Growing old is not for the faint of heart.

The other night there was a great Hallmark tearjerker movie.

It caught the essence of how difficult it is to plan for a time in the future when we may need to ask for help with everyday activities. The grandfather, in this movie, shares with his granddaughter the following …

There is no way you can understand.

For you to understand what it’s like to be at this stage of my life and what I’m going through right now…

You are going to have to get here!

Growing old is not for the faint of heart.

And that’s the whole point!

Taking a call to action and finding the time to create a plan that provides you with possibilities is not so simple to actually implement. With the demands of life, when do we put planning for our future upfront and personal?

Putting a plan in place can provide options. Growing old is not for the faint of heart. We can make life less jarring if we know we have planned for our future with a Long-Term Care plan.

About 70% of Americans reaching age 65 will need some form of Long-Term Care (LTC) – AARP 10.13.21

There’s a saying many of us have heard:

“We are the architects of our own lives”.

We make decisions that impact our lives.

Enviably we are all going to age, grow older; a very difficult concept to visualize that we may need assistance getting dressed, preparing breakfast. This is a topic that’s neither comfortable or easy to have a conversation with loved ones.

Because at the same time, if asked about our futures, we see ourselves as living happy and healthy to a ripe old age. And that’s what makes it so difficult, so important to start that conversation about growing older. Who isn’t a little bit scared about getting older?

Through Maria Shriver’’s experiences(*1) with being part of the caregiving for her father who developed Alzheimer she has learnt:

“The truth is we can’t afford to be embarrassed or uncomfortable about the things that matter most.”

“We haven’t had the caregiving conversation as a nation that I think we so desperately need.”

Preparation, in all its many facets, is such an important part of the process to putting a plan in place for your possible Long-Term Care needs. We can’t predict how we’ll age; we can at least prepare for it.

At what age should I consider Long-Term Care Insurance (LTCi)?

The best rates are available when a person is still healthy. If you have a family history of illness, I suggest being proactive and look at purchasing the LTCi policy when you are younger and healthy.

That’s why the most cost-effective time to purchase a LTCi policy is somewhere between ages 50-65. You’ll read an assortment of opinions about what that best age is to purchase a LTCi policy.

Another argument for buying a policy early is that it provides you with more time to grow the overall value of your policy with an inflation protection rider.

LTCi is not one-size-fits-all.  You’ll determine what the best age is to purchase your LTCi within your financial budget.

To qualify for Long-Term Care Insurance (LTCi) coverage a doctor will certify that you are chronically ill, unable (temporary or permanently) to independently perform at least two to six activities of daily living (ADLs):

• Bathing

• Maintaining Continence

• Dressing

• Eating

• Toileting

• Transferring (moving in and out of a chair, bed or wheelchair)

Developing a severe cognitive impairment like Alzheimer’s disease can also qualify someone to need LTC.

There are also IADLs, instrumental activities of living. The IADLs impact a person’s continued ability to manage at home independently. They are activities that are not essential to basic self-care of your ADLs, but add quality to life:

• Cooking your daily meals

• Shopping

• Household Chores/Maintenance

• Administering Medications

• Vehicle Transportation

• Using Communication Devices

The IADLs are often the first things which become more difficult to do and may trigger the need for caregivers to assist. Needing LTC does not happen overnight it’s a gradual process that may evolve into first needing some caregiver support.

Your LTCi policy can help provide the following Care Options/Benefits that run the range of:

• Hiring an aide or possibly a friend or family member to assist you in your daily activities at your home

• Cover modifications to your home, to make it easier to remain there to receive care

• Adult day care services

• Assisted Living care

• Nursing home care

• Alternate care Services

• Hospice Services

What makes LTCi different from other health-related coverage is that it targets your Activities of Daily Living as opposed to medical cure-related activities.

How much does LTC services cost?

Here is a list of average LTC costs written up 11.14.22(*2)

• Nursing home (private room) $7,698/month

• Assisted living facility (one-bedroom unit) $3,628/month

• Home health aide $20.50/hour

• Homemaker services $20/hour

• Adult daycare $68/day

Most LTCi plans provide a Care Coordinator - a partner to help you develop your plan of care:

No matter which LTCi coverage you may select most plans will provide you with a Care Coordinator, a licensed health care professional for no additional cost. This individual can assess the needs of the insured and help develop their individualized plan of care with their LTCi policy. The policyholder will have a partner to help them navigate the system in obtaining the supportive services they want.

Having a Care Coordinator can help alleviate some of the emotional toll that develops when being unsure how to plan for the Activities of Daily Living as we grow older.

DISCLOSURE: Each state may have their own parameters for LTCi plans. Insurance Companies will further customize/design their products. I do not provide tax advice. Contact your tax, legal or accounting professional regarding your individual situation.

Three types of LTCi coverage: Standalone vs Hybrid vs Annuity

Standalone: is a policy solely for LTCi. It still offers the best value in terms of the most LTCi benefit per premium dollar.

Hybrid: can be either a: Guaranteed Universal Life (GUL) or Participating Whole Life policy (PWL) Insurance policy with LTCi rider benefits. If LTCi benefits are not used, some portion of the Life Insurance death benefit will be paid out to the beneficiary.

Deferred Annuity with LTCi rider benefits: starts as a Deferred Annuity purchased to leverage LTCi benefits. Any LTCi benefits not used some portion of the Annuity will be paid out to the beneficiary.

How: Standalone, Hybrid and Annuity LTCi plans work:

Standalone LTCi Policy at its core, is just purchasing access to a pool of money, that grows tax free, for when care is needed. Policyholders can choose how large that pool of money is initially and can decide whether that pool of money will increase over time to keep up with inflation. Common LTCi inflation protection options can be either simple or compound.

Hybrid Insurance Policies differs from a Standalone policy in that their pool of money is created with riders that accelerates the payment of a portion of the policyowners death benefit to help pay for their LTC expenses.

GUL polices have 2 rider options that provide inflation protection: this increases the maximum LTC benefits.

• LABR (Long-Term Care Acceleration of Benefits Rider)

• LEBR (Long-Term Extension of Benefits RIder) is an optional rider that can extend the policyowner benefits further.

PWL policies work with the LABR and LEBR riders in addition to an Acceleration of PUA rider(paid-up additions of death benefit).

• Once the LEBR coverage is exhausted LTC benefits will continue to be available as an acceleration of the policyowners PUA face amount.

  • PUAs will increase the minimum number of months that benefits can be paid.

• And while receiving benefits the policyowner will continue to receive dividends based on the full face amount of the death benefit.

Deferred Annuity with LTCi benefits works with a formula that establishes the amount of benefits available to the policy owner every month.

Health Screening:

All doctor appointments and medical tests are distributed to a Medical Info Bureau (MIB). The insurance company only goes back as far as they are allowed (according to their guidelines, ie 5 years, 10 years). If someone has gone to his or her doctor within the past 6 months (non routine) an Attending Physician statement (APS) will most likely be requested.

For all ages: a complete physical examination and complete metabolic profile (CMP) chemistry lab panel is required within the past 24 months to qualify for preferred rates.

Depending on your age and health issues, a face-to-face assessment in your home, by a paramedical vendor at the insurance company’s expense, may be required.

For individuals 64 and older they will be asked to undergo a quick and easy cognitive assessment via the telephone. You will be asked a series of questions and asked to perform some memory exercises.

Premiums are based largely on the choices you make:

Your premium is derived from 7 components:

1. Type of policy

2. Amount of daily benefit that will be paid

3. Number of years the policy will pay benefits when you need care

4. Number of days (if any) before the company will begin paying benefits after you qualify for those benefits

5. Option of inflation protection

6. Age and

7. Gender

Premium payment options (how many payments):

Standalone Policy premiums are paid annually. Premium payments will stop once the policyowner is diagnosed as critically ill and their elimination period has been satisfied. If the policyowner after a period of time is no longer critically ill and so no longer needs the LTC services the premium payments will resume.

Hybrid policies can range from a single premium, to a recurring premium where they are paid over the next: 5, 10 or 20 years or are paid annually through to age 95. With some insurance plans there are additional flexible premium options.

When a policyowner is receiving LTC benefits, if they are making premium payments, the rider portion of the premium payments will be either: waived or credited for the duration that the policyowner is diagnosed as critically ill and their elimination period has been satisfied.

Deferred Annuity you make a single premium.

At time of application - the benefit period is selected:

Different LTCi plans may state the benefit period options in either: years (2 -7 years or over life of the policy) or as a total dollar amount. Benefits may be paid out as reimbursements and some plans have the benefit options of both reimbursements and cash indemnity.

When a plan provides both benefits (reimbursements and cash) the benefit periods elected may be different for each option.

For example: with one Standalone policy you choose the reimbursement benefits duration from 2 - 7 years. While the cash indemnity benefit duration will be 20 years.

With reimbursements, most insurance companies will allow the dollar amount for either: daily, weekly or monthly reimbursement benefits that are not use to be carried over to the next year, which extends your benefit period.

With cash indemnity option, you will be paid the entire daily, weekly or monthly benefit regardless of the actual cost of your care.

With some policies you can switch back and fourth on a monthly basis from reimbursements to cash indemnity.

Premium increases:

Hybrid LTCi plans have become popular because PWL and GUL options offer fixed guaranteed rates.

Standalone plans offer fixed rates that are not guaranteed. Around the late 1970s, when LTCi Programs were being developed, many of the Insurance Companies did not develop the right algorithms to determine future demand and cost of care and policyowners found their yearly premiums increasing.

The National Association of Insurance Commissioners Long-Term Care Insurance Model Regulation was first modified to include rate stabilization provisions in 2000. An updated model was developed in 2014. Today if an Insurance Company is requesting a premium increase two criteria must be met:  

• they must first reduce the profit levels in their original pricing and

• 100 percent of the rate increase must go towards claims and customer service, not profits.

Once these new regulations were passed it made it very difficult to get rate increases on currently filed LTCi policies.

Will costs be going up for your LTC services; most probably yes. And for those reasons you may see in the future premiums going up to insure you have a strong Policy in place that can still pay for the LTC services you want.

How benefits are paid out: reimbursements and/or cash indemnity basis.

Reimbursements is the more common way benefits are paid. The cash indemnity approach is not a universal option with all LTCi policies. LTCi plans will pay a policyowner benefits either on a daily, weekly or monthly maximum up to a yearly benefit limit. You cannot receive cash and reimbursement benefits at the same time.

Reimbursements: With reimbursements benefits, policyowners will submit to the LTC Insurance Company bills/receipts for qualifying services rendered. The Insurance Company then reimburses the: facility, healthcare service, professional, or policyowner. Reimbursement plan benefits will be received tax free under the tax rules.

Cash Indemnity: A check is sent to the policyowner each month for the maximum amount of the monthly LTC basis regardless of any expense incurred. No bills or receipts need to be submitted to collect monthly cash benefits. The money may be used for the policyowners individualized care needs; even expenses not typically associated with LTC (such as prescriptions not covered by other insurance or home maintenance).

With cash indemnity the daily benefits are tax-free up to a limit per day. In 2023 that limit will be $420 per day. If you receive more than the daily limit and you can show receipts that it was for qualified care the extra amount will not be taxed.

For example:
If a policyowners' cash indemnity benefit received from the insurance company was $450 per day, that would create a taxable income of $30 per day. But if with receipts it can be shown that the extra amount paid for qualified care then the extra cash indemnity would no longer be taxable.

If a policyowner receives both: reimbursements & cash indemnity in a single taxable year, the reimbursement benefits must then be reported potentially exposing the total benefits received to taxation above the per diem limit. Contact your tax account for their advice on receiving both types of benefits in the same year.

Elimination Period (EP): the waiting period before policyowner starts receiving LTCi benefits.

The elimination period or waiting period is the number of days, starting from when the insured was diagnosed as chronically ill and simultaneously starts receiving services for their initial LTC services. The policyowner will pay for these services during this elimination period which typically spans from from 0 to 90 days. The elimination period is cumulative and needs to be satisfied only once during the life of the policy.

For example: some cash indemnity benefits have 0 day elimination periods. While reimbursements benefits may require a 90 day elimination period before the LTCi plan will start reimbursing benefits.

The 90 day elimination period does not necessarily mean that the policyholder has to receive/pay for LTC services for 90 consecutive days.

Here are 2 different ways that EP may be counted:

Calendar Days: you can literally mark your calendar out 90 days (for example) from the day you are eligible for your benefits.

Service Days with Credit: A LTCi policy will give you a week’s credit (7days) if you only have one day of paid covered care in the week (Sunday to Saturday). This is the way many policies work.

Please be sure, when reviewing a LTCi plan, to read the fine print as to how the EP will apply with your policy.

What is a Tax Qualified LTCi Policy?

In 1997 Congress established the tax treatment of premiums paid for and the benefits paid/reimbursed by LTCi polices that met certain federal standards. LTCi Policies that are based on these Federal standards are “Federally tax qualified”. Qualified benefits paid-out from the above policies are received tax-free.

Are LTCi premiums tax deductible?

Standalone LTCi premiums paid by the policyholder for a qualified LTCi is treated as a medical expense for purposes of itemizing medical expenses. To see if the policyholder qualifies for this tax deduction its a 2 step process.

Step one: an individual’s total annual unreimbursed medical expenses, including LTCi yearly premiums, must be
> 7.5% of the insured’s adjusted gross annual income. If this is met we go on to the next step.

Step two: consists of a chart showing the maximum yearly premiums that can be deducted based on the insured’s age before the end of the taxable year.

Generally Hybrid (Life Insurance+LTCi rider) or Annuity+LTCi rider policies do not qualify for a premium deduction. But if a portion of these plans qualifies for a deduction, such as a LTCi rider, then the LTCi rider portion of the premium can follow the same tax guidelines as the Standalone policy does.

If self-employed: as long as the insured makes a net profit by the end of the tax year, they can take the amount of their yearly LTCi or rider premiums as a tax deduction.

Domestic Partner discounts:

Most Insurance companies offer a “domestic partner” discount for one spouse or domestic partner applying for LTCi coverage alone. This discount can typically range from 10-15% in the premium savings. If the domestic partners apply together the discount can range from 20-40% for their individual premiums.

Divorce discounts:

While going through a divorce you still can jointly apply for your LTCi discounts.

Or if you have recently completed your paperwork and you are now divorced.

• You still have about 12 more months, from the date of the official divorce, to jointly apply for your LTCi discounts!

International benefit:

Many LTCi policies will pay for care that arises when you are traveling outside the United States. The maximum monthly international benefit of 12 months may vary with Insurance Companies,

Hospice care benefit:

If you are terminally ill and not expected to live beyond six months; most policies will pay for hospice care received in any setting. No elimination period is required to receive this benefit.

Do your Financial Plans for Retirement include planning for your Long-Term Care needs?

If not, which assets are you designating to pay for your possible activities of daily living and the instrumental activities of daily living?

We can’t predict how we’ll age; we can at least prepare for it.

How do you see Long-Term Care Insurance impacting your Financial Planning?

Let’s Explore Your Insurance Options

*1 Maria Shriver has shared her thoughts on LTC with Care Giver Support Services; an online training company for family and frontline caregivers.

*2 Forbes Advisor - “How to find the best LTCi” - 11.13.22