What is the Definition of Long Term Care Insurance?

In general, it is that insurance which compensates the insured for the cost of long-term care. And long-term care, though it can take myriad forms, is basically assistance beyond medical care, surgery and hospitalization, for people with chronic disabilities to maintain their well-being, if not their health. That is how the AARP defines the term and financial expert, Clark Howard concurs.

As stated, the degree of long-term care one might purchase varies to a considerable extent. It should be factored in with the projected needs and, to a lesser extent, budget of the potential purchaser. These degrees range from home care, which is administered in the insured’s own home, to a full-service nursing home. A more detailed description of these options will be under another heading. Suffice it to say that, as the intensity of care increases with each option, so will the cost of the insurance.

Video: Planning Ahead for Long Term Care

What are your options?

Long Term CareThe most fundamental option is whether to buy the LTC insurance or not. If you are a reasonably healthy middle-aged person, then it is probably something you may wish to seriously consider, but it is not yet a foregone conclusion that you must go right out and buy some. In favor of the idea is the concept that, according to the Senior Journal, nine million people over the age of 65 will require long-term care today. By the year 2020, that number will be twelve million. And that care is expensive. Home care, where, as mentioned, the assistance is administered by visiting caregivers in the patient’s own home, can cost about $28,000 a year in today’s dollars. An assisted living facility, which is like a small apartment for the patient, with care facilities available on the grounds, may run around $36,000. A nursing home can set you back at least $50,000, according to Dave Ramsey, or maybe as much as $75,000, according to the AARP. If you require extraordinary care, the cost can only escalate from there. Back in the day when we were expected to be dead at age 65, perhaps a single year’s outlay of $75,000 might not be ruinous, but most people who live to be 65, these days, live well beyond that age. Many live into their 80s and 90s, with centenarians becoming an ever-increasing portion of the population. That could amount to a lot more money than even a prudent investor may have managed to put aside.

On the other side of the coin, by no means does everybody die in a nursing home. Millions of people, even discounting those who died violently, managed to live their lives in their homes and die either there or in a hospital. And LTC insurance is not cheap. Premiums can range from about $700, for minimal coverage, to upwards of $5000 a year for a premium package. The average, according to AARP, ranges between $2000-3000 a year. If we were to assign the cost at $2400, for estimation purposes, then, you should consider, does your monthly budget have room for a $200 outlay? If so, then you may want to look more favorably on the concept. If it means that you are going to have to do without something important (like prescription medicine) or withhold something important from a family member (like tutoring for a child), then you may want to re-think the matter. One very important point to note here is that, if you do decide to buy this insurance, do not dilly-dally until you are 70 or so. Everyone agrees—Clark Howard, Dave Ramsey, the Senior Journal and the AARP—that by then, it’s too late. You need to get started with this program in your mid 50s or, at least early 60s. By the time you reach 70, if LTC insurance is available at all (which it may not be with many carriers), it will be obscenely expensive.

Video: LTC - The Exorbitant Costs of Long Term Care

Here are some of the factors you might want to weigh in determining whether to buy LTC insurance or, if so, what type. What is your family history? Consider, not only whether your blood relatives have needed long-term care of any sort, but their life-spans, absent destructive behavior, such as smoking or excessive drinking. In other words, how likely are you to die in your own bed? Consider your own financial situation. If you are a multi-millionaire, you can afford to play the odds, unless your family history points with a degree of near certainty to the need for long-term care. On the other hand, if you think you will be getting by only on Social Security by then, you can look to Medicaid for coverage, but you should not expect to be put up at the Ritz. Remember, Medicaid, or any similar government program, will not help you as long as it is determined you have assets you can spend. Anything between those extremes may leave you vulnerable.

What the Financial Experts Say

For the most part, they are for it. Both Dave Ramsey and Clark Howard agree that you should get started in late middle age and not wait until it is too late. Both agree that, having to go into a nursing home, uninsured, with insufficient personal assets can wipe out your nest-egg completely. The other group sources confirm this.

Howard makes a very strong point of stating that bad insurance is worse than no insurance at all. Both he and the AARP agree that the prospective insured needs to be very careful, not only in the overall choice of a company, but in what that insurance carrier offers in the way of LTC coverage. The consumer should make sure any policy has or allows for inflation protection; provides a sufficient benefit period (length of time); Nursing Caredoes not require hospitalization to begin receiving benefits; cannot be cancelled as long as the premiums are paid; covers all preexisting conditions that were disclosed at application; covers dementia. Those are the minimum protections for a sound, ethical policy. If the consumer consults with one of the very reputable companies that offer this coverage, he or she is likely to find these protections and more.

Your final answer: yes, you must go out and buy LTC insurance, or no, you ought not to do so is in your hands and pocketbook. In fact there is not even a presumption of how much or what kind of such insurance you should buy if you do. In closing, though, you should keep two things in mind. First, it’s insurance, not a soup kitchen. It’s run to make a profit for the owners and shareholders of the companies who sell the policies. Like any other kind of insurance in the world, if you buy it, there is a good chance they are going to make a buck off of you. Second, is that so terrible? What you are getting for your premium dollar is, not just someone who may possibly feed you soup when you are too feeble to feed yourself, many years down the road, but the peace of mind that comes from knowing that you will not be a burden and a disappointment to your heirs and yourself.

Clark Howard has taken the trouble to compile a list of the most trustworthy LTC insurers. Here are the ones he rates as the best:

  • John Hancock Life Insurance Company
  • MassMutual Financial Group
  • State Farm Life Insurance Co.
  • USAA Life Insurance Co.
  • Northwestern Mutual Life
  • New York Life

He gave the following companies a rating of “Honorable Mention.”

  • GE Life/Genworth Insurance Co.
  • Metropolitan Life Insurance Co.
  • Hartford Life Insurance Co.
  • Ameriprise (formerly IDS) Co.

According to the New York Times, the three companies you do not want to purchase LTC insurance from are:

  • Conseco (Reason: failure to pay claims)
  • Banker’s Life & Casualty (Owned by Conseco)
  • Penn Treaty American