Long Term Care Insurance
Long-term care insurance (LTC or
LTCI), helps provide for the cost of
long-term care beyond a
Long-term care insurance covers
care generally not covered by health
insurance, Medicare, or Medicaid.
Individuals who require long-term
care are generally not sick in the
traditional sense, but instead, are
unable to perform the basic
activities of daily living (ADLs) such
as dressing, bathing, eating,
continence, transferring (getting in
and out of a bed or chair), and
According to the Dept. of Health and Human Services it is estimated that 60% of individuals over the age
of 65 will require some type of Long Term Care and over 40% will require care in a nursing facility.
The costs for this care can exceed $5,000 a month for nursing and or assisted living facilities while home
care cane exceed $2,000 per month. Planning for this life and economic event is of the highest importance.
Long Term Care insurance generally covers:
- Home Care
- Assisted Living
- Adult Daycare
- Respite care
- Hospice Care
- Nursing Home
- Alzheimer's specialized facilities
If home care coverage is purchased, long-term care insurance can pay for home care, often from the first
day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private
duty nurse up to 7 days a week, 24 hours a day (up to the policy benefit maximum).
A good Financial Planner should verify with you the coverage you believe you will need in the future and
what best suits your planning needs. BE SURE TO CLARIFY THIS POINT!
Other benefits of long-term care insurance are:
- Many individuals may feel uncomfortable relying on their children or family members for support, and
find that Long-Term Care insurance could help cover out-of-pocket expenses. Without Long-Term
Care insurance, the cost of providing these services may quickly deplete the savings of the individual
and/or their family.
- Premiums paid on a long-term care insurance product may be eligible for an income tax deduction.
The amount of the deduction depends on the age of the covered person. Again, a good Financial
Planner will be able to illustrate these tax benefits. If one says to you "I am not an accountant" then
he or she is not really a Financial Planner but a salesperson!
- Benefits paid from a long-term care contract are generally excluded from income.
- Business deductions of premiums are determined by the type of business. Generally corporations
paying premiums for an employee are 100% deductible if not included in employee's taxable income.
Private long-term care (LTC) insurance is growing in popularity in the United States. Premiums, however,
have risen dramatically in recent years even for existing policy holders.
Coverage costs can be expensive, especially when consumers wait until retirement age to purchase LTC
As they relate to U.S. income tax, two types of long term care policies offered are:
- Tax qualified policies are the most common policies offered. A tax qualified policy requires that a
person A) be expected to require care for at least 90 days, and have a 2 ADL requirement, ability to
perform 2 or more activities of daily living (eating, dressing, bathing, etc.) without substantial
assistance (hands on or standby); or B) for at least 90 days, need substantial assistance due to a
severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a tax
qualified policy are non-taxable.
- Non-tax qualified was formerly called traditional long term care insurance. It often includes a
"trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that
doctor in conjunction with someone from the insurance company, can state that the patient needs
care for any medical reason and the policy will pay. Non-tax qualified policies include walking as an
activity of daily living and usually only require the inability to perform 1 or more activity of daily living.
The Treasury Department has not clarified the status of benefits received under a non-qualified long-
term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation.
This means that it is possible that individuals who receive benefits under a non-qualified long-term
care insurance policy risk facing a tax bill for these benefits.
Fewer and fewer non-tax qualified policies are available for sale.
One reason is that consumers want to be eligible for the tax deductions available when buying a tax-
qualified policy. The tax issues can be more complex than the issue of deductions alone, and it is advisable
to seek the counsel of a financial Planner qualified to illustrate all of the pros and cons of a tax-qualified
policy versus a non-tax-qualified policy. By law, tax-qualified policies carry restrictions on when the policy
holder can receive benefits. One survey found that 65 % of purchasers did not know whether or not the
policy they bought was tax qualified, unfortunate being that this is such an important issue.
Once a person purchases a policy, the language cannot be changed by the insurance company, and the
policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for
health reasons, but can be canceled for non-payment.
Most benefits are paid on a reimbursement basis and a few companies offer per-diem benefits at a higher
rate. Most policies cover care only in the continental United States. Policies that cover care in select foreign
countries usually only cover nursing care and do so at a rated benefit.
Group LTC policies may have provisions for non-restricted or open enrollment periods and underwriting
may be required. Group plans may or may not be guaranteed renewable or tax qualified. Some group
plans include language allowing the insurance company to replace the policy with a similar policy and to
change the premiums at that time. Some group plans can be canceled by the insurance company. To
compensate for the higher insurance risk group plans may have higher deductibles and lower benefits
than individual plans.Some group plans have a 3 ADL requirement for nursing care.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides certain former employees, retirees,
spouses, former spouses, and dependent children the right to temporary continuation of health coverage
at group rates.
Retirement systems may offer long-term care insurance similar to a group plan. These organizations are
not regulated by the state insurance departments. They can increase rates and make changes to policies
without state scrutiny and approval, so one should beware, and again have a good Financial Planner that
can delve into these finer points.
Long-term care insurance rates are determined by six main factors:
1. The Person's Age
2. The daily (or monthly) Benefit
3. How Long the Benefits Pay
4. The Elimination Period
5. Inflation Protection
6. The Health Rating (preferred, standard, sub-standard).
Most companies will give couple's and multi-life discounts on individual policies. Some companies define
“couples” not only as spouses, but also to two people who meet criteria for living together in a committed
relationship and sharing basic living expenses. The average age of purchasers has dropped from 68 years
in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased
Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly.
Companies add a percentage for more frequent payment than annual. Options such as spousal
survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.
The Deficit Reduction Act of 2005 makes the Partnership for Long Term Care available to all states.
Partnership provides "lifetime asset protection" from the Medicaid spend-down requirement.
Originally four states had Partnership plans New York, Indiana, Connecticut and California. As of October
2008, an additional 16 states had active Long Term Care Insurance Partnership programs.
YOU SHOULD NOT PURCHASE any long term care insurance if you currently receive or may soon receive
Medicaid benefits, if you have limited assets and can’t afford the premiums over the lifetime of your policy,
or if your only source of income is a social security benefit or supplemental security income.
Equitas Advisors LLC
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