Before You Buy a LongTerm Care Insurance Policy

elderly woman grasping hands of health care worker

There are many ways to design a long term care policy. The most important thing is that the benefits are there to cover your cost of care when you need them. No one should overpay for a policy nor should they buy a policy that won’t provide the benefit needed when the bill for care arrives.

Here are some basic questions to consider before purchasing a long term care insurance policy:

  • Is the benefit period adequate? According to the American Association of Long Term Care Insurance, the average length of a claim on a policy is under three years. Prior to this information, the only research available showed that the average stay in a nursing home is 2.5 years. It did not include information about claims for home health care for conditions such as Alzheimer’s disease can be for much longer.

  • Is the monthly/daily benefit i large enough to cover costs or will assets have to be invaded? This depends on how you have planned to handle these costs and the price of care in your area. Nationally, the average price of a nursing home is about $60,000. However, there are places in New York or New Jersey they are as high as $160,000 per year. Decisions have to be made about how much of this cost can be covered by an affordable policy as well as what other assets may be available.

  • Inflation Protection is especially important since the average age people enter nursing homes is 85. It accounts for approximately 40% of the cost of a policy and at older ages there may not be enough growth in the benefit to warrant the additional cost. However, if you are “young” a 5% compounded benefit will double your daily benefit every 15 years and a 5% simple benefit will double it in 20 years. Recently, carriers have begun offering additional options such as the ability to buy additional coverage without medical underwriting, CPI inflation riders, etc.

  • Can you afford the outlay during the elimination period (the period before benefits begin). This is a planning issue that will depend on other aspects of your retirement plan and the liquidity of your assets.

  • Home based and community-based care are covered at 100%. Many policies will reduce benefits if care is performed at home. Policies are available with less than 100% coverage. However, most people want to stay at home as long as possible. This is not a place to cut costs.

  • Prior hospitalization is not required. This is something that was in older policies and made them virtually useless. The need for this care sometimes results from the frailty of aging. It is not due to an illness that requires hospitalization. Policies that require hospitalization almost never pay benefits. This is also true about Medicare.

  • The policy is guaranteed renewable. This means that the carrier cannot cancel your coverage as long as you pay the premiums. The last thing you would want to happen is to be in your 80’s and discover your coverage was cancelled. Even if you could get a plan it would cost a fortune. Carriers can, however, raise the premium for a class of policies.

  • Pre-existing conditions disclosed on the application are covered immediately. Those not disclosed are covered after six months. This is fairly typical in individual plans. Group plans are not so lenient.

  • Premiums are level unless additional coverage is purchased in the future.

  • The waiver of premium applies to both Nursing Home and Home Health Care. Some policies will only waive premium if you are receiving benefits for nursing home care

  • The carrier is financially stable. You can check this with rating services such as Standard’s & Poor, Moody’s, Duff & Phelps’s and Weiss

  • Review the “Shopper’s Guide to Long Term Care”, published by the National Association of Insurance Commissioners Insurance agents who sell long term care policies are required to give you a copy of this publication

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