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Top 4 Coverage Features That Drive the Cost of Your Long-Term Care Insurance Plan

Long-Term Care InsuranceIf you’ve been wondering if long-term care insurance is right for you and if it should be an important part of your overall financial plan, we’ve got information to help in your quest for answers and decision-making.

Let’s look at recent industry findings and research…

  • Approximately 7 out of 10 American’s age 65 or over will need some form of long-term care services during the remaining years of their lives. Many people have turned to products like long-term care insurance to protect themselves against this potential catastrophic cost.
  • More than 40% will require this care in a nursing home.
  • In 2015, the average annual cost of a private room in a nursing home was $91,250.
  • The estimated in home health aide hourly wage is roughly $20 per hour or $42,000 a year.
  • Many survey respondents who chose not to buy long-term care insurance (and have therefore chosen to self-fund — a risk that could cost well over $300,000 per year per person) cited the cost of insurance premiums as a primary reason not to buy. 

First, it’s important to shed the myth that Long-term care insurance is just for “seniors” or older people.  40% of patients receiving long-term care are under age 65.  The reality is that long-term care is needed for any person who suffers from an illness or accident for which they require round-the-clock care.  And based on the statistics above, that means 70% of us Americans will need it.  Watch this Long-Term Care 101 video for more info on the basics.

Second, it’s also important to understand that long-term care insurance premiums for newly purchased policies increase with age.  To state it another way: the older you are when you buy, the more this insurance will cost.  It’s also worth noting that this product is medically underwritten and the older you are, the more likely you will be to have a medical condition that will prevent you from buying insurance or that will cause you to pay higher premiums.  

Third, there are basically four (4) major components that drive the cost of a long-term care insurance policy.  Each of these can be changed to impact the cost of your policy.  They are:

  1. Your daily or monthly maximum benefit.  This is the amount that the insurance carrier will reimburse you for care received each day or with more flexible plans, during a given month.  Selecting a lower daily or monthly benefit, will lower your premiums however you may also be “choosing” to co-insure part of the future risk.
  2. Lifetime maximum – stated in a number of years.  This option is usually stated as 2, 3, 4, 5, 6, etc. years.  It’s very important to understand that the lifetime benefit you select does NOT limit you to that number of years.  This option is only used to establish your pool of money (benefits).  Someone who selects a $6,000/month benefit and a 5-year lifetime maximum benefit will start with a $360,000 pool of money ($6,000 x 12 x 5).  Benefits paid to the policyholder are deducted from that pool without regard to the number of years.  So this plan could last a lot longer if the claimant is using less than $6,000 per month.
  3. Elimination Period.  The Elimination Period (EP) is like a deductible but stated in terms of days instead of dollars. The EP, usually expressed as 0, 30, 60, 90, 120, 180 or 360 days is the period of time once you are certified to be on claim that you will have to wait until the insurance company will begin paying your claim.  Obviously, the longer the EP, the lower your premiums will be.
  4. Inflation protection.  Many people are buying long-term care insurance in their 50’s and are most likely to use their policy in their 80’s.  Companies offer various inflation options that will inflate both your daily/monthly benefit as well as your lifetime maximum (pool of money).  Some of these options can be very expensive, however, many insurance companies offer more affordable options that may suit your needs. Your LTC insurance specialist can also show you how purchasing a larger benefit up front with a lower inflation option may actually save you money.

Lastly, long-term care insurance isn’t affordable for everyone but it is generally less expensive than most people believe and there are ways to minimize premiums. You even may even be eligible for discounts on your policy based on your membership in an association (e.g., alumni associations and professional groups).  Visit www.alumniinsuranceprogram.com to find your school.

Remember… you will never be younger (so rates won’t be less expensive) or healthier (rates go up with medical conditions or you may not be able to qualify) and you can take control of your policy design and premiums now.

Ready to learn more about how to get started? Just visit the Long-term Care Resource Center to download your free long-term care planning kit.

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