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What is a Long Term Care Policy?

by Chris Cooper, Financial Planning Expert
October 04, 2013

Question: I am recently retired and I was told I should purchase a long term care policy. Can you explain what it means?

Answer: The definition of Long Term Care (LTC) is “The provision of one or more services on a sustained basis to enable individuals whose functional capacities are chronically impaired to be maintained at their maximum levels of psychological, physical and social well being.  Notice that no where in this definition is the word “Medical”, thus no major medical insurance, nor Medicare nor Medicare supplement pays for long term care services.  This is the biggest shock to retirees when they this out usually the hard way, when one of their  family members ends up in a nursing home or assisted living or hires home care workers.
Long Term Care insurance is a plan of insurance to help pay for long term care services, in your home, in an assisted living facility (which we will discuss in a another question) or in a nursing home.  These insurance plans come in two main forms, one is where your pay an annual premium (which you can pay monthly) and the insurance provides you so much money per day for each day you need LTC services.  The other form, which is newer, is an attachment to a life insurance policy or an annuity called a rider.  There are major differences between these two main types including different definitions of when the policy will pay benefits.
In the United States of America, almost all persons who have to have LTC services go broke because the cost of services are higher than most people’s monthly incomes. When they go broke, they have to turn to their State’s Medicaid program which generally only pays for nursing homes, although a few states have waivers for home and community based (i.e. assisted living) services. Thus private insurance is desirable if you want choices in who provides your LTC services.
Unfortunately, LTC insurance is not covered by the Affordable Care Act (ObamaCare), so you must be medical underwritten, and can possibly be declined coverage because of pre-existing conditions.  So, if you want to have LTC insurance, you better apply for it now, because the older you get, the less likely you will be accepted for coverage.

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Chris Cooper is the owner and founder of Chris Cooper & Company, Inc., a fee-only financial planning firm for elderly persons and the owner and founder of ElderCare Advocates, Inc. a private geriatric care management and long term care consulting firm. As a California Licensed Professional Fiduciary, Chris can serve as  Conservator of the Person and Estate under court appointment,  as Agent under a Durable Power of Attorney for Financial matters and Health Care matters.

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