Long Term Care Insurance versus Short Term Care Insurance

March 6, 2018 | by the National Care Planning Council

When to Apply for Long Term Care Insurance

National estimates are that about 8% to 9% of all seniors own a long term care insurance policy. Seniors who do not currently own long term care insurance are probably not going to be able to get it. Not only is the insurance expensive for older ages but for anyone over the age of 70 who is not in absolute pristine health, insurance companies will typically refuse to issue coverage. Pristine health means ideal weight, no blood pressure issues, virtually no medications, no history of any chronic illnesses or chronic medical conditions, no indication of cognitive impairment and a clean family health history with no record of cancer, heart disease and so forth. This does not mean that someone in good health could not apply even if he or she could afford the extremely expensive premiums.

Long term care insurance must be purchased when someone is younger and healthier. The very best age for purchasing this insurance is starting at 40 years old. Starting any younger than this usually does not result in any premium savings over the lifetime of the policy. The most affordable premiums are found between the ages of 40 and 55. At older ages premiums get expensive and health problems are prevalent. If coverage is issued there are often premium ratings increases to the policy that make the cost extremely expensive.

Reasons for Buying Long Term Care Insurance

1. It will help you keep your independence and dignity. Here's how. . . some of you will spend all your assets on care while others plan to give their money away or put it in trust. With no assets you will now qualify for a welfare program called Medicaid. Medicaid typically pays for a semiprivate room in a nursing home, and; not all nursing homes take Medicaid patients. In many states it's not easy to get Medicaid to cover home care or pay for assisted living. A nursing home is not the most desirable place to finish out one's life. For many, a terminal stay in a nursing facility robs them of a purpose in life and strips away their dignity. As an example, have you ever thought of the indignity of being bathed, toiletted or diapered in a nursing home environment? No wonder many people express the desire to die before ever having to go into a nursing home.

2. If you are married and you have a need for long-term care, your spouse may be forced to pay for an outside care giver. The cost is likely to come from your combined income and assets. If the need for paid care drags on too long, your spouse may be left with minimal cash assets for future needs. Insurance solves this problem and allows your spouse to keep the assets.

3. Many healthy care-giving spouses won't spend their money and choose to "tough it out" on their own without help. If care of a disabled spouse drags on too long, this can have a devastating effect on the physical and emotion health of the caregiver. Surveys reveal that even though healthy caregivers often don't spend their money for help, they will use insurance if available. Insurance allows the healthy caregiver to buy much-needed respite from paid professionals, while at the same time, retaining the assets and possibly avoiding an early death from the mental and physical stress of caregiving.

4. If your children or extended family promise to take care of you when the time comes, insurance will help them do that. Probably you nor your children have thought of the prospects of moving you from place to place, changing your dirty diapers, cleaning up after "accidents" in the bathroom or helping you with bathing and dressing. Insurance will pay for aides to help with these tasks.

5. If you are single and a need for long-term care arises, insurance can pay for and coordinate that care. With insurance you won't have to feel you would be a burden for family or friends.

6. If you have the desire to leave assets behind when you die, insurance will help preserve those assets from the cost of long term care.

Questions concerning the Purchase of Long Term Care

Insurance Why Not Buy LTC Insurance When You're Older?

1. Don't forget that 43% of those needing long term care are under age 65. You may need it now.

2. Every few years insurance companies come out with new policies. Although these policies contain many new benefits and features, they are also more expensive for new people signing up than the previous policy. Estimates are, because of this rate creep, new applicants for long term care insurance are paying about 5% more each year than applicants at the same age would be paying with older policies. At this rate of increase, ten years from now, a policy for a 50 year old would cost 50% more than an equivalent policy for a 50 year old would cost today.

3. To get long term care insurance you must answer questions relating to your health. If you wait, you may develop a condition that would prevent you from obtaining coverage.

4. The cost of coverage increases with age. For younger ages you can get a rate that is relatively inexpensive. At older ages the rate becomes very expensive.

5. It costs less, over time, buying now than buying equivalent coverage in the future. The 20 year total cost of buying now is less than the 19 year total cost of buying next year, or the 18 year cost of the next year, and so on.

Why Not Invest the LTC Premiums Instead of Buying Insurance?

The invested amount of premiums over 20 years, may be only 5% to 12% of the potential insurance benefit. A 6 year insurance benefit may only yield ½ year of long term care if the premiums are invested instead. Besides, if you invested premiums, where would the money come from if you needed long term care next year or even 5 or 10 years from now? The saved premium account wouldn't have time to grow.

Why Waste Money on LTC Insurance if You Have Assets to Cover the Cost Directly?

The same question could be asked of auto, home owner's or medical insurance. Why not self-insure there as well? You could just as easily pay your medical bills from your pocket. Or pay for damage to your cars and loss of your home out-of-pocket and possibly save a lot of money over time? No matter what the risk, the total cost of premiums over a long period is usually a fraction of the cost of paying a claim from your own pocket. The purpose we buy insurance is to preserve assets by leveraging premiums to buy a benefit at pennies on the dollar instead of paying dollar-for-dollar out-of-pocket for a loss. The probability of a house fire is 1 in 1200, of having a major auto accident is 1 in 240 and of needing long term care is 1 in 2. With a much higher probability doesn't long term care insurance make as much sense as buying those other coverages?

Why Don't You Get Your Money Back if You Don't Use LTC Insurance?

This question always begs the underlying reason for it's being asked. In essence the person with this concern is thinking, "It won't happen to me, so it's a waste of money". To play to this objection, many carriers design policies with cash values, life insurance death benefits or return of premium at death. But these features increase premium cost and sometimes make coverage unaffordable. The same question could be asked of all insurance. Why don't we get a refund with term life, health, disability, commercial lines, auto, or homeowners insurance? People seem to take it in stride, paying $80,000 for auto insurance or $20,000 for homeowners insurance over their lifetime. Then when they make a claim, if they ever do, they get their coverage canceled or more likely their rates are increased to cover the cost of the claim. Yet, out of denial or ignorance they can't see why they should pay $40,000 over their lifetime for long-term care insurance where the probability for a claim is higher and the risk of loss is 4 to 10 times higher than the risk of loss with a car or home.

Understanding Short Term Care Insurance

Short term care insurance is a generic name for insurance that covers rehabilitation from a disease, operation, injury or other situation where oversight and assistance from another person – typically a licensed care provider – is needed. Each company has its own name for its own coverage that will typically use descriptive words such as recuperation, recovery, rehabilitation or convalescence policy to describe the coverage. Short term care insurance is not a replacement for long term care insurance.

The insurance is typically used to bridge the cost of a recovery of less than a year where government or health insurance plans may not cover the cost of care or may not cover it completely. For aging seniors, Medicare may not cover certain care costs at all or may not cover completely rehabilitation from an illness, sickness, injury or operation. For private health insurance or health insurance under the Affordable Care Act, this type of recovery coverage is usually very short-lived. Perhaps only 20 or 30 days. This is where short term care insurance comes into play.

This insurance is very similar to long term care insurance in what it covers and the triggers necessary to qualify for the coverage. Just like long term care insurance policies, these policies may only cover assistance in a nursing home, or they may include assisted living or with a rider they may include assistance at home.

Short term care insurance will never pay benefits longer than a year and it is often purchased to pay benefits for a period of perhaps three months or six months before it is exhausted. Just like long term care insurance, daily benefits in increments of $10 are chosen for the coverage. In addition, just like long term care insurance a coverage time period is chosen and an elimination period is picked. In most cases a very short elimination period of say 10 days is chosen.

Benefit qualification triggers are very similar to long-term care insurance which include the inability to perform two or more activities of daily living, having a cognitive impairment or having a medical necessity for care.

Even though this coverage is not a substitute for long term care insurance, many older individuals are purchasing it as a substitute with the idea that some insurance to provide caregiving services is better than none at all. There are several reasons why it is becoming more popular for this purpose.

• Many long-term care insurance policies include a 90 day elimination period, which means that the policy will not pay for 90 days. A short-term policy can cover this gap in coverage.
• Many situations where long-term care insurance may come into play don't last longer than a year and this type of insurance can take care of claims that don't last longer than a year.
• Short-term care insurance is about 70% of the cost for an equivalent long term care insurance daily benefit and living arrangement coverage that lasts 3 years.
• For individuals in their 60s and 70s, even if these people could afford the extremely high cost of long-term care insurance at their ages, most of them can't get it because of strict underwriting standards that deny coverage due to being overweight, having high blood pressure, having a history of any number of conditions or diseases and the list goes on and on. Probably 50% of all applicants in the older age brackets are denied coverage.
• Underwriting standards for short term care insurance are very lax and in many cases only a few health questions, medical history questions and lifestyle questions are found on the application. As a result most applicants can get coverage regardless of age.

One major disadvantage of this insurance is that it cannot be integrated into a long term care insurance partnership program. Most states have this program. If a proper long term care insurance policy is purchased which meets the specifications in that particular state, when the policy benefits run out, the state Medicaid program will take over providing the care, but provide an exception to the asset rules. The state will allow the Medicaid recipient to exempt assets for Medicaid spend down purposes that are equal to the amount of money the policy paid out for care prior to applying for Medicaid. For example, if a policy paid out $150,000 for care over a two-year period and then ran out and application was made to Medicaid, the applicant can keep $150,000 of his or her assets and not have to spend this money to qualify for Medicaid.