Long-Term Care Insurance

Some basic information to consider if your loved one is thinking about purchasing long-term care insurance.

As America’s population becomes increasingly older, more and more people are taking advantage of long-term care insurance, which helps cover part of the cost of long-term care in the event that it is needed. Although many people don’t begin investigating long-term care insurance until later in life, the best time to purchase a policy is actually during middle age when individuals are generally in better health. Unfortunately, it’s difficult to decide if you need long-term care insurance and even harder to decide which policy is the right one.

If your loved one is thinking about long-term care insurance, there are three major questions he or she should ask:

  1. Do I need this type of insurance?
    • LTC insurance works best for people who have saved a good deal of money and don’t want their financial stability threatened by nursing home costs. It’s also a good option for those concerned about leaving money to a remaining spouse or children.
  2. Can I afford this type of insurance?
    • LTC insurance generally isn’t a good option for people with modest incomes or limited assets. If your loved one’s assets will be spent down after nine to 12 months (at $2,000–$3,000 per month) in a nursing home, then LTC insurance probably isn’t the right choice.
  3. Can I meet the eligibility requirements?
    • Most individuals between 50–79 years old are eligible for LTC insurance, but some policies have restrictions on pre-existing conditions, including age or previous medical ailments. Additionally, it’s important to note that the cost of LTC insurance increases with age.

Types Of Coverage

If your loved one decides to purchase long-term care insurance, it’s important to investigate multiple policies. Because there are no federal regulations on LTC insurance, these policies are sometimes misrepresented. In 1991, for example, Consumer Reports assessed 14 agents at nine of America’s largest LTC insurance companies. They reported that “every sales agent misrepresented some aspect of the policy, the financial condition of the insurer, or the quality of a competitor’s product. Not one sales agent properly explained the benefits, restrictions, and policy limitations…” (Consumer Reports, June 1991). For this reason, it’s important to find out about regulations in your loved one’s state and to find an expert in financial or insurance matters to advise you. This assistance can be found through the local Area Agency on Aging.

There are many different types of LTC policies, including:

  • Indemnity policies, where individuals pay a fixed dollar amount for every day care is received.
  • Policies that cover a fixed percentage of costs for care services.
  • Policies that pay a dollar amount to cover actual charges for care.

Each of these types of policies have three basic options:

  • Daily Benefits are the amount of money received on a daily basis for care. Generally, this ranges from $50 to $250 per day depending on the location.
  • Benefit Periods are the length of time a policyholder receives payments once care begins. The most common options are 2, 3, 4, or 5 years or a lifetime. (When considering benefit period options, remember that the average nursing home stay is 2–3 years.)
  • Elimination Periods (deductible) are the number of days a policyholder must pay for long-term care before the insurance company begins payments. While some policies feature one-time eliminations, many have periodic eliminations, which usually occur every 30–90 days.

There are also additional options offered with each plan:

  • Inflation Periods allow the daily benefits to grow annually so that the plan accounts for inflation. These costs are built into the annual premium and are usually 5 percent simple or 5 percent compound. This cost is especially important for younger purchasers (45-65 years old) for whom compound inflation is better. Simple inflation is better for individuals 65–75 years old, and no inflation period is often best for individuals over 75 years old.
  • Some policies include Home Health Care Coverage. While this allows for more choices when receiving care, it also increases monthly premiums.
  • Non-forfeiture costs provide security in case the policy lapses.

Shopping Around

Because LTC insurance is priced within defined ranges, costs don’t vary much from company to company. If you’re concerned about cost when shopping for an LTC plan, consider the following:

  • Don’t choose the Inflation Protection
  • Opt for Facility Only coverage rather than Home Care coverage
  • Insure only one person in cases of a couple
  • Reduce the Daily Benefit amount

Regardless of what type of plan you settle on, there are several features that you should probably avoid:

  • A clause making renewal of the policy contingent upon certain conditions
  • A deductible (Elimination) period exceeding 100 days
  • A maximum benefit plan of less than two years
  • A pre-existing condition clause that is longer than 6 months
  • Plans that do not provide home health benefits
  • Plans that do not include three types of nursing care: skilled, intermediate, and custodial
  • Plans that exclude coverage for mental or nervous disorders (e.g., Alzheimer’s disease)
  • Plans that provide home health benefits only after nursing home care
  • Premiums that increase with age
  • A requirement that hospitalization must occur before benefits are paid

In helping your loved one decide about LTC insurance, it’s important to gather as much information as you can. Make a list of questions you have and ask your loved one to do the same. Encourage your loved one to visit a licensed insurance or financial professional, and offer to attend the meeting as well. Be sure to have your questions answered by a professional who isn’t promoting the policy before purchasing LTC insurance.

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