What to Look for in a Long Term Care Insurance Policy

Nurse talking with elderly patient

Long term care expenditures are expected to multiply as the elderly population grows, an estimated 73% in the next 30 years (The Urban Institute). It is one of the most threatening issues for our aging population, especially for women since we live longer than men do. In the New York/New Jersey metropolitan area, costs for this care exceeds $100,000 per year

All retirement planning should include a discussion about long term care insurance. There are many policies available. How do you judge what’s the right one for you? First, get a copy of the National Association of Insurance Commissioners (NAIC) “Shopper’s Guide to Long Term Care”. Insurance agents who sell long term care policies are required to give you a copy of this publication. This will give you a thorough explanation of the issues you may face if you need long term care and what your options are. I have my own list of requirements which are as follows:

· Choose a solid insurance company. Because it is likely you won't be using the policy for many years, you want to make sure the company will still be around when you need it. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best, Moody’s, Standard & Poor's, or Weiss.

• Is the benefit period adequate? It should be a minimum of 4 years for women and 2 - 3 years for men. This is based on a study by the American Association of Long Term Care that found that the average claim for a man was 2.2 years and for a woman 3.7 years.

• Is the daily/ monthly benefit 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 $105,000 for a private room and $93,000 for a semi-private one. However, there are places in New York that are as high as $155,000 per year. It’s a good thing that most people do not end up in Nursing Homes these days. At the most, they go to Assisted Living facilities where the cost averages $51,000 nationally. But again, in large metropolitan areas, like New York is higher ($71,000). 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 very important since the average age people enter nursing homes is 85. This option 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 double your daily benefit every 15 years and a 3% compound benefit will double it in 24 years. Another option is to forego the inflation benefit entirely and buy more of the base benefit. At older ages this may be a more affordable option

• Can you afford the outlay during the waiting period (the period before benefits begin)? And is this period counted by dates of service or calendar days. Needless to say, you want a plan that uses calendar days. Or, even better, add a rider that weaves the elimination period entirely for home care. This is a planning issue that will depend on other aspects of your retirement plan and the liquidity of your assets.

• Are the benefit triggers (the conditions that need to be met to receive benefits) well defined? All tax-qualified plans are required to clearly state what must occur for you to receive benefits. Generally, the requirements are the inability to perform two activities of daily living (bathing, dressing, toileting, eating, transfer- ring, continence) or a cognitive impairment such as senility or Alzheimer’s disease and needing care for a minimum of 90 days

Home based and community based care are covered at 100%. Many policies will reduce benefits if care is performed at home. Also be careful of policies that require use of their case manager for 100% coverage

Benefits are paid in full for all facilities. Again, many policies will reduce benefits if care is not performed at nursing home

• 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

• The policy should include a Nonforfeiture provision so that if there is a premium increase or a lapse you will be able to maintain at least a portion of your benefits.

• 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

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