Long Term Care Insurance Demystified - Who Needs It, Who Doesn't and Why

Caregiver Alert!  Those of us involved in providing care know firsthand the financial challenges of a care situation, yet we tend to perceive ourselves always as the givers of care. We seldom foresee a time when we may also be receivers of care. This may be a big mistake, as statistically, nearly one out of two of us will need long term care at some point. How will our families handle the financial burden if not through insurance?

With proper advance planning, a care situation does not have to bring financial chaos.  Many families want to investigate Long Term Care Insurance (LTCi) as a possible component of their financial plan, yet in-depth information on LTCi can be hard to come by, outside of an insurance office.  Here are basics you can use to begin your education as well as insider tips for smart insurance shoppers.  This information will come in handy when you're ready to move ahead with coverage to protect your family.  You may even want to start a file called "LTCi Planning".

By the time you finish this series, you may be amazed that you can actually get excited about an insurance product.  We think you will find this series helpful in clarifying the issues around an LTCi decision we all face: to buy or not to buy.  Please note that before taking action, it is important to consult a state-licensed professional.  Hopefully with the introduction provided here, you will be better equipped to know what questions to ask and what decisions are the right ones for you.


It is clear that caregiving changes lives. In the mid-1980s, I had to give up a lucrative and fulfilling career as pianist for music legend Boz Skaggs in order to care for family members. My family suffered the consequences of not purchasing LTCi early enough.  With a family history of seven relatives in care situations, the planning need was quite clear. Even with that knowledge, by age 50 my own insurance had not yet been purchased. My own diagnosis of Multiple Sclerosis came just one month before insurance was to be set in place. Unfortunately once a documented condition indicates a probable need for care, then it is far too late to enroll. Bottom line: It's never too early. Don't procrastinate.

LTCi policies differ by state, and one must confer with a state-licensed specialist to determine suitability before enrolling.  The good news is that the earlier one enrolls, the more affordable it is for the rest of one's life.  This is only one way in which LTCi coverage can differ from other forms of insurance.

"You can forget what you thought you knew about insurance and insurance agents, because LTCi is a new and different animal. It is wise to investigate as soon as you see a possible need because you never know what the future may bring, or when.  Not everyone is eligible to enroll, especially if they procrastinate until a health condition makes them ineligible," says Scott Olson.  He is the Florida Consulting Broker for the Long Term Care Insurance Buyers Advocate Alliance.  The Alliance is a consumer advocacy group dedicated to insurance buyers' rights.  "If nearly 50% of the population will eventually need care and only 7% are covered, then it is clearly time for smart people to move forward with their planning before it's too late."

Amazingly, Mr. Olsonís own father-in-law was not insured in April 1998 when he experienced a massive stroke. Once he was afflicted he was no longer eligible enroll.  "Now the whole family is suffering, because we put off planning for a possible incapacity.  I feel terrible because we could have saved untold tens of thousands of dollars through prudent insurance planning.  The main problem here is that families are not comfortable discussing these issues in advance.  There is a lot of avoidance, denial and procrastination and it's a real shame."

In order to encourage citizens to act early in their own behalf, legislation has been enacted which supports the purchase of private LTCi coverage through Federal and State tax incentives.  Yet few people know how to determine if it might be appropriate for their family. "One reason people delay their research is that most folks are not ready to invite the neighborhood insurance agent to deliver a presentation full of complicated features, benefits and strange terminology," explains Steve Eads, CLU of the National Advisory Council for Long Term Care Insurance, "In most cases, people want to bone up on LTCi before they contact an LTCi specialist."

Naturally, people have many questions. They want to know what LTCi is and why they should care. What are the benefits and eligibility requirements?  Is LTCi worth the cost?   What is the best age to enroll?   You'll get savvy answers in this series.  You'll also find directions to some little-known Internet resources for both further study and breaking news on LTCi-related topics.


Like health or auto insurance, LTCi incurs a periodic premium expense. There are no accumulated "cash values".  If you are one of those that need the benefits, then you are covered.  If not, then the premium can be perceived as an expense you are willing to bear to assure family security.

Benefits can be triggered by cognitive impairment or an inability to perform two or more activities of daily living (ADLs) such as bathing, dressing, feeding, toileting, transferring, etc. These benefits can cover many settings for care including skilled nursing facilities (nursing homes), assisted living facilities, memory-impaired facilities, adult care homes, residential care homes, hospice care facilities and optionally, in the family's own home (home care).  In addition, many policies can cover an independent geriatric manager and homemaker services such as cooking, cleaning, laundry and even shopping. It can also cover training family members in personal care giving.

Policies are not standardized.  Each plan is custom designed with the help of a state-licensed LTCi agent. Most policies reimburse policyholders for care expenses, although some policies call for a
check without proof of expenditures once the benefits are triggered.

While most buyers claim the coverage serves as "asset protection", many see it as the only way to assure freedom of choice in securing the quality of care that they desire.  These families wish to avoid reliance on an overtaxed Medicaid or welfare bureaucracy that cannot guarantee top quality care for everyone.

As in other areas or our society, it comes down to dollars, dollars, dollars and dollars are exactly what LTCi can deliver when the need is there.  Care situations can be stressful enough without the added burden of paying year after year for professional help.


The need for long-term care is greatest in the over-65 population in general and specifically in the over-85 group, where the need for formal nursing care is highest.  Statistics published by the Health Insurance Association of America reveal that almost one half of the population turning age 65 will need formal nursing home confinement of some duration in their remaining years.  Roughly one fourth of the population over age 85 are in nursing homes at any given time.  By age 85, sixty one percent of people who have limitations in performing activities of daily living are indeed receiving care in nursing homes.

There are now over 2.25 million older Americans in nursing facilities. This figure is expected to increase another one million by the year 2003 and much more from there on.  How many new
nursing home beds must we add to handle these needs by the year 2030 when the median baby boomers retire?  Reports predict as many as 200 more nursing home beds per day will be needed.

The question becomes one of who is really at risk. It may be that long-term care is primarily a women's issue. Have you ever visited a nursing home? Who are the nursing home residents, by and large?  If your experience reflects the published reports, you know that the nursing home population consists primarily of elderly women - single, elderly women.

Findings of a study conducted by the Medicaid Department of the State of New York reveal some interesting facts:

* Eighty percent of nursing home admissions are women.
* The average admission age of these women is 82.
* At age 82, most women are single, or widowed.
* Compared to men, women are confined 50 percent longer.

Conclusion:  Men die!

If a man doesn't die suddenly, he often becomes ill and his wife takes care of him until he dies. Or, his wife cares for him as long as she's able to so do. When she simply can no longer handle things, she admits him to a nursing home and shortly thereafter he dies. Therefore, facility care clearly seems to be a women's problem. Women bear the most risk!

The Department of Health and Human Services Task Force on Long Term Care Policies published length-of-stay figures.  The statistics indicate that 52% of all people admitted to nursing homes stay less than 90 days and 63% stay for less than six months. What portion are likely to be men? Since women stay 50% longer than men, we can surmise that a large percentage of these "short stay" residents are men.

Statistical data was reported in the July/August 1990 issue of Contingencies Magazine, published by the American Academy of Actuaries, in an article titled "Who Should Buy Long Term Care Insurance."  The studies show clearly that although there is a significant risk of financial disaster for men, the predominant
people at risk of losing assets are single, elderly women.

With couples, there exists a serious risk of impoverishing a non-institutionalized spouse. Indeed, there remains the distinct possibility of "forced spend-down" or erosion of assets to pay for nursing home care. This causes a depletion of the assets that might otherwise be available to pass on the family or gift to charity.

In addition, there is the issue of care quality, and of the effects of inflation on one's ability to maintain nursing home "private pay" status.  The above article assumes an inflation rate of 5%, although the inflation rate for nursing home care has at times been 16% per year.  If that rate continues, how soon will people spend down all their assets on nursing home care?

Will you have a choice?  Now we come to the real questions.  Can the people who are at risk, primarily single, elderly women, pay for the care they would choose?  Will they have the freedom to choose the setting and the type of care they will want to receive?   It's pretty clear, based on income alone, few elderly singles can finance the cost of nursing home care.

Many elderly females have no pension plan based on their own work record and contributions, nor are they likely to inherit pensions from their husbands.  Those who can count on pension benefits based on their own work record have very modest benefits because of the relatively low wages during their working years.

Although more women are now covered by pension plans, the benefits they receive will still be relative to the lower contributions made on their behalf, again because of the lower wage base during their working years.  Also, some reports still predict that only 10 percent of women will indeed inherit a pension benefit from their husbands.

Will things change in the future?   Currently, over 60 percent of the elderly rely on Social Security to provide more than one-half of their retirement income.  And roughly one out of four people over age 65 receive 90 percent or more of their income from Social Security.  What about future retirees? Will they be as dependent on Social Security during their remaining years?  With the shift away from true pension plans (defined benefit plans) to contribution-type plans (401K plans) funded largely with employee dollars, will the majority of employees exhibit the discipline required to create a significant retirement fund?  You tell me...

As of 1990, women who retired on Social Security received a benefit that was $11 per month less than the poverty level.  Obviously, there is little hope of their paying for nursing home care if they are dependent upon their monthly Social Security checks for a large percentage of their income.  Many of the current and future single, elderly women will have to look to other sources to pay for their nursing home care.  They will have to rely on 1) public programs (These are being tightened drastically), 2) family (a serious burden) or 3) private LTCi (converting an unknown risk into a manageable premium expense).

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