Does Long Term Care Insurance Really Work?

October 29, 2019 | by Thomas Day

Insurance agents who sell long term care insurance and the people who buy this insurance are confident this product will protect the purchasers from the financial ravages of needing long term care services in the future. Having sold long term care insurance myself for many years, both I and my clients generally experienced a piece of mind that all challenges associated with the future need for long term care had been solved. Over the years, I have discovered that peace of mind assurance is not always warranted. The insurance does not always provide the solution for issues associated with needing care later in life.

I would prefer to refer to "long term care" as "eldercare" or simply "care" for the remainder of this article. The reason for this is in most people's minds, long term care means to them the insurance and not the services that are provided.

Please don't misunderstand me. I am a believer in long term care insurance. My wife and I went through the need for eldercare with both of my parents and with both of her parents. One of the reasons I started selling insurance was because of our experience with our parents. That experience opened my eyes to the need for having funds to pay for caregivers. My wife and I bought policies for each of us, 25 years ago, that started out with premiums at $79 a month each. Over the years we have had a number of premium increases with the last one taking those same policy premiums to just under $300 a month for each of us. We will still keep the insurance, but we had to adjust the benefits downward in order to even afford the new lower premiums of $197 a month each. Even with misgivings about how the insurance will not cover all of the issues we will face, we still think it is valuable.

So what is it that makes the insurance an incomplete solution for the need for eldercare? It has to do with what the the long term care insurance policies define as conditions to trigger the benefit. Practically all policies require that benefits will not be paid unless the insured person requires significant supervision due to cognitive impairment or the insured person needs help with at least 2 or more activities of daily living from a list of either 5 activities of daily living or 6 activities of daily living, depending on the policy. Activities of daily living could include assistance with bathing, dressing, toileting, transferring, incontinence or needing to be fed.

Here is the problem though. Many older individuals, for various reasons, often need assistance from other people to function. For example they may need help with paying bills, requiring transportation, answering the phone, doing the laundry, cooking meals, cleaning the home, watering plants, tending to pets, managing medications, assisting with grooming or many other functions they cannot do themselves. They may not need assistance with more than one activity of daily living – they usually have a need for assistance with bathing – or they don't have a level of memory loss or dementia that would trigger benefits from an insurance policy.

In addition, many people want to remain in their homes, but the long term care insurance policies, even if triggered, will often only pay for services directly connected to activities of daily living or for supervision due to dementia and not cover the other activities listed in the paragraph above. Some policies do not even cover home care or cover home care at a lesser benefit than facility care. And to make matters worse, some policies have provisions that deliberately avoid paying benefits by extending out the period of time that the policyholder must pay out-of-pocket before the policy will take over. Many of these provisions are hidden in the language of the policy.

This need for helping hands is often more prevalent than the more direct hands-on care that is paid for by long term care insurance. But if the insurance won't pay for it, where does the help come from? Usually the burden falls on a spouse – if there is a spouse. But many of these people needing care have already lost their spouse to death or were never married. Or as is often the case, the spouse is also disabled and incapable of providing the services the policy will not cover.

If family or friends live close by, those loved ones needing the eldercare will generally get what they need from these caregivers. This care provided by family or friends often represents a sacrifice as these caregivers may have jobs, their own families or other pressing personal issues they have to take time away from in order to provide the care. Sometimes children taking care of their parents – even before the level of assistance with activities of daily living – sacrifice promotions at work, get fired or have to quit their jobs.

But what about those needing eldercare who might have long term care insurance but don't have the disabilities to trigger the policy and in turn don't have spouses, family or friends to help them? These people are in a bind. Sometimes religious organizations will step forward and help. Oftentimes, those needing care sell their homes or move from their apartments into independent living facilities. These facilities at least provide some of the services that care recipients cannot do such as providing meals, doing laundry, providing transportation or helping with medication management.

If those needing care don't have the funds to pay for independent living or other living arrangements where they can receive assistance, they often hunker down under deplorable conditions in their homes or apartments and do what they can to survive. They may even have long term care insurance, but their specific needs for assistance would not trigger the policy benefits. County aging services, church groups and other government agencies may step up to help if these groups know about the situation, but often they don't know these people are in need of assistance.

It should be obvious to my readers at this point that long term care insurance does not completely solve the problem of needing eldercare in future years. It is important for those eventually needing the care and for family members to plan for the eventuality of eldercare. According to government estimates the need for eldercare will happen to at least 60% of the elderly population. Some planning can be done in advance to avoid some of the issues I have addressed above.

In a future article I will discuss how this planning, when done in advance, can help plug the void that exists prior to a long term care policy paying out benefits. Or as is usually the case, there is no long term care insurance. It is estimated that only about 8% or 9% of the population has this insurance. And many of those may have inadequate coverage. This is all the more reason that prior planning should be done to cope with the future devastation caused by the need for eldercare.