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70% of seniors will require Long Term Care*. Are you prepared for this financial burden?

Writer's picture: Sundy ClarkSundy Clark

Updated: Aug 28, 2024

We may not like to think about aging, but it's a reality we need to be ready for. As we grow older, our health can become more unpredictable, and it's impossible to know how much care we'll require in our later years.


Let's learn about long-term care and how to plan for the future so that we can minimize the financial stress and burden on our families.


How important is it?


Long-term care insurance is crucial as it addresses a significant financial risk that many will face in their lifetime. According to the U.S. Department of Health and Human Services, approximately 70% of people aged 65 and older will require some form of long-term care services during their lives*​​. Women and single individuals are statistically more likely to need long-term care than men and married individuals.


Without adequate coverage, the costs of long-term care can quickly deplete savings and financial resources, leaving individuals and their families in a precarious financial position.


What qualifies long-term care?


Under federal regulations, to qualify for long-term care benefits, a U.S.-licensed health care practitioner must certify either: Severe cognitive impairment Lack of memory; orientation; sense of person, place or time; abstract reasoning; or judgment relating to safety (dementias, including Alzheimer's, would qualify) OR Inability to perform 2 activities of daily living (ADLs) The 6 ADLs are bathing, continence, dressing, eating, transferring (out of bed, chair or wheelchair), using the toilet


The different types of policies


It is important to understand what types of policy fit your needs and purpose the best. There are essentially 3 types of policies.


Traditional Long-Term Care Insurance


Traditional LTC insurance is a standalone policy designed specifically to cover long-term care expenses. Policyholders pay annual premiums, usually for life, to maintain coverage. If care is needed, the insurance pays out benefits. However, if the policyholder never requires care, the premiums paid are not refunded. Traditional policies often have lower initial premiums but can be subject to premium increases over time. Fewer insurers offer these policies now, making them harder to find.

 

Linked-benefit policies:


If you are primarily concerned with LTC coverage and have less need for life insurance coverage, then a linked-benefit policy may be a good option; it offers an extension of LTC benefits beyond the life insurance coverage; premiums are guaranteed never to increase and are typically funded with a single premium or a variety of payment schedules (e.g., 10 years). The advantage of this type of policy is that if you do not use the LTC benefits, your beneficiaries will receive the death benefit or if you cancel your policy at any given time, you can get your paid premium back.

 

Life Insurance with Long-Term Care Riders


long-term care rider is an addition to an existing life insurance policy. It allows policyholders to use a portion of their life insurance death benefit to cover LTC expenses. This option can be cost-effective if added early in life, but it will reduce the death benefit available to beneficiaries. Riders are flexible and can be tailored to meet specific needs.


Key features to consider when selecting LTC policies


Cash Indemnity vs. Reimbursement Policies


The type of long-term care insurance policy you choose can significantly impact how benefits are received and utilized. Here's a breakdown of the two primary models:


Reimbursement Policies:


  • How They Work: You are reimbursed for qualified long-term care expenses up to the monthly benefit amount of your policy. This requires submitting receipts and proof of expenses each month.

  • Limitations: Reimbursement policies often exclude informal care provided by family or friends. They typically cover only formal professional care.

  • Example: If your policy has a $7,500 monthly benefit and you submit $5,000 in qualified expenses, you will be reimbursed $5,000. The remaining $2,500 can be claimed in the future.


Can you imagine the time when you or someone you are caring for is need of LTC, but you still need to go through the trouble to collect receipt to get reimbursed month by month?


Cash Indemnity Policies:


  • How They Work: You receive a fixed monthly benefit regardless of the actual expenses incurred. No receipts or proof of expenses are required.

  • Advantages: These policies cover both formal and informal care, giving you flexibility to use the benefits as needed for caregiving, household help, medical expenses, or other needs.

  • Example: With a $7,500 monthly benefit, you receive the full amount each month, regardless of your specific expenses.

Inflation protection options


Some policies offer inflation adjustment rider with different rate levels. The monthly benefit amount will increase whether claims are being paid. These riders have their own premium amounts.


LTC Fixed Rate Inflation Protection Rider:  


  • 3% simple interest

  • 3% compound interest

  • 5% compound interest


International Benefits


If you are not sure where you would like to retire, policies that allow benefits to be paid internationally may be of good feature. Insureds residing in a foreign country when the need for benefits arise are not required to return to the United States for certification.

Planning with an appropriate long-term care insurance policy ensures that you have the necessary resources to maintain your quality of life and receive the care you need, whether through professional services or support from loved ones.


Want to know more about how to plan for your specific needs? Contact us today!


 


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