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Long Term Care Insurance

The financial landscape of long term care is changing. People are paying out of pocket, using home equity, hybrid insurance plans and more. There are many reasons traditional long term care (LTC) insurance is a fading fad. Long term care insurance is designed to cover the costs associated with long term care services.

This traditional insurance supports the costs associated with custodial care in a variety of settings, including residential assisted living. It covers the cost of many RAL homes, community organizations and other choice facilities that provide 24/7 care. Unfortunately, private health insurance usually does not cover the cost of assisted living.

This is why LTC policies thrive because they reimburse policyholders a daily amount when or if the benefit is needed for care providers. This reimbursement amount is based on a pre-selected limit, which is predetermined by a selected range of care options.

The Cost of a Long Term Care Policy is Based on a Calculated Formula:

  • How old you are when you buy the policy
  • The maximum amount that a policy will pay per day
  • The maximum number of days (years) that a policy will pay
  • And any optional benefits chosen, such as, benefits that increase with inflation

It is better to plan ahead when preparing for LTC policies. If you are in poor health or already receiving long term care services, it is likely that medical underwriting will disqualify you. Seniors who have paid policy premiums on long term care plans for upward of 30 years usually earn a benefit of $100 per day. However, many long term care policies maintain a cost of living increase of 3-4 percent. As a result, some policies payout a daily benefit of $200 – $250, which is roughly $6000 per month. This allows seniors the opportunity to live comfortably in convenient assisted living homes.

Fewer people are purchasing long term care insurance today, however, as insurance companies are steadily raising the premiums and cutting the benefits. In addition, long term care insurance is no longer available with many insurance providers. The need for long term care continues to be in high demand, and people are coming up with creative concepts to cover the expenses.

There are 5 major aspects to keep in mind when making decisions about long term care:

  • Problems with Traditional LTC Policies
  • Options Other Than Insurance
  • Non-Traditional Insurance Strategies
  • Reasons People Perpetually Pay for Traditional LTC Policies
  • Planning Ahead Pays Off

1. Problems with Traditional LTC Policies

“This is a classic story of market failure,” says Howard Gleckman, a senior fellow at the Urban Institute, a nonpartisan think tank in Washington, and the author of Caring for Our Parents. “No one wants to buy insurance, and no one wants to sell it.”

Traditional LTC policies require annual premiums in return for financial assistance “if” needed. The need must call for help with day-to-day activities such as bathing, dressing and eating meals.

Waiting Periods

After a waiting period of about 3 months, the benefits kick in for a maximum period of 3 years’ worth of coverage. For many modern-day seniors, these waiting periods and short term coverage options are not enough to accommodate their final years. The average $160 daily benefits for assisted living care services is no longer enough over a 3-year period.

According to the most recent AARP life expectancy report, the 65 and above age group will increase 89% over the next 20 years. The life expectancy of the 85 and older population will grow 74% during the same period.

People are Living Longer

Therefore, typical terms today require more coverage than traditional policies. In addition, these stand-alone LTC policies have a troublesome history of premium spikes and insurer losses. As a result, sales have fallen sharply.

2. Options Other Than Insurance

Many Americans simply cannot afford the cost of LTC policies. These policy premiums average about $2,700 a year, according to industry research. There are many other options seniors can consider for senior care expenses:

  • Policy discounts for couples are common, typically the savings total about 30% off policies that are purchased separately.
  • Medicaid is an option if your assets are few. Medicaid covers the cost of assisted living for individuals who are impoverished.
  • Personal Savings protect many people from purchasing high premiums by paying for future senior care out of pocket.
  • Home Equity is extremely beneficial for many senior care expenses.
  • Financial Support from children who can be counted on to pitch in is also a consideration.

Keep in mind that individuals who have a family history of dementia are at a higher risk of needing care. That means it is even more important to consider options early on. Strategize to save more by planning early.

3. Non-Traditional Insurance Strategies

As traditional LTC insurance continues to spiral downward, new insurance plans are launching with great success. Perhaps you’ve heard of whole life insurance. Whole life is a type of life insurance contract that provides a lifetime of coverage. Upon the inevitable death of the contract holder, the insurance payout is made to the contract’s beneficiaries.

Most importantly, these policies include a savings component, which means it accumulates a cash value. This cash value is one of the key elements of whole life insurance. As a result, the benefit enables policy holders to draw from a whole life policy for long-term care. Unlike traditional LTC insurance, these policies will return money to your heirs, even if you don’t end up needing long-term care. Also, there are no rate hikes, because you lock in your premium upfront.

Do Your Homework

Since whole life insurance policies are long-term investments, your relationship with the insurance company will literally last a lifetime. Choosing a reputable company with the highest ratings is the key. A company with financial stability and quality customer service are aspects you should search for.

4. Reasons People Perpetually Pay for Traditional LTC Policies

There is a reason some seniors continue paying for traditional LTC policies. If you “only” want cost-effective coverage, traditional LTC insurance is cheaper. However, you run the risk of losing everything if you never need help, which is the nature of many insurances.

On the other hand, whole life policies, often called hybrids, are usually 2-3 times more expensive, offering the same amount in payouts, with different options that limit loses. These policies offer a mixture of payout options and benefits. Ultimately, with hybrid policies, you’re paying extra, specifically as a guarantee of getting money back. Hybrid policies are used as alternative forms of savings, rolling over existing life insurance, and merging them with your annuities. Hybrid policies are more complex. As a result, there remains a small clientele for traditional LTC policies.

5. Planning Ahead Pays Off

At the latest, start looking for insurance in your 50’s or early 60’s. Afterward, premiums rise sharply. As we age, declining health rules out robust coverage. Every year you delay, the premiums will become more expensive. Within a simple one-year age hike, premiums can increase as high as 10%.

It is a savvy strategy to seek independent insurance agents who sell policies from multiple companies, rather than one insurance company. This will afford you a more advanced level of expertise and a wider option of policy choices. And planning ahead will afford you more opportunities to make better choices to benefit your future.

The RALAcademy Solution

There is one more strategy we like to share for those without a long term care insurance policy.

We teach owning and operating your own assisted living home, that means you have a retirement plan and care plan by living in the home designed to take care of you when the time comes.

If you have more questions about insurance for assisted living, Residential Assisted Living Academy is ready to walk you through the process.

Contact us to learn all the details, from A-Z about the assisted living care industry or to get started in owning one yourself.

Visit to learn more about the role of LTC insurance on the residential assisted living industry.

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