Don't Be Fooled by the Name - New Policy Type Can Be Valuable Answer for Long-Term Care Expenses
As life expectancy increases and medical advancements extend our lifespans, the challenge of funding retirement and affording necessary care in old age becomes more pressing. According to the National Center for Health Statistics at the Centers for Disease Control and Prevention, life expectancy is rising. Individuals between 50 and 54 can now expect to live up to 82.2 years, while those in the 55-59 age bracket have a life expectancy of 80.1 years.
For men who are currently 80 years old, the expected lifespan extends to 87 years; for women, it's 89—remarkably, reaching the age of 90 increases life expectancy further, with men likely to live up to 95 and women up to 96 years. This burgeoning longevity underscores the growing need for comprehensive retirement planning and long-term care solutions.
Recognize that long-term care is needed for various reasons, sometimes even at younger ages. As you grow older, the likelihood of requiring assistance with daily living activities (ADLs) or supervision due to dementia escalates. Whether it's due to chronic illness, accidents, mobility issues, dementia, or simple frailty, the necessity for care arises. Regardless of the cause, the financial implications on your income and assets can be significant, and the emotional and practical toll on your family can be transformative.
Aging Increases Long-Term Care Risks – Cost of Care Rising
The cost of care, be it in-home care or facility care, is increasing rapidly, and those costs vary depending on where you live, according to the LTC NEWS Cost of Care Calculator. Traditional health insurance, including Medicare, will not pay for most of this care, leaving you and your family responsible one way or the other.
The federal government and common sense tell us that many of us will need help at some point in our lifetime. The U.S. Department of Health and Human Services says half of us will need long-term care if we reach age 65. A flip of a coin, it will either happen or not, but what if it does happen?
Long-Term Care Insurance has been the primary insurance product that addresses the costs and burdens of aging. The products are federally regulated, and the states also regulate them. The regulations offer consumer protections, standard benefit triggers, and tax incentives. Unlike the older "legacy" products, today's Long-Term Care Insurance is designed to be both affordable and rate stable.
So-called "hybrid" policies offer a combination of life insurance or annuity with a qualified rider for long-term care that meets federal guidelines. These products have a death benefit and a premium that can never increase. However, they are a bit more expensive, but you have a death benefit with the product.
Although many find both products reasonably priced, some people may struggle to fit them into their budget. However, the primary concern for others isn't the cost but rather the underwriting process.
Pre-existing health conditions can often render Long-Term Care Insurance challenging or prohibitively expensive. Yet, an insurance product gaining attention offers a viable solution for millions who might otherwise struggle to prepare for the implications of aging and evolving health issues.
What is Short-Term Care Insurance?
The product is a cash indemnity policy that looks and feels a lot like a Long-Term Care policy. However, the product is designed to pay benefits over a shorter period and gets regulated differently. It allows the insurance company to have broader underwriting rules and even offer policies to much older people who are ineligible for traditional LTC Insurance.
The product has been around for a long time, but in the past year it has had renewed attention from insurance companies and Long-Term Care Insurance specialists who understand the need to find affordable solutions for more people. Despite the name, these policies can offer a lot of money to pay for in-home care and facility care but are not available in every state. Insurance companies like Aetna, Manhattan Life, Guaranteed Trust Life (GTL), and Wellabe (Medico) offer these products in about 35 states.
Unlike traditional Long-Term Care Insurance, where an insurance company typically gets full medical records and conducts phone or personal nurse interviews, these short-term cash products have a yes/no application and a three-year look back on the applicant's prescription drug history, looking for medications that would be uninsurable.
An insurance agent, usually a Long-Term Care Insurance specialist, will ask detailed health questions before your application to determine if you qualify for coverage.
Cash Benefits
You can choose a daily benefit amount, up to $400 a day, that will be fully paid, irrespective of the actual bill, for each day you spend in any long-term care facility, such as assisted living, rehabilitation, memory care, or nursing home, for a maximum of 360 days. However, if you recover and go 180 days without requiring care, most of these policies will restore up to another 360 days of care.
Then you get in-home care; depending on the state, you can choose up to $1200 to $1500 weekly for 52 weeks. Again, if you recover and go 180 days without requiring care, your policy will be restored for up to another 52 weeks of care.
The value of these policies is undeniable, with some companies offer additional benefits. Premiums are determined by your age at the time of application and the total benefits included in the policy.
Premiums are based on your age at the time of application and are intended to remain level.
For example (one top company):
- $400 a day for any long-term care facility for 360 days (720 maximum with restoration) with a 100-day elimination period (deductible based on days, not dollars)
- $1200 a week for in-home care for 52 weeks (104 weeks maximum with restoration) with a 0-day elimination period
- $100 every night you are in the hospital
This is $206,400 in guaranteed cash benefits for care.
Premiums:
- 53-year-old - $81.73 a month
- 63-year-old - $170.66 a month
- 73-year-old - $400.62 a month
- 83-year-old - $716.60 a month
Indeed, the older you are, the higher the premium will be when you get coverage, but remember, you design the policy. You are better off getting coverage when you are younger. However, because of underwriting rules, many older adults who would otherwise be unable to get coverage could get approved.
Let's look at a 75-year-old and change the benefits to:
- $250 a day for any long-term care facility for 360 days (720 maximum with restoration) with a 100-day elimination period (deductible based on days, not dollars)
- $1200 a week for in-home care for 52 weeks (104 weeks maximum with restoration) with a 0-day elimination period
- $30 every night you are in the hospital
Premium - $337.21 a month for a guaranteed $152,400 in benefits for care.
Every insurance company varies in its premium rates and benefit choices. Yet, you can secure substantial cash benefits with lenient underwriting at a reasonable premium.
Variety of Options Available
Many consumers and insurance agents overlook that once qualified for benefits, the insured receives the entire benefit amount, regardless of the actual charge for the care. In certain situations, these short-term cash indemnity policies can offer more money than what a traditional Long-Term Care Insurance policy might provide.
While a short-term cash indemnity policy shouldn't be your first option, it can be suitable depending on your age, health, and budget. Such a policy can offer you cash to pay for your choice of quality care, reducing stress and burden on your loved ones.
Be sure to speak with an experienced independent Long-Term Care Insurance specialist who represents all the top-rated insurance companies and product types. A true specialist will match your age, health, and other factors with the best options.