Missed time at work due to injury or illness, coupled with the cost of care itself, causes at least two-thirds of all bankruptcy filings in the United States. Worse still is the fact that millions of American households have not taken measures to protect against this risk. It is important to learn what long term care and long-term disability are, and get a good grasp of what actions can be taken to protect your assets and future from a health-triggered implosion.
People will easily confuse between Long Term Care (LTC) and Long Term Disability (LTD). If you are shopping around for insurance, understanding the distinction between these two can help a lot.
- Long term care refers to a variety of services that are designed to meet a person’s care needs for a short or prolonged duration of time. These services make it possible for affected individuals to live safely and independently when they are no longer able to perform the activities of daily living.
- Long term disability refers to an injury or illness that lasts over 26 weeks, making you unable to work and earn an income. Long term disability may be caused by an auto accident, fall, or other types of unforeseen misfortunes.
Insurance is the best safeguard against the risk of long-term care and long-term disability. Long term care insurance helps cover the cost of nursing home care or a home health aide should the policyholder become unable to take care of themselves. LTC insurance can also pay for care at an adult daycare facility or assisted living center. Long term disability insurance, on the other hand, replaces a portion of your income should you become unable to work due to a disease or injury. It essentially pays for your lost income.
Both LTD and LTC insurance policies are designed to suit the needs of different policyholders.
– Who Needs Long Term Disability Insurance?
According to the Social Security Administration, 25% of 20-year-olds will become disabled before they reach retirement age. This makes long term disability insurance important as soon as you start earning a full-time income, particularly if you have:
- People (dependents) who rely on your income
- A high paying job
- Student loans, mortgage, or other debts that you still have to pay in the event of your disability
- A job that requires technical skills that cannot be performed when you have an illness or injury
– Who Needs Long Term Care Insurance?
Unlike long term disability insurance, LTC insurance is not necessary at a young age. The majority of long term care insurance claims are made by individuals who are over 70 years old. This does not – however – discount the importance of LTC insurance coverage, especially given that more than 14 million Americans required long term care services in 2018 alone. The right candidate for long term care insurance is someone who:
- Have assets to protect
- Have family members who rely on them
- Have a health background that suggests you may need long term care (such as a family history of diabetes, dementia, and cardiovascular)
- You can afford long-term care premiums. LTC insurance premiums can vary from $2,000 to $5,000 or even more depending on your age, health, and selected policy options
When there is no wrong age to purchase a long-term care insurance policy, many experts recommend that you make sure you have coverage before in your late 50’s. You surely ought to have an insurance policy, or some other protection, in place before reaching retirement age. Many younger people also purchase coverage for their elderly parents to remove the burden of care and massive expenses that can entirely disrupt their family’s financial integrity.
It is important to understand the different types of plans available in long term care insurance vs long term disability.
– Types of Long Term Disability Insurance
There are two types of long term disability insurance available in the market right now.
- Own-occupation policy – this insurance plan pays out benefits (to replace a portion of income) if the insured is not able to work in their primary profession.
- Any-occupation policy – this coverage pays out benefits if the insured is unable to work any type of job. Naturally, this type of policy costs less than an own-occupation plan but can be difficult to qualify for benefits if you are still able to do some menial types of work.
– Types of Long Term Care Insurance
There are two main categories of long term care insurance policies available in the market.
- Traditional long-term care insurance – this is the conventional type of LTC coverage. You pay insurance premiums and receive coverage if you are unable to perform at least two out of six (ADLs) Activities of Daily Living (which are dressing, eating, bathing, continence, toileting, and transferring). The main thing about a traditional LTC plan is that the policy only kicks in if you need it.
- Hybrid long term care insurance – this is a newer type of long term care insurance that has become immensely popular over the last few years. A hybrid policy essentially aims to alleviate the drawbacks and limitations of a traditional LTC plan by combining life insurance with long term care coverage. Should you need long term care, the policy pays a death benefit to fund your care. If you do not end up needing care, then your appointed beneficiaries will receive the full policy payout. This eliminates the use-it-or-lose-it notion that made traditional LTC policies unpopular with many Americans.
When looking into long term disability vs long term care, it is important to analyze how the different insurance plans compare.
|Long Term Disability Insurance||Long Term Care Insurance|
|Ideal candidate||Tailored for individuals who are currently working and rely on their salary to offset their living expenses. Particularly important for single people and sole providers.||Remove the financial burden of long term care for individuals who do not have enough net worth to offset hundreds of thousands of dollars in potential costs. Best time to purchase an LTC plan is when you are in your late 40’s and 50’s and in good health (so you can secure lower premiums).|
|Premiums cost||Premiums are computed based on age, profession, gender, health, desired benefit amount, and waiting period, among other factors.||Premium amounts are calculated based on age, health, expected benefit amount, waiting period, benefit duration, inflation protection, home care benefit, and other underwriting factors.|
|Coverage||Pays a benefit that may be less or equal to 67% of the policyholder’s gross monthly income.||Reimburses LTC expenses or pays out set monthly benefit amounts to cover the cost of care at home, in a nursing facility, retirement home, adult daycare, or assisted living facility.|
|Advantages||Non-employer provided LTD insurance is tax-free. This coverage helps protect your assets and allows you to keep providing for your family in case of long term illness, disability, or other misfortune of a similar nature.||Covers long-term care expenses that can deplete your entire savings. Allows flexibility during policy purchase to suit your needs. Some types of LTC insurance (hybrid LTC) will pay a death benefit to your beneficiaries if you do not end up needing long term care.|
Cost of Premiums
The underwriting process for both long term disability and long term care insurance is quite similar. Your age and health status has a major bearing on whether you qualify for coverage, and how much you pay in premiums. Younger, healthier individuals will easily qualify for both policies, as well as pay less in premiums. Another factor that will influence the cost of your LTD and LTC insurance is where you live.
In addition to the above, LTD plans will also evaluate your job, gender, and lifestyle attributes in the underwriting process.
A key cost difference to note between these two types of insurance is that while LTD premiums tend to remain intact, LTC insurers can raise your premiums after you have bought the policy. This means it might be harder to predict how much you will end up paying in future coverage premiums.
There are variations in how you qualify for and receive benefits from long term care vs disability insurance.
– LTD Insurance Benefits
Long term disability benefits kick in once an illness or injury limits your ability to work, after the policy’s waiting period. Whether or not you qualify for benefits will be determined by how your specific policy defines disability. Some policies will disburse a monthly benefit if the injury prevents you from doing your normal job, but still, allow you to do other types of work that reduce your income. Some other policies will not pay out benefits if you can do any other type of work other than your normal job. It all depends on the type of long term disability policy that you subscribed into.
– LTC Insurance Benefits
Long term care benefits kick in when the policyholder is unable to perform at least two of six activities of daily living (ADLs). Policies may be described as either expense-incurred or indemnity depending on how they pay benefits. Expense-incurred plans reimburse the policyholder for LTC expenses that they have incurred, up to a pre-defined maximum benefit amount. The insured will submit claims based on what they have already spent. Indemnity policies – on the other hand – pay a set dollar amount regularly, regardless of how much you actually spend on long term care. Keep in mind that long term care benefits are paid out after the waiting period.
Finding the Right Policy
There is no such thing as ‘one size fits all’ when it comes to insurance coverage. We all have different needs and preferences. It is important that you evaluate your unique needs then find a policy that seems to address them (within your budget). When it comes to LTD, here are some of the best LTD policies to look at in 2021.
If you are looking for a long term care insurance policy, you will want to compare different plans available in your state to figure out which gives you the best coverage (at the best possible premium rates). At hybridlongtermcareplans.com, we give free access to the top 5-10 best hybrid LTC plans from blue-chip carriers. All you need to do is click the button below and provide some information to receive personalized (no-commitment) policy proposals from the nation’s top providers.