Why is this Topic Important to Wealth Managers? The decision to buy long term care insurance is an important on for most clients. We have thus presented information relating to the sale and purchase of long term care insurance contracts.
Long term care can mean many different things, but any chronic or disabling condition that requires nursing care or constant supervision can bring on the need for long term care services. Long term care means not only care in a nursing home, it can also mean nursing care in a patient’s home and help with the activities of daily living, such as dressing, eating, bathing and taking medicine.
There are many different services that would fall under the definition of long term care. These services include institutional care, i.e., nursing facilities, or non-institutional care such as home health care, personal care, adult day care, long term home health care, respite care and hospice care.
Long term care is very expensive, and most people cannot afford to privately pay for long term care services for very long. For example, nursing home costs are approximately $376 per day in Long Island, New York or $137,240 per year. It is estimated that persons in nursing homes stay for 2½ years on average. [1]
Home health care is also expensive. The average cost of home health care in New York State in 2010 was approximately $20 an hour. Assuming 20 hours of care per week, this represents average home health care costs in New York of over $20,000 per year. Furthermore, the chance of needing some type of long term care services is fairly high. It is estimated that over 40% of all persons who were 65 years old in 1990 will enter a nursing home during their lifetimes.
Moreover, Medicare does not pay for most long term care services. Therefore, individuals should generally not rely on Medicare to meet their long term care service needs. Medicare does not pay for custodial care when that is the only kind of care needed; and skilled nursing facility care is covered by Medicare but only on a very limited basis.
Insurance as an alternative
Since the cost of long term care will not be covered by the Federal Government, insurance policies are one way that individuals can protect themselves. Most insurance policies covering long term care services currently being sold are indemnity policies. Indemnity policies are those that pay a specific dollar amount for each day an individual spends in a nursing facility or for each home health or home care visit. Some of these policies pay the daily benefit amount regardless of the charges; others will pay covered charges, or a percentage of covered charges up to the daily benefit amount.
Over time, as nursing home and home care charges increase, the daily dollar amounts which are payable under these policies do not increase, however, insurers selling these policies are usually also required at the time of sale to also offer an “inflation protection” benefit. This benefit increases the daily benefit amount over time to help keep pace with inflation and increased expenses. Without the “inflation protection” benefit, an individual will be paying a larger amount of money out-of-pocket should one need to avail oneself of nursing home care or home care.
Some insurers also offer an option to increase the daily benefit amounts and maximum policy benefit at a future time. Under this option, an individual has the ability to increase the amounts every specified number of years. Unlike an inflation protection benefit purchased at the same time as the policy, if an individual opts to increase the daily benefit amounts and maximum policy benefit under this option, the premiums will increase based on the individual’s attained age at the time he or she opts to increase the benefit.
Tomorrow’s blogticle will continue to discuss wealth management planning techniques.
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[1] For insurance statistics in this article see generally, New York State Insurance Department. A Consumer Guide to Long Term Care Insurance in New York. December 2010.
http://www.ins.state.ny.us/ltc/ltc_guide.pdf. Last Accessed 4/4/2011.
2013 Tax Facts on Investments
