The need for long term care services is going to explode as baby boomers continue to age. The big question that this presents is how are these services going to get paid for? Medicare does not pay for them. At Cardinal, we believe there are 4 solutions to paying for long term care. In this 4 part series, we will explore all of them.
One of the loudest complaints we get from clients is that traditional long term care insurance is expensive, and it is, not without reason though. One alternative to paying for traditional long term care (LTC) insurance is short term care (STC) insurance, which allows you to get coverage for long term care services at a more affordable price point.
What is short term care insurance?
Short term care insurance is a product which pays for long term care services for a year or less. These services are turned on once you cannot perform two or more activities of daily living (ADLs) or have a cognitive impairment. The benefit period can be adjusted based on your preference, some companies have options such as 90, 120, or 240 days. The benefit amount can be increased or decreased depending on what you are willing to pay in premium. The waiting period, also referred to as the elimination period, is 0 days for most short term care policies. This is the time between when you turn the policy on to the time it starts to pay. This makes it a great option for people who want to cover a longer traditional long term care insurance waiting period, as a STC policy can start on day 1. If you would like the period to be a little longer though, most STC policies are going to have this option. Note that short term care policies are not available in all states. Some states have not approved short term care insurance for sale.
In “The Complete Cardinal Guide to Planning for and Living in Retirement”, we discuss two examples of real policies that we offer our clients (below video):
Short Term Care Insurance Policy 1
This is a short term care policy paying benefits up to 360 days or 52 weeks.The premiums are affordable and it provides coverage for the first year of care.In addition to the $100 daily benefit for nursing home or assisted living care, this coverage pays $1,200 weekly, up to $62,400 annually, for home health care on an indemnity basis if minimum services are received. Receiving benefits on an indemnity basis means that you receive the benefit as a flat rate as soon as you qualify for it, unlike reimbursement, where the company simply pays you back for what you spent. This coverage will pay a daily benefit for confinement in a nursing or assisted living facility with no prior hospital stay required. The home health rider pays a benefit for each week you receive three or more professional home care service visits of at least one hour per visit, provided you cannot perform two or more ADLs or have cognitive impairment.
Short Term Care Insurance Policy 2
This is a short-term care policy paying benefits up to 350 days. Like policy 1, the premiums are affordable and it provides coverage for the first year of care. This coverage provides a couples discount. When husband and wife are issued policies together, each receives a 10% discount.
Will I qualify for short term care insurance?
One of the best aspects of short term care insurance is that the health questions are easier to answer than with traditional LTC insurance products. You can get the product at an older age than traditional LTC allows, up to age 89. This makes it a great option for people who are older or who have some health issues and cannot qualify for other products. You do not have to be examined by anyone and can answer the questions right over the phone. There is also a possibility that you can still be approved by one company even if you have been declined by another, we have been able to do this for some clients in the past. Below we have the health questions for the two policies we discussed in the last section. The health criteria to qualify for Policy 2 are easier to meet than for Policy 1, and it has generous height and weight thresholds. On the other hand, Policy 1 has no height and weight requirements. Remember, these are only examples of two policies, there are more out there that will have differing health questions.
What does short term care insurance cost?
The cost is going to vary for short term care insurance based on your age and the policy you end up choosing. One great aspect about STC insurance is that it offers unisex pricing. With traditional long term care insurance, women cost more as they are more likely to live longer and utilize these services.
Below we have the prices for the two policies discussed above. They vary in price a bit, which is due to the offerings of each policy. Both have similar benefits for confinement, but they offer very different benefits for home health care.
With Policy 1, the home health-care benefits and maximum are separate from your use of facility care.
With Policy 2, you can use the $100 daily and the $35,000 maximum for either facility care or home health care, but not both.
These numbers can be decreased or increased depending on the waiting period, benefit days, and how large of benefit you would like daily or monthly. Policies also vary in the way they pay for days. While some count by calendar days, others count by service days. This means that if you are staying at home, and you do not need someone to see you every single day, this policy could be stretched out to pay for longer than a year.
Short term care insurance offers a great alternative to more expensive traditional long term care insurance. It gives your family protection from out of pocket expenses for a year so they can focus on getting your finances in place for if or when they take over paying the long term care bill. No matter what route you go, the most important thing is that you have some sort of plan in place. If you don’t, the people who suffer the most will be your family who have to do this last-minute planning