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short term care insurance

The Expert Guide to Short Term Care Insurance You Need to Have

Finding coverage for long term care costs can be a drawn out, confusing, and eventually an expensive decision. Once you decide you need it, usually after watching a family member need care, you have to start looking at the multitude of options out there and consider how each will work for you, your budget, and your family. Tim and Gina recently went through this and walked you through how they made their decision. One of the points Tim made is how expensive traditional long term care (LTC) insurance, or even hybrid long term care insurance, can be. If you find you cannot afford it, it can seem like you have no choice in your care.  The first two are traditional and hybrid long term care insurance, next we have self-insurance, and then we have our last option: Short Term Care Insurance.

By: Hans Scheil, CFP®

What’s the definition of short term care insurance?

Short term care insurance provides coverage for long term care services for one year or less. For many people, this is more affordable coverage for a cost that can be devastating. While some long term care claims last for many years, 41% of claims last one year of less, according to the AALTCI.

Short term care is a very flexible product. During the application process, unlike traditional LTC, no one comes out to see you; you can do the interview right over the phone. Even if you get denied by one company, we have had clients get approved with another company.

Short term care can pay for home health care as well as facility care. Its health questions are a lot easier to answer than traditional LTC (see below) and its age limits are not as strict either; you can get coverage from some companies up to age 89. Many people who do not qualify for traditional will qualify for short term care insurance.

The majority of these policies have a 0-day elimination period option, which means the policy will start paying right when you need care. To qualify for care, you will need doctor approval that you cannot perform two activities of daily living or have a cognitive impairment.

How Long Does the Coverage Last?

You also have a choice in the length of the benefit period. While short term care can only cover up to a year, you can choose to cover shorter increments of time. One policy gives you the option of 90, 180, 270, or 360 covered days. Other policies will have different options. This works best for people who either cannot afford the full year of coverage or have a traditional LTC policy and want a product to cover their larger elimination period.

Policies also vary in the way they pay for days. While some count by calendar days, others count by service days. This means that if you are staying at home, and you do not need someone to see you every single day, this policy could be stretched out to pay for longer than a year.

Since so many aspects of these policies differ, make sure you know exactly what you are buying before you apply for a policy. It is important to note that short term care policies are not available in all states.

How much does short term care insurance cost?

The cost of short term care insurance is really going to vary according to the product and benefits you choose. In our Workbook, we compare 2 of the short term care policies that we offer our clients in order to give a more realistic example of what the costs might be. 
 
Unlike traditional LTC, where women end up paying more, short term care insurance offers unisex prices. Download these sample policies to get a more detailed breakdown.
*Rates are subject to change, examples are for educational purposes only. 

Both short term care policies have similar benefits for confinement, but they offer very different benefits for home health care. In the first, the home health-care benefits and maximum are separate from your use of facility care. With Policy 2, you can use the $100 daily and the $35,000 maximum for either facility care or home health care, but not both. The health criteria to qualify for Policy 2 are easier to meet than for Policy 1, and it has generous height and weight thresholds. On the other hand, Policy 1 has no height and weight requirements.

These numbers can be decreased or increased depending on the amount of coverage you desire. It is easy to see that these prices are much more affordable than the average cost of traditional long term care insurance, especially if you have some medical conditions.

Why pay for short term care insurance if i am only covered for a year?

This is one of the most common questions we get when approaching the topic of short term care insurance. The answer to this is different for every individual, but the easiest answer is that it gives your family a transitional period to figure out how they are going to pay for your care after this year period.

It can also allow you to get into the facility of your choosing. With many nicer facilities, entering under private pay, which you will enter as if you have short or long term care insurance, makes it much more likely they will accept you, even if you eventually are going to transfer to Medicaid. If you go in with Medicaid initially, you could be less likely to be accepted. In this case, short term care insurance gives you more control over the choice of provider.

Is short term care insurance right for me?

Just like with long term care insurance, there are many situations in which short term care would be right or wrong for you.

You should buy short term care insurance if you:

  • Cannot afford LTC insurance.
  • Nor can you qualify for LTC insurance, due to medical condition or age, but still want to be covered.
  • Already have a long term care insurance policy but it has an elimination period. A short term care policy could be very helpful in covering this period.
  • Desire to give your family some time, up to a year, to figure out your financial situation before they have to start paying the LTC bill.
  • Want flexibility in how and when you receive your benefits.

You should not buy short term care insurance if:

  • If you cannot afford the premiums. In this case, you should really look into Medicaid planning. Protect as many of your assets as possible should you need LTC.
  • You have long term care insurance that does not have a long elimination period. This could lead to double coverage, and you do not need to pay for both.

Taking the First Step to Plan Your Care

We want to echo what Tim said in his post.

“The most important advice we can give is to find a great financial advisor before you get started.”

There are many policy options out there. You need someone who can walk you through all of them, as this can be a significant financial commitment. Make sure to find a broker who has multiple options and if you can, a CFP professional™, who is held under a fiduciary standard, and has to put your interest ahead of their own.

No matter what you decide to do, you need to do something. The biggest consequences of failing to plan for long-term care are suffered by the family. We deal with family members all the time who are doing last-minute planning for a parent or spouse. In some cases, their loved one just checked into a facility or is receiving care at home. We experience the confusion,  fear, anxiety, pain, and disappointment that comes with these situations. Our job is to help people avoid or minimize these challenges.

Hans Scheil, CFP®  is the CEO and owner of Cardinal Advisors in Cary, N.C. and the author of the The Complete Cardinal Guide to Planning for and Living in Retirement and the accompanying workbook. He is the host of the podcast Finishing Well. He can be reached at Hans@CardinalGuide.com.

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