What is Traditional Long-Term Care Insurance (LTCI)?

Traditional Long-Term Care Insurance (LTCI) helps pay for the care needed due to a chronic illness or injury. It has been available for over thirty years. You can customize a policy to help you pay for a wide range of services to assist you as you perform everyday tasks like:

• Bathing – Your ability to clean and groom yourself (like shaving and brushing your teeth).
• Eating – Your ability to feed yourself, or remember to eat.
• Dressing – Your ability to dress without struggling with zippers, buttons, and snaps.
• Transferring – You ability to walk, move from a bed to a wheelchair, or from a wheelchair to a bed.
• Toileting – Your ability to get on and off the toilet.
• Continence –  Your ability to control your bladder and bowel.

Like auto or homeowners insurance, there is no refund if you die and never use it. You choose the benefits you want in a policy.

Customizing your plan

When customizing your Traditional Long-Term Care Insurance policy, there are six (6) key features that affect the price you will pay:

1. The benefit amount, the maximum the insurance company will pay out on any day, week or month.
2. How much coverage do you want for care in your Home or through your Community Care
3. The benefit period, the duration of the benefits.
4. The waiting period, how many days do you wait until the policy benefits begin.
5. Your age.
6. Any inflation protection you might desire.

We discuss these and other features in greater detail in our How To Choose section.

How to Pay for Traditional Long-Term Care Insurance

In exchange for a recurring premium, the insurance company provides coverage for your long term care expenses. You can pay these premiums:

• Monthly (Twelve times a year),
• Quarterly (Four times a year),
• Semi-Annually (Twice a year),
• or Annually (Once a year)

Premiums for Traditional Long-Term Care Insurance are usually Guaranteed Renewable.

Guaranteed Renewable Premiums

With a Guaranteed Renewable Traditional Long-Term Care Insurance, an insurance company cannot cancel or drop you for coverage because of a change in your health or age. You can cancel anytime. However, the insurer cannot arbitrarily cancel a Guaranteed Renewable policy. As long as you pay premiums when due and benefits have not been exhausted, coverage will continue. The insurance company reserves the right to increase premiums for an entire group of people who own the same policy from their company.

You might consider a Linked Benefit Long-Term Care Insurance policy if you do not want regular premium payments or are concerned about possible rate increases in the future. A linked benefit policy typically takes a single (one-time) payment.

Two Rules for Paying For Traditional Long Term Care Insurance

If your children are not helping you pay for your premium, there are two spending rules of thumb for buying a Traditional Long-Term Care Insurance Policy. Premiums should not exceed:

1. Five percent (5%) to ten percent (10%) of your income.
2. One percent (1%) to two percent (2%) of your total assets.

If your premium for your long term care insurance policy is going to make it difficult to pay your bills or eat, then without help from an outside source, you probably should not buy it.

The Medicaid Solution

Medicaid is a government program to help those with low income or limited resources to cover health care costs. To qualify you must meet certain requirements for assets and income. You may need to spend down your retirement savings on your care first before you would qualify. Typically care is provided at a facility, not in your home. Unfortunately, your choice of care may be limited.

A Policy for One

Traditional Long-Term Care Insurance typically is designed to cover you alone. If you are trying to cover a spouse or another person in your home, typically each of you would need to apply for a policy separately. Discounts usually apply when two people in one household apply for coverage.

The Shared Account Plan

Married couples or two people in the same household purchasing Traditional Long-Term Care Insurance for less than a lifetime benefit might be able to take advantage of extended two-person benefits. A policy with a two-year, three-years, four-years or five-year benefit, could pay a claim twice as long with a shared account rider. This rider allows one person who goes on claim, to tap into the benefits provided by the other persons’ policy, once they exhaust the benefits in their own policy.

For example, You and another person in your household buy a three-year plan. You make a claim for care which extends past the three years of benefits your policy provides. You then can begin using the other persons’ policy for your care using this shared account plan. However, if the other person ever goes on a claim, his/her benefit period would be reduced by whatever was spent on your care.

It is less expensive to have a shared account than to buy a similar but longer benefits in separate policies for each person. But sometimes there are restrictions to gaining access to the other persons’ policy benefits. If you are considering this feature, make sure you ask about it, but become familiar with how you can collect extended benefits from shared account rider of the company you select.

Taxation

Traditional Long-Term Care Insurance is intended to be Qualified Long-Term Care Insurance Contracts under Sections 26 U.S.C. § 7702(b) of the Internal Revenue Code with benefits paid out tax-free.

You might want to compare companies

There are a few rating services that analyze the financial strength of insurance companies. The financial strength of an insurance company is a very important factor to consider when purchasing long term care insurance. Claim payments are backed by the financial strength and claims-paying ability of the insurance company or companies you chose. Hence, it may be in your best interest to choose a highly rated insurance company, or better yet, more than one company. You can check ratings from sources like AM Best, Fitch, Moody’s and Standard and Poor’s.

In Conclusion:

Traditional Long-Term Care Insurance can provide payments for your care due to a chronic illness or injury. You can customize it to meet your specific needs. You pay for it with a recurring premium every year.

Finally

If you have any questions about Traditional Long-Term Care Insurance or just need a little guidance, feel free to contact us. We know long-term care planning can be confusing, so it is important to get the facts before you make any long-term decision.