The 4 Solutions for Long Term Care: Traditional Long Term Care Insurance


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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 be 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.

Traditional long term care insurance is the type of long term care insurance most people are familiar with since it has been around, in one form or another, since the 1970’s.  Due to insurance companies overestimating the lapse rate and underestimating the amount they’d be paying out for care, people who bought these early policies were plagued with large rate increases and inconsistent policies, which has given traditional long term care insurance a bad reputation.

The fact of the matter is, now that insurance companies are more regulated, stand-alone long term care insurance policies offer the most direct solution for paying long term care expenses. While many people view this type of long term care insurance as nursing home insurance, that is not what it is. It is stay out of the nursing home insurance; it gives you choice on where to receive your care as well as the freedom to pay for it. Most importantly, it protects your family from the physical and emotional consequences of not having a plan for long term care in place.

What is traditional long term care insurance?

Traditional long term care insurance is exactly what it sounds like: Thinking ahead, you purchase a policy that pays a certain amount monthly once you need long-term care which lasts for several years up to the policy maximum. It will cover personal care when you are unable to perform two of the six activities of daily living (ADLs)  or have a cognitive impairment.

This policy, from  “The Complete Cardinal Guide to Planning for and Living in Retirement”, provides the $3,000 monthly to cover either home health care or facility care, and pays that amount until you reach the policy maximum of $150,000. Specifically, this policy allows you to bank the unused portion of the benefit, which can make the benefits last longer if you are not using the full amount on care. These benefits increase 3% annually for inflation due to the addition of an inflation rider, which is recommended with almost all traditional long term care insurance policies.

Every traditional long term care insurance policy is going to have a waiting, or elimination, period before benefits begin, with 90 days being the typical amount. You do have a choice in how long you want this period to be. The shorter the waiting period, the higher the monthly premium is going to be. Some people pick a longer waiting period to bring their premiums down and use the money saved to pay for a short term care insurance policy, which will fill this gap in coverage.

When shopping for traditional long term care insurance, it will be advantageous to make sure your policy qualifies for your states Partnership program. The Long Term Care Partnership Program is a system that allows your estate to retain a higher level of assets and still go on Medicaid if your long term care insurance policy runs out. This policy qualifies for the partnership program in most states.

There are some disadvantages to a traditional long-term care plan. If you pay into the policy for several years and never use it, all your money has gone to pay other policyholders who needed benefits. It is a use it or lose it policy. The company can raise the premium— with the approval of insurance regulators—perhaps when you are vulnerable and can’t afford it, though all long term care policies must be guaranteed renewable. This means once a policy is issued, the insurance company cannot single out any one policyholder for a rate increase. The policy must be renewed if the premiums are paid on time.

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Can I qualify for traditional long term care insurance?

Traditional long term care insurance is the hardest of the four solutions to qualify for and has become tougher over the years. Underwriting will request records from your doctor and possibly any specialists you have seen, will run a report of your prescriptions, and will do a little memory test that will seem silly over the phone. Some companies even send a nurse to your house to examine you. You can see an example of the full underwriting questions used in the photo.  Due to this, traditional policies are usually only appropriate for people applying at a younger age, in their 40’s, 50’s, and sometimes 60’s. If you get denied from one company, it is hard to get approved with another, so it is very important that you shop around before making a final decision. Make sure your agent works with many companies and is confident in your ability to be approved for the specific policy they are recommending.

How much does traditional long term care insurance cost?

The cost of traditional long term care insurance is going to vary by company, age, gender, and the riders added to the policy. Above, we have prices for the policy we have been illustrating. Women pay more than men for long term care insurance as they live longer and have a higher likelihood of using the policy. The cost to add a male spouse, the same age, qualifying for a couple’s discount, is just 13% more in premium. There is no cash value in this policy and rate increases are a possibility.

There is no “one-size-fits-all” policy for everyone. You need to look at your personal situation and evaluate what will be the best option for you. For some, it will be a traditional long term care insurance. For others, it will be a different option. What really matters is that there is some type of plan in place, so you can get the care you want and give your family the gift of not having to worry about paying for it.

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