long-term care

What is Long-Term Care (LTC)?

Medical treatment is designed to cure a condition or illness. Long-term care is different; it is meant to address the needs of an individual who, because of a chronic condition, accident, or other trauma or illness, requires assistance with basic selfcare tasks (activities of daily living: ADL’s).

There are six ADL’s that are typically triggering to an individual who needs long-term care: bathing, eating, dressing, toileting, continence, and transferring (getting in/out of bed). A cognitive condition such as Alzheimer’s or Dementia can also trigger long-term care needs.

No one knows for sure whether they will need long-term care, but increased longevity in the population, family medical history, and other factors suggest that everyone should be thinking about it. According to the U.S. Department of Health and Human Services, nearly 70% of 65-year-olds will need some form of long-term care in their lifetimes.

Traditional long-term care insurance is remarkably like individual disability insurance. You pay a premium each year based on the monthly benefit and length of time benefits are paid. The pros of this type of coverage are; maximized long-term care insurance leverage while minimizing premium commitment, the option to add inflation protection, care coordination (concierge health benefit), and the premium can be paid from an HSA (Health Savings Account). The cons for this policy type are premium is not guaranteed; use it or lose it benefit and a dwindling number of providers who offer these policies.

A second option is the asset based/hybrid model of long-term care insurance. This product is usually built on a life insurance chassis. The advantages of the asset based/hybrid model include: the premium can be paid in a lump sum, LTC benefits include inflation protection, the premium is refundable if the policy is canceled, and a death benefit is paid if all LTC benefits are not paid out. The disadvantage of this plan is the opportunity cost (if single pay is chosen).

Greg Hoernschemeyer, CLU Senior Vice President, Registered Representative

The third option is the purchase of a traditional life insurance policy that includes a long-term care rider. This rider allows the policy owner access to the life insurance death benefit to pay for long-term care expenses. Typically, the monthly LTC benefit is either two percent or four percent of the policy face amount (i.e., a $500,000 policy x 2% would provide $10k a month for LTC). The premium is low for the monthly benefit provided, however, there is no inflation protection, and over a lifetime the monthly benefit can be limited. The death benefit is reduced dollar for dollar by any benefit used for long-term care expenses and there is no return on the premium.

Those who can afford premiums should explore the options for funding their long-term care risks. However, the final option is, of course, to self-fund the LTC risk. There are no up-front costs to do this while remaining liquid. The biggest risk is an extended long-term care expense could erode even the most financially sound estates and cause family turmoil. The average costs for a nursing home, assisted living and home health care continue to rise at extraordinary rates. The best plan will differ for each family, however, a great place to start is to review all options and see what suits you and your family’s needs the best.

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