About the Policy
Long term care (LTC) insurance is coverage intended to pay for long-term care when insured’s are stricken with debilitative disease or require LTC in their retirement years. While LTC insurance coverage costs can be relatively reasonable, premiums costs can be almost unaffordable when consumers attempt to secure insurance late into their retirement or they have been already diagnosed with a debilitating disease
LTCI Policy Benefits
LTCI benefits the individual who is responsible for the payment of the health. Statistically, without LTC insurance, individuals and their families pay about one-fourth of all nursing home costs out-of-pocket. In addition, long-term care isn’t usually provided in the health insurance you may through your employer.
Generally, neither Medicare nor Medicaid cover long-term care. People over 65 and some younger people with disabilities have health coverage through the federal Medicare program. Medicare pays only about 12 percent for short-term skilled nursing home care following hospitalization. Medicare also pays for some skilled at-home care, but only for short-term unstable medical conditions and not for the ongoing assistance that many elderly, ill, or injured people need.
Medicare supplement insurance (often called Medigap or MedSupp) is private insurance that helps cover some of the gaps in Medicare coverage. While these policies help pay the deductible for hospitals and doctors, coinsurance payments, or what Medicare considers excess physician charges, they do not cover long-term care.
The National Association of Insurance Commissioners has developed standards that protect consumers. The following is a suggested listing by the U.S. Government on what you should look for in your Long-term care insurancy policy:
- At least one year of nursing home or home health care coverage, including intermediate and custodial care. Nursing home or home health care benefits
should not be limited primarily to skilled care.
- Coverage for Alzheimer’s disease, should the policyholder develops it after purchasing the policy.
- An inflation protection option. The policy should offer a choice among:
- automatically increasing the initial benefit level on an annual basis,
- a guaranteed right to increase benefit levels periodically without providing evidence of insurability
- An “outline of coverage” that systematically describes the policy’s benefits, limitations, and exclusions, and also allows you to compare it with others. A long-term care insurance
shopper’s guide that helps you decide whether long-term care insurance is appropriate for you. Your company or agent should provide both of these.
- A guarantee that the policy cannot be canceled, non-renewed, or otherwise terminated because you get older or suffer deterioration in physical or mental health.The right to return the policy within 30 days after you have purchased the policy and to receive a premium refund.
- No requirement that policyholders:
- first be hospitalized in order to receive nursing home benefits or home health care benefits,
- first receive skilled nursing home care before receiving intermediate or custodial nursing home care,
- first receive nursing home care before receiving benefits for home health care.
- Benefits Period How long benefits should last depends on what you can afford to pay in premiums over the years. Buy the longest benefit period that you can reasonably afford, 5 years minimum.
- Inflation Protection A benefit that keeps the policy’s buying power in pace with the future cost of health care. There are 3 types of inflation protection: automatic 5% annual compounding; automatic 5% simple interest; and an option to buy more coverage at periodic intervals without reapplying.
Description of common optional benefits you can add on to a LTCI policy for additional protection.
Understanding what triggers your benefits to begin is one important section to pay close attention to in your LTCI policy.
Long term care insurance policies may exclude coverage for conditions resulting from:
- Injury or sickness for which benefits will be payable under any worker’s compensation claim or occupational disease law.
- Injury from declared or undeclared war.
- Suicide, attempted suicide, or self-inflicted injury.
- Injury resulting from alcoholism, drug abuse, or narcotics addiction.
- Injury resulting from participation in a felony, riot, or insurrection.
- Service in the armed forces.
- Injury or care that is already paid for by Medicare or by any government program, except Medicaid.
Other exclusions may apply depending upon the long term care policy you purchase. Exclusions may also vary between states and between different long term care insurance companies. Make sure you understand the exclusions before buying a long term care insurance policy.
You may be able to deduct part of the premium for a tax-qualified long term care insurance policy from your taxes as a medical expense. Benefits paid out by a qualified long term care policy will generally not be taxable as income.Policies should state whether it is tax-qualified or non tax-qualified. Look for the statement on your policy that is similar to: “This policy is intended to be a qualified long term care insurance contract as defined by the Internal Revenue Code of 1986, Section 7702B(b).”
Long Term Care Costs and ExpensesNursing home care can be itemized on your 1040 Schedule A. Only medical costs in excess of 7 1/2% of adjusted gross income may be tax deductible.
Long Term Care Insurance Benefits
An individual may be able to deduct part of the premiums for a long term care insurance policy and benefits paid out will generally not be taxable as income. List on Form 8853. Benefits paid to you under a non tax-qualified long term care plan may be considered taxable income. Buying a non tax-qualified plan could increase your tax liability and reduce the value of the benefits. The minimum “benefit eligibility” requirements for non-tax qualified plans are the inability to perform two of six Activities of Daily Living or cognitive impairment. However, some plans may offer benefit eligibility requirements that are more favorable.
Long Term Care Insurance Premiums
Long term care insurance premiums that you pay for on a qualified policy can be itemized on your 1040 Schedule A. Employer sponsored long term care insurance are tax free to the employee. Deductible amount varies with age limits.
For details on tax deduction eligibility and requirements contact your tax advisor, attorney, or accountant regarding the tax implications of purchasing long term care insurance.
Employers may offer group LTC insurance plans to employees. There are several advantages and disadvantages to a group LTC insurance depending on your needs and qualification.
Advantages of Group Long Term Care Insurance Plans
- You may not have to meet any medical requirements to obtain a long term care policy.
- Your relatives may also apply for the policy. Many group LTC insurance plans allow retirees, spouses, parents, and parents-in-law to apply for the long term care coverage.
- Some long term care insurance companies will let you keep the coverage if your employment ends or your employer drops the group plan.
- Group LTC insurance plans with a high proportion of young employees and with 20% or better participation, can often get premiums that are much cheaper than individually underwritten policies.
Disadvantage to Group Long Term Care Insurance Plans:
- Higher rates for younger people. Because younger people are grouped in with older or sick and disabled employees in the group, the average premium for a person under 55 may be higher than an individual plan.
- Higher administrative costs from insurers are passed to participants.
- Group LTC insurance plans may have restricted benefits. Healthy employees can miss many advantages and options. To make the plan more affordable to more employees, the benefit period may be inadequate and inflation protection may not be offered or may also be inadequate.
If you are an employer or a human resource representative and are seeking a group LTC insurance plan for your company, contact us directly.
An inflation protection clause is one of the most important options to have in a long term care insurance policy. Inflation protection benefit increases the daily benefit amount over time to keep pace with inflation and the increased cost of expenses.
Although you are not required to purchase inflation protection, it is an important protection for younger people who might not need long term care for many years. Inflation protection will increase the premium on a long term care insurance policy. With the continual increase in the costs of long term care services, it would be wise to consider the protection offered by this benefit. A long term care insurance policy without an inflation protection may be of little value 10 to 20 years from the time of purchase.
A Long Term Care Insurance Policy Without Inflation Protection
Without an inflation protection benefit in your long term care insurance policy, you may be put in a situation in which the insurance benefits are only paying for a small portion of the actual costs of your future long term care expenses. Without inflation protection, your long term care insurance will only pay expenses based on today’s costs. If the policy is used 10 or 20 years from now, you would be required to pay the difference between what the insurance pays and the actual cost of care.
Increasing Costs of Long Term Care Facilities and Services
Also consider that costs have increased dramatically for long term care services in most states – such as nursing home facilities, assisted living programs, and in-home care. Long term care costs and health care costs continue to rise at a rate much faster than inflation in things such as food or clothing. A nursing home that costs $110 a day now will cost $292 a day in 20 years with 5% inflation per year. For the past several years, the cost of nursing home care has been rising at an annual rate of 8%.
Two Ways to Purchase Inflation Protection
Inflation protection is offered in two ways: automatically or by special offer.
Long term care insurance policies using automatic increase of benefits for inflation use either simple or compound rates. The daily benefit increases using a fixed percentage for either the life of the policy or for a fixed period of usually 10 or 20 years.
With “simple” inflation adjustment, the benefit increases by the same dollar amount each year. A $100 daily benefit increasing 5% per year will go up $5/day per year and be $200 a day in 20 years.
With “compound” inflation adjustment, the benefit increases by a higher dollar amount each year. A $100 daily benefit will be $265 a day in 20 years. Compound automatic inflation increase can make a big difference in the amount of benefit you can receive over the years.
Special offer inflation protection is usually offered to you by the long term care insurance company every three years with an existing policy. If you turn down the option to increase your benefit, you may not be offered the option again. With a periodic increase in benefits, your premium will also increase.
Obtain Long Term Care Insurance Quotes with Inflation Protection
To get an idea of what your long term care insurance rates with an inflation protection option will be, you can get free online long term care insurance quotes.
When you’re ready to get started, you can get no-obligation free online LTCI quotes by completing the quick form at the top of the page.