LONG TERM HEALTH CARE INSURANCE: WHAT BENEFIT PERIOD SHOULD I BUY?

Long-term care insurance is paid out over different periods. When you purchase a long-term care policy, you will be able to select the benefit period. The most common ones are 2 years, 3 years, 4 years, 5 years and lifetime. The lifetime benefit offers the most secure benefit because the plan will pay the benefit you purchased for as long as you live. For example, if President Ronald Reagan had owned a lifetime plan when he was diagnosed with Alzheimer’s disease, his plan would have paid benefits over the remaining 11 years of his life. There is a lot to be said about buying a benefit period shorter than lifetime. The premium for lifetime is 20-40 percent higher than for shorter benefit periods, and claims are usually paid for only 3 to 4 years. Why is this? For someone to qualify for the long-term care benefits, he or she must be unable to perform normal activities of daily living such as bathing, dressing and eating, or have a sever cognitive impairment such as Alzheimer’s disease or dementia. When a person’s health reaches the point of needing this type of assistance, statistically he or she will live only 3 or 4 years longer. When I discuss long-term care insurance with someone, I explain long-term care insurance as a right-brain/left-brain decision.  The right brain is analytical and values statistics when deciding how much risk to assume and how much money to spend. The concept of a person’s ‘risk tolerance’ comes into play. The left-brain decision is based on emotions and recognizes that owning long-term care insurance is a matter of peace of mind, security and dignity of life. One of the most important reasons people buy long-term care insurance is for peace of mind; therefore it is very important to assume a premium that you can comfortably pay until the benefit is needed. Don’t spend so much on long-term care insurance that you lose sleep every time you write a check to pay the premium. Remember, unless you choose an accelerated-payment option (paying the plan over a shorter period of time), you will pay the premiums until the benefit is needed or until your death. Personal experience can dictate what type of plan you choose. If, for example, you have a family member who needs long-term healthcare for an extended period of time (i.e. 10 to 15 years), you may ignore the statistics and buy a lifetime benefit period. I like to think of long-term care insurance as a safety net to protect the insured from unexpected costs of long-term healthcare.   The policy should fit with other components of your financial plan so the premiums are reasonable for your particular financial situation. If other resources such as retirement benefits, inheritances and social security benefits can be utilized to pay for long-term care services, a good long-term care insurance plan should reflect those resources. Long-term care insurance preserves choices, so the determining factors should be quality and location of care received. Since most people choose to remain in their homes or in a retirement community if possible, the plan you select should reflect the costs associated with either of these choices. If you desire to remain in your home and have round –the-clock care, you should purchase a plan with a generous daily benefit appropriate to the cost of services in your area. (See the MetLife cost surveys in the reference section of the book for details about cost of the services.) In choosing a benefit period you should get a good understanding of what the benefit will be at the time you will need it. For example, if a 60 year old man buys a long term care plan that has a 5 year benefit period and an initial benefit amount of $50,000 a year with a 5% simple inflation rider, he will have a safety net of $250,000 in tax free benefit dollars.  At the age of 80, his safety net will have grown to $500,000. When you purchase a long-term care plan, you purchase a future benefit. Although you own the benefits the day you approved and pay your first premium, it’s important to know exactly what long-term care benefit you will own (because of the inflation protection) in your eighties and nineties to help you determine the amount of coverage to buy. For instance, if your future long-term care insurance benefit is over $700,000 at age 85 and you have appropriate protection for your other assets and the premiums are right for your budget, then this is the plan to buy. Several factors should be considered in choosing a benefit period. One important consideration is the difference between life expectancies of men and women. When I talk to a married couple I like to say, “Long term care insurance is coverage that men buy for their wives. The wife is usually around when her husband needs long-term care services and she brings him turkey sandwiches while he sits in the recliner and manages the TV remote control.  He then dies, goes to glory, and she lives 10 or more years faced with the very real prospect of needing long term care services without the assistance of her spouse”. Married men are more likely to receive services at home and spend less time in a nursing home. Women typically outlive their husbands 7 out of 10 times and may be unable to stay at home without oversight and a measure of safety provided by a spouse. Additionally, women may need nursing home care for longer periods of time. (You may have noticed the low ratio of men to women in nursing homes). So, when considering benefit periods, take these differences into account and purchase a plan that gives your wife the benefit she may need. If you are single and buying long-term care insurance, understand that you may not be able to stay safely in your own home alone. You may need to be in a retirement community or in an assisted living facility, so buy a plan that coordinates with the cost of those living arrangements. (See the MetLife Cost Survey in the back of the book.) Forty five percent of all long-term health care claims are paid out to those under age 65.  When a young person needs long term health care due to an accident or a debilitating illness, he or she is more likely to recover and go on to lead a productive life. Then at some point in life, he or she may need may need long-term care again. If you choose a benefit period shorter than lifetime, you might want to consider a ‘restoration of benefits’ rider for your plan. See the Glossary of terms for an explanation of this rider.