you will not be reimbursed for the “X” number of days of care.  After deciding on the Elimination Period, you then select a Daily Benefit of about $50 – $300 per day.  Of course, the higher the Daily Benefit (and the shorter the Elimination Period), the more costly is the policy.  Benefit Periods usually range from 100 days to almost one year.  The Benefit Period is most often the number of days for which you can be reimbursed for paid care, although one insurance company offers a “pool” of benefit dollars (better).  Some policies allow for optional inflation protection.

How sick or hurt do you have to be before benefits are paid?  The benefit triggers are similar to those of traditional long term care insurance policies.  Typically, you need to be certified as needing help with at least two of the six Activities of Daily Living (bathing, dressing, eating, continence, toileting, and transferring), or as having a “severe cognitive impairment”…think Alzheimer’s or other forms of dementia.  unlike traditional long term care insurance, a written plan of care is not required nor must the need for assistance be expected to last at least 90 days.

Where may you receive care?  All of the policies I analyzed pay for care in a nursing home.  Most, but not all, cover assisted living facilities.  Reimbursement for home care costs differed with each insurance company.  One company’s policy covers everything from companion/homemaker through Registered Nurse-level home care.  Another only covers home care that is provided by a nurse or therapist (physical therapist, speech therapist, ect.).  Yet another does not cover home care at all.

Who should consider short term care insurance?

1. Those with a traditional long term care insurance policy having a 60-day or longer Elimination Period.  My own (and my wife’s) really good long term care policy has a 90-day Elimination Period.  I became concerned about not being reimbursed for the first 90 days.  Depending upon our care situation, that could cost us tens of thousands of dollars.  Contact me and I will share with you the short term care policies we did buy and why we selected them.

2. People with roughly $20,000 – $60,000 in assets who want protection against the cost of care during a relatively short recovery following a hospital stay.  Long term care insurance is generally not advisable for folks with less than about $60,000 net worth, but less expensive short term care insurance may be.

3. People who know they need traditional long term care insurance, but have waited too long to buy it because: a) they have become older while waiting and long term care insurance is no longer affordable for them or, b) They no longer qualify medically for long term care insurance but may still be able to obtain a short term care policy.

Short term care insurance, while very reasonably priced, is not the complete answer to solving your long term care planning problem.  However, as I was quoted recently in the Wall Street Journal, “Almost any…care insurance is better than no…care insurance.”  (I actually said “long term care insurance”, but my statement applies to short term care as well.)  Insurance that will save you $20,000 when you need care is going to save you $20,000 more than your current “plan” will.

Important:  This is not a do-it-yourself project.  Like traditional long term care insurance policies, short term care/recovery care policies are not standardized…they vary greatly.  For your own peace of mind and pocketbook, work with a specialist who can help you select the company and policy that will affordably cover the care you will likely need.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care (and short term care) insurance policies vary widely 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

5 Reasons To Buy Long Term Care Insurance Now (instead of later)

October 23, 2012

If you have concluded that: a) It is possible that you could live long enough to need long term care services and if you did, b) the consequences of needing care would be a disaster for your family, then:

Here are five reasons why it does not make sense to wait any longer.

1. Waiting to buy long term care insurance will cost you more, over time, because of your age and care cost inflation.  Here is an example using real numbers from a leading long term care insurance company.  Assume a couple, both age 50 and both qualifying for the best rate class.  Each has a $7,200 monthly benefit, $438,000 total benefit pool, and built-in 3% compound inflation protection.  Today, the annual premium for each is $2,273.  If they wait only 5 years to age 55, they will need to buy a $8,340 monthly benefit (assuming 3% cost of long term care inflation).  At age 55, the annual premium becomes $3,011 for each.  Comparing the $2,273 annual cost for 35 years (until the couple reaches age 85) with $3,011 for 30 years, results in the additional cost of waiting = $10,775 for each person, or $21,550 for the couple.  Even though paid premiums are paid for five fewer years, the total cost was higher as a result of waiting…and this is based upon what we actually know  today.  Waiting will likely become even more costly.

2. People do not usually become healthier as they grow older.  Another significant determinant of long term care insurance cost is your health at the time you apply.  As a result of waiting, you may no longer qualify for the same rate class.

3. You may not qualify at all.  All of us are but one diagnosis away from becoming uninsurable.  That one diagnosis could happen on the next visit to your doctor.  Below age 50, 11% of applications are declined coverage.  Ages 50-59, 16% are declined.  Ages 60-69, 24% are declined.  Ages 70-79, 41% are declined.  Age 80 and over, 63% are declined.*

4. If a something happens to you while waiting to apply, you will not be covered…and then you will remain uninsurable.  How much would this cost your family?  A policy could have paid for your care.

5. The ongoing trend is for new policies to cost more than those issued just a year or two ago.  Insurance companies are creatively calling these higher charges for new policies “rate refreshes”.

The take-away:  If you are ever going to protect yourself from the high cost of long term care services, do it today.  If not with me, and not for you, please do your family a favor and call another independent insurance broker specializing in planning for long term care. 

*Source: American Association for Long Term Care Insurance, 2012-2013 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 widely 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

2 Policy Benefit Limits

October 1, 2012

The first, maximum daily or monthly benefit limit, defines the greatest amount that can be reimbursed for qualifying long term care expenses per time period.  A daily limit is more common on older policies.  Here is an example of a daily limit: Assume you have a $200 daily cap and you spend $50 for care in a single day.  You will be reimbursed by your long term care insurance policy $50 for that day.  If you spend $300 in a single day, you will be reimbursed $200.

Instead of a daily benefit limit, most policies issued within the past few years have a monthly cap.  Is a $6,000 monthly cap the same as a $200 daily limit (aside from the question of 28, 29 and 31-day months)?  No, they are not the same. 

A $6,000 monthly cap is better.  Here is why: Let’s continue with your $200 per day limit.  On one day, you spend $50 for two hours of home care, and on the next day you spend $300 for a visit by a speech therapist.  Although you actually spent a total of $350 during the two days, you will only receive $150 in benefits ($50 + $200).

On the other hand, with a $6,000 monthly benefit (assuming you did not exceed $6,000 for that month) you will be reimbursed the full $350.  A monthly maximum limit is more flexible than a daily limit.

Long term care insurance factoid: My own MassMutual policy, issued in 2011 has an uncommon weekly benefit cap.

The second limit, total benefit amount (or “benefit pool”) tells you the maximum amount that can be paid in benefits over the life of the policy.  This can range from less than $100,000 for a very small policy to more than $1,000,000 or even an unlimited amount.  Your policy specification page will almost always state this amount as of the date your policy was issued.  If your policy does not have inflation protection, the total benefit amount will never increase.  With an inflation option, your total benefit amount grows over time.

Related to the two policy limits discussed above is the Benefit Period.  The benefit period answers the question, “How long will my policy continue to pay benefits if I am spending the maximum daily or monthly amount for long term care services?” 

Example 1: The total benefit amount is $438,00 and the daily cap is $200.  In this case, the benefit period is six years ($438,000 divided by $200 = 2,190 days.  2,190 divided by 365 days in a year = 6 years.)  Example 2: The total benefit amount is $360,000 and the monthly cap is $6,000.  Here we have a benefit period of five years ($360,000 divided by $6,000, then divided by 12 months in a year = 5 years.).

Does this look like way too much for you to remember or even worry about?  It is OK.  Just call me and I will be glad to explain these concepts as they apply to your particular policy.

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