When long-term care insurance first became available, there were few customers. The product was full of holes, untested, and overpriced. Not surprisingly people took a wait-and-see attitude, mainly because it took a while for most people to even become familiar with the need for this type of protection.
Fortunately, insurers have responded with significant product enhancements. But with so many policies to choose from, it has become more difficult to be sure that you’re selecting a policy that’s best for you. Because all policies are not the same, we have prepared this guide for helping you understand long-term care insurance and obtain the coverage that best fits your individual needs.
1. What is the best way to calculate how much coverage you should buy?
It’s difficult to give an ironclad answer because each individual has a different comfort level with risk tolerance and how much of their income and assets they’re willing to spend to avoid risk. The amount of coverage depends in part on what you need and in part on what you can afford. As a general guide, you should not spend more than 5 to 10 percent of your income (both earned and unearned) on long-term care insurance premiums. In terms of the size of the daily benefit you purchase, it should make up in the shortfall between your income and the average cost of nursing home care in your area.
2. How long a period should I insure myself for?
Again, there is no one right answer for everyone. Most people buy what gives them peace of mind and is affordable. If you’re between the ages of 50 to 65, consider lifetime benefits with compound inflation options. If you’re 65 to 75, think about a six-year or lifetime benefit period with simple inflation options. Those older than 75 years old should consider buying more daily benefit for as long a period as they can afford.
3. Will the agent provide you with a sample policy?
Although sales literature can be helpful to give you a general overview of policies, it’s in your best interest to request a sample policy so that you and a family member, friend or adviser can review it with you before you buy. Be sure the sample policy matches the policy quoted by the agent; look for a policy series number.
4. Is the policy a group certificate type or an individual policy?
The difference between a group policy and an individual is significant even though the distinction may not be obvious. In some states, individual polices are regulated while group ones are not. Individual policies, however, are guaranteed renewable for life and premium increases for a class of insureds must be approved by the state.
5. Is the policy tax qualified?
Under the provisions of the Health Insurance Portability and Accountability Act of 1996, which went into effect on January 1, 1997, long-term care premiums may be deducted from your Federal income tax within certain limits and to the extent you have medical expenses (including these premiums) that exceed 10 percent of your adjusted gross income. (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) Any benefits received under a tax-qualified policy are not taxable if the policy meets certain guidelines. Employers may treat long-term care insurance premiums paid on behalf of their employees just like health insurance and fully deduct the cost. Moreover, the employees do not have to include the premium as income and the benefits when receive will be tax-free.
6. Are the benefit triggers clearly spelled out?
A benefit “trigger” is the inability of the policyholder to perform specified Activities of Daily Living (ADL’s), such as transferring, toileting, bathing, continence, dressing and eating. Ask your insurance agent for a copy of the actual policy in order to see for yourself how the benefit “triggers” and ADL performance are described. The policy you want must include coverage for ADL Standby Assistance. Otherwise, you will own a policy that is harder to qualify for benefits at claim time. Don’t make the mistake of focusing your comparison of companies on less important details like a 21-day vs. 31-day bed reservation benefit. Moreover, check policy language to be sure pre-existing conditions are covered.
7. Does the policy cover homemaker services?
Homemaker services include cooking, shopping, changing beds, cleaning the house and doing laundry. Not all policies do provide coverage for homemaker services and some require that they be specifically included in a plan of care. Look for policies that clearly define these services and provide you with a choice.
8. How does my health history affect the cost of the insurance?
Your personal health history can make a difference in both coverage and premium cost. Since insurance companies differ in the way they view certain health problems, it’s essential that your insurance agent has access to a broad selection of insurance carriers.
9. Is your agent or broker Certified in Long-Term Care (CLTC)? And do they offer a choice of companies?
Many insurance agents are now selling long-term care insurance since it has received so much media attention. Because the purchase of this type of protection is so important, we recommend that you do business with an agent or broker who is knowledgeable, experienced and has an established reputation in this area of insurance. Long-term care insurance is a complex product. Look for a CLTC specialist on the website of the Corporation for Long-Term Care Certification. Also, you want an agent who represents a number of insurance carriers so you can choose from a variety of policies.
Although the answers to these questions do not cover every possible issue, they are a guide for helping you evaluate long-term care policies and making the decision that’s best for you.