Who is providing coverage for long-term care expenses now?
The landscape of coverage for long-term care expenses is changing. As fewer insurance carriers offer stand-alone policies, who will provide the protection Americans so badly need when they can no longer care for themselves?
History of LTC insurance
Long-term care insurance policies became very popular in the 1990s, with premium volumes growing from $2 billion in 1995 to $11.5 billion in 2012.1 However, the industry experienced heavy losses due to factors including lower-than-expected lapse rates, low investment returns, high capital requirements, underwriting challenges and distribution networks that charged high commissions. Many were forced to increase rates on large blocks of business and some have stopped selling long-term care insurance altogether.
With droves of Baby Boomers entering their later years, the need for long-term care protection is still there – and growing.
Alternatives have emerged
While stand-alone long-term care insurance policies can provide important protection if the insured only needs coverage for long-term care expenses, there are other alternatives for those who also need some other type of protection or asset accumulation potential.
Other financial products that are available to help pay for long-term care expenses: now include group plans through work, as well as LTC riders on life insurance policies and annuity-based products. Hybrid policies, that combine life insurance with an LTC rider, for example, allow clients to receive a benefit for qualified long-term care costs and pass assets to their beneficiaries via a life insurance benefit, which is typically reduced if long-term care benefits are used.
LTC insurance policies vs. LTC riders
With a stand-alone long-term care insurance policy, clients are paying for one benefit only: protection from the potentially high cost of long-term care expenses. There is no potential for cash value build-up and premiums are not guaranteed to remain the same for the life of the policy. That said, the benefits are typically tax-free and long-term care insurance premiums may be tax-deductible in certain situations. Like a life insurance policy, a long-term care insurance policy is backed by the claims-paying ability of the insurer.
For those who need both life insurance protection and coverage for long-term care expenses, a combination policy may be a good choice. You need to include the purchase of a separate life insurance policy and a separate LTC policy too. This will provide 2 separate pools of money and is another consideration clients should consider. There are generally three types of life insurance policy riders available that pay out benefits for illnesses: long-term care riders, critical illness riders and chronic illness riders. These are each considered accelerated death benefit riders, since you are advancing the death benefit as you take money for expenses associated with illness. They are available on certain individual permanent life insurance policies.
- Long-term care riders – typically available for an additional cost. In general, if a physician certifies that the client needs substantial assistance in performing at least two of the six Activities of Daily Living (eating, bathing, dressing, toileting, continence and transferring) or is cognitively impaired, the rider will advance all or a portion of the policy’s death benefit to pay for qualified long-term care services. In general, the client need not be permanently disabled in order to receive benefits; typically pays on permanent or temporary claims that exceed a 90-day elimination period.
Not too long ago, policies with these types of riders were typically funded by a single premium payment and were often used by the affluent only. Today they are readily available with flexible premiums, which may appeal to a younger, less affluent crowd.
- Chronic illness riders – sometimes included with the life policy for no extra charge. Like a LTC rider, the client needs a physician to certify that he or she needs substantial assistance in performing at least two Activities of Daily Living before receiving benefits. However, in this case, the prognosis typically needs to be permanent, not temporary.
- Critical illness riders – typically available for an additional cost. Similar to chronic illness riders, but generally pay benefits for specific critical illnesses, such as cancer, stroke or heart attack.
1 How Will We Care? Finding Sustainable Long-term Care Solutions for an Ageing World. Sigma, No 5/2014. Web
Life insurance products are issued by Equitable Financial Life Insurance Company (Equitable Financial) (New York, NY) or Equitable Financial Life Insurance Company of America (Equitable America) and co-distributed by affiliates Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR) and Equitable Distributors, LLC. For New York state-based (i.e., domiciled) financial professionals, life insurance products are issued by Equitable Financial Life Insurance Company (New York, NY). All companies are affiliated and directly or indirectly owned by Equitable Holdings, Inc., and do not provide tax or legal advice.
It’s not too early to talk to Millennials about long-term care
Young adults in their 20s and 30s (Millennials) are aware of the rising cost of long-term care. Now is the time to start conversations with them about how to meet the challenge, and here's why they will be receptive to your ideas.
Understanding the need to plan
Millennials are a planning-focused generation, and it’s already clear they will become an excellent market for long-term care (LTC) strategies in the future. Why? Two reasons.
First, they are already aware of the LTC challenge and its costs. Second, many have watched their parents or grandparents fail to plan for LTC, and they are personally feeling pressure to fill financial and caregiver gaps. For them, it’s personal!
According to a recent survey:
- 69 percent of Millennials agreed that the burden of providing LTC for parents or grandparents will fall on them. This percentage was slightly higher than for middle-aged or older people.
- 56 percent of Millennials believe they personally will plan for LTC better than previous generations, mainly because they are more aware of the challenge.1
Millennials have learned about personal finances, in part, by observing mistakes and shortcomings of older generations. They want to do better in their own planning, especially in areas such as: 1) managing personal finances; 2) avoiding too much debt; 3) saving more for retirement; and 4) planning for health care and LTC at older ages.
You can increase their knowledge about different ways to address LTC needs, and also let them know there is no better time to start than now.
How to talk to millennials about LTC
- Begin conversations by connecting to Millennials’ experience with parents and grandparents. Focus on both the financial and caregiver pressures LTC has put on their own families, or the families of close friends.
- Reinforce the rising cost of LTC. Today’s U.S. median annual costs are $48,612 for an assisted living facility and $102,200 for a private nursing home arrangement. These costs have been increasing, respectively, by 1.28 percent and 1.82 percent per year.2
- Explain why it is never too soon for young adults to begin making LTC plans for themselves. 1) 70 percent of Americans who reach age 65 will need some long-term care, for an average period of three years:3 2) costs are more affordable when coverage starts at younger ages; and: 3) poor health is less likely to be an LTC underwriting obstacle at younger ages.
- Focus on LTC as a planning concept, not a product. Millennials don’t like financial sales pressure. They prefer education and options, so let them know about different ways to cover LTC costs. For example, they can purchase LTC riders offered with permanent life insurance products, which advance part of the policy death benefit to pay for LTC. This option would only be viable if the client also has a need for life insurance coverage. Also, please remember clients must qualify for both the life insurance and the long-term care rider. They may qualify for the insurance but not the rider. Some corporate “cafeteria” benefit plans offer an LTC coverage option. Contributing more money to retirement plans such as IRAs and 401(k)s also can be part of the strategy.
The key to next-generation relationships
No LTC decisions must be made right away. However, Millennials must feel that you are interested in a continuous, holistic planning process and are willing to provide the education and options to help them succeed. Planning for LTC hits an emotional nerve in many Millennials and gives you the opportunity to discuss a variety of choices.
With your help along the way, their knowledge and confidence to tackle the LTC challenge will continue to grow.
1 Aging Across Generations, Genworth Financial, Inc. April 2015.
2 Genworth Cost of Care Study 2019.
3 U.S. Department of Health and Human Services at www.LongTermCare.gov
Long-term care riders generally have an additional cost to them and have restrictions and limitations. Clients may qualify for the life insurance but not the rider. Be sure to review the product specifications for details.
Life insurance products are issued by Equitable Financial Life Insurance Company (Equitable Financial) (New York, NY) or Equitable Financial Life Insurance Company of America (Equitable America) and co-distributed by affiliates Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR) and Equitable Distributors, LLC. For New York state-based (i.e., domiciled) Equitable Advisors Financial Professionals, life insurance products are issued by Equitable Financial Life Insurance Company (New York, NY). All companies are affiliated and directly or indirectly owned by Equitable Holdings, Inc., and do not provide tax or legal advice.
Please be advised that this webpage is not intended as legal or tax advice. Accordingly, any tax information provided in this article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and your clients should seek advice based on their particular circumstances from an independent tax advisor. Neither Equitable nor its affiliates provide legal or tax advice.
Expand your long-term care vocabulary
Keep this quick-reference guide readily available. Use it to expand your understanding of key long-term care (LTC) vocabulary and explain planning options to clients, simply and clearly.
Terms from A-E
Activities of Daily Living (ADLs) – Activities for which an individual may require assistance, such as bathing, continence, dressing, eating, toileting, and transferring (walking). In some LTC insurance policies, needing help with at least two ADLs is a benefit trigger.
Accelerated Death Benefit – An option or right to receive part of the death benefit payable under a life insurance contract prior to death, due to a triggering event such as terminal illness or an extended nursing home stay.
Acute Care – Active short-term care for an illness or injury or while recovering from surgery. The care typically does not last more than a week or two and is delivered in hospitals or urgent care centers.
Adult Day Care – Care delivered in a center to which an individual is transported during the day, to participate in social services, supervised activities, and a lunchtime meal. Most adult day care centers are not residences and do not have beds for overnight accommodations. Their medical services may be very limited.
Advanced Directive – A legal document that specifies an individual’s preferences and wishes for healthcare, if he/she is unable to make decisions due to incapacity or illness. Living wills and health care proxies are two types of advanced directive.
Alzheimer’s Disease – The most common form of dementia, indicated initially by symptoms of absent-mindedness and memory loss. The disease is progressive, worsening over time and gradually leading to loss of motivation and inability to perform daily tasks. There are no known cures, and complications resulting from the disease often are listed as a cause of death.
Assisted Living Facility (ALF) – Residential facilities that include prepared meals, nursing services and help with Activities of Daily Living. ALFs offer a higher level of supervision than independent living facilities. ALFs that are state-licensed are called Residential Care Facilities.
Benefit Trigger – Requirements or conditions that must be satisfied to begin receiving benefits from long-term care coverage. Common triggers include: 1) a doctor’s certification of a cognitive impairment; or 2) needing help with at least two Activities of Daily Living.
Caregiver – A generic term describing anyone who provides regular assistance to an individual needing long-term care. Caregivers include spouses and family members as well as nurses and nursing home employees.
Chronic Illness – An illness, injury or disease that can’t be cured quickly but rather has lasting effects on health and activities.
Cognitive Impairment – A loss of brain functions and intellectual capability that negatively affects memory, language, personality and the ability to comprehend and communicate. Cognitive impairment is a symptom of dementia.
Co-insurance – Out-of-pocket payments to meet costs of long-term care. Co-insurance amounts are generally not covered by a long-term care daily benefit.
Continuing Care Retirement Community (CCRC) – A facility or community that is capable of providing lifetime care for an elderly person through all stages and care levels including independent living, assisted living and nursing home care. Typically, seniors pay a lump-sum to buy into CCRCs and that way they have assurance that they will not need to move again.
Custodial Care – Non-medical personal care and supervision to help an individual perform one or more activities of daily living. In general, neither private health insurance plans nor Medicare cover most types of custodial care. Long-term care coverage was specifically designed for this level of care.
Daily Benefit – The maximum reimbursement that long-term care coverage will pay for covered services on a daily basis. The higher the daily benefit, the more valuable and costly coverage will be.
Dementia – A generic term covering a variety of brain diseases that cause memory loss, confusion, and lack of motivation. Alzheimer’s disease is the most common form of dementia. Many types of dementia are progressive and cumulative, with symptoms getting worse over time.
Elimination Period – A period of time that must elapse after a long-term care benefit trigger, before benefits begin to be paid. It is specified in the coverage and is typically measured in days, from 30 to 90. During the elimination period, long-term care costs must be paid out of pocket. In general, the shorter the period, the more valuable and costly the coverage.
Terms from F-M
Guaranteed Renewable – Long-term care coverage that can’t be cancelled unless the policyholder stops paying premiums. The premium may be increased for a given class of policyholders, but not for individuals.
Health Insurance Portability and Accountability Act (HIPAA) – A federal law enacted in 1996. The act established a patient’s right to privacy in medical care and records, including long-term care. HIPAA also set requirements for the tax deductions that individuals and business may claim on premium payments for tax-qualified long-term care coverage. The tax-deductible limits increase with taxpayer age, and they are adjusted annually for inflation.
Home Care Aide – A person who provides hands-on care in an individual’s home or in a residential community such as independent or assisted living. Aides often help with activities of daily living. In many jurisdictions, they must meet minimum training and licensing requirements.
Hospice Care – End-of-life care designed to provide comfort, counseling, medication and pain relief but not life-prolonging surgery or hospital care. Most hospice care is delivered by qualified agencies in the patient’s home, and it is typically paid for by Medicare.
Indemnity Benefit – Long-term care coverage that pays a daily benefit, regardless of the cost incurred. An indemnity is not a reimbursement of costs. Rather, it is a fixed amount paid per period (typically daily). Coverage that pays an indemnity benefit is generally more expensive than coverage that pays a reimbursement.
Independent Living Facility (ILF) – A facility that offers individuals and couples a personal residence, meals, activities and transportation with substantial personal freedom. ILFs are designed for active or semi-active seniors who can care for themselves.
Inflation Protection Benefit – An automatic annual increase in long-term care coverage’s daily indemnity benefit, designed to offset inflation. Typically, inflation protection benefits increase the daily indemnity by 2 percent to 4 percent per year.
Living Benefit – A rider attached to a life insurance policy that pays a benefit while the policyholder is alive. Long-term care coverage is one type of living benefit rider.
Living Will (Medical Directive) – A document in which the maker expresses his/her personal wishes for end-of-life care in the event of terminal illness or incapacitation. Living wills usually address circumstances under which life should be extended through artificial means. Each state’s laws address the legality of living wills and whether medical professionals should honor them.
Long-Term Care Partnership Program – A state-approved program that allows individuals with long-term care coverage to qualify for Medicaid, after exhausting benefits, without meeting standard asset spend-down requirements. The program creates an incentive to purchase qualifying long-term care coverage. The Deficit Reduction Act of 2005 made all states eligible to offer partnership programs.
Look-Back Period – A minimum period during which Medicaid long-term care eligibility may not begin, after transferring assets. Medicaid eligibility looks back for five years (60 months) after transfers. It pulls the transferred amounts into the formula for calculating Medicaid asset-spend down eligibility. As a result, Medicaid eligibility can be significantly delayed after asset transfers.
Medicaid Spend-Down – Requirements to spend down personal assets before an individual or a spouse may be eligible for Medicaid long-term care coverage. Spend-down rules vary by state, but they generally require an individual or couple to spend down virtually all personal assets (except a home and car) before eligibility can begin.
Medicare – The U.S. government-operated health insurance system for most Americans age 65 or older, and also some younger disabled people. Medicare makes health insurance accessible and affordable for virtually all elderly people in the U.S. It covers hospital bills, doctor bills, prescription drugs and medical procedures and equipment. It does not cover long-term care except in limited circumstances.
Medigap – Supplemental coverage designed to fill the gaps in Medicare Parts A and B including coinsurance, deductibles and excess charges. Medigap is sold in standard coverage packages identified by letters of the alphabet. Premiums are paid by policyholders and can vary widely by state, age and health. Coverage may not be denied during the initial open enrollment period, when most individuals turn age 65, and it is non-cancellable.
Terms from N-R
Nursing Home – A generic term that covers several types of facilities that provide licensed nursing care and services. Nursing homes assist with activities of daily living and medications, and they also offer some medical services. Nursing homes provide a level of care above and beyond services of assisted living facilities.
Power of Attorney - An authorization to act on behalf of a person after that person becomes incapacitated. The person who exercises this power can perform specified tasks such as writing or depositing checks, paying bills and managing assets for the person who grants the power.
Pre-existing Conditions – Medical conditions that have been diagnosed at the time long-term care coverage or health insurance is written. Limits may apply on the insurance company’s obligation to pay claims relating to these conditions. Cancer is a common pre-existing condition.
Reimbursement Benefit – A type of long-term care benefit that reimburses long-term care costs incurred, up to a daily limit specified in the coverage. Coverage with a $200 daily reimbursement limit will only pay out this amount if services cost $200 or more. Otherwise, it reimburses the billed cost of services.
Respite Care – Short-term or temporary relief for a family caregiver. Some long-term care policies provide a benefit for respite care delivered by a nursing facility, residential care facility, or adult day care facility.
Terms from S-Z
Skilled Nursing Care – A level of care that provides 'round-the-clock inpatient medical attention by physicians and skilled nurses. Individuals often need this level of care after a severe illness, injury or hospital stay, before transitioning into long-term care.
Terminal Illness – An illness diagnosed by a physician that is considered incurable and likely to result in death, usually within six months. A terminal illness diagnosis can trigger eligibility for Medicare coverage of hospice services. It also may trigger certain living benefits offered in life insurance policies, such as access to cash (advanced from the death benefit) to pay for long-term care.
Waiver of Premium – A feature in some long-term care policies under which premiums will not be owed for a period during which the insured is receiving benefits.
Please be advised that this webpage is not intended as legal or tax advice. Accordingly, any tax information provided in this article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and clients should seek advice based on their particular circumstances from an independent tax advisor. Neither Equitable nor its affiliates provide legal or tax advice.