We get many questions about long term care insurance. Here are some of the basics you need to know.
Why long term care insurance?
The cost of long term care from an illness, a devastating accident, Alzheimer’s or other problems can take an emotional and financial toll on you and your family. And care can be needed at any age.
Long term care insurance can help to mitigate the financial drain which may, in turn, decrease the emotional stress. The benefits very often outweigh the costs.
Here is a true story related by one our colleagues.
At age 54, ten years before her retirement, Fran, a divorced single woman and librarian in the public school system, sat down with her son and wanted to know if she should purchase long term care insurance. She did not know if she could afford it and after all, being single, why would she want it. She was a very intelligent woman and in very good health.
Her parents left her an inheritance and it was her goal to preserve that money for her retirement and to keep the money in the family so that her children and grandchildren could benefit from it. She wanted it to be used for things like education or a down payment on a home.
The long-term care insurance would provide preservation should an illness strike. Her parents lived to ages 85 and 87. Why wouldn’t she? So she bought the Cadillac of policies and paid the premiums year after year, even though at times she felt they were a waste and that she should cancel the policy.
She retired at 65 and went on to participate in world travels to complete her family’s genealogy and to become a successful race walker. She competed competitively in the senior Olympics, where she won numerous gold medals. A very proud accomplishment.
In just a few short years, her life would take a turn that none of her children could imagine possible. She was struck with an aggressive form of Alzheimer’s that took her life all too soon. Within three short years, she was placed in a long-term care facility, an Alzheimer’s unit and then a hospital. The cost of care exceeded $400,000. Had she not had the long term care insurance, which covered every penny, her goal of preserving her parents inheritance would have evaporated.
Whether it is preservation, maintaining lifestyle, supplementing cash flow needs, or for other reasons, long term care insurance can play a crucial role.
How do you choose the right policy?
Financial Stability
As with any major purchase, it makes sense to buy from a company that can stand behind its promises. While no one can guarantee that a specific company will be around in the future, you can minimize your risk by doing business with a company that has a solid financial track record.
There are 5 main rating companies in the market place that look at the financial security of insurance companies. These are Moodys, Standard & Poors, A.M. Best, Fitch and Weiss. Ask for these ratings as you research long term care companies. There is also a company called Comdex which aggregates the ratings from the various rating services into a single ratings number. Use the Comdex score as a way to compare one company to another.
How much will the policy benefit be?
Long term care policies often provide a daily benefit up to a specified dollar amount for a specified period of time. For instance, a policy may provide $160 per day for up to three years of coverage. The higher the daily benefit, the higher the premium.
Does the policy cover care “at home”?
You can purchase a policy that covers only nursing home care. You can also purchase a policy that will cover you for home health and assisted living care. Again, the increased benefits equal higher costs. Check out different carriers to see which ones offer the benefits you would like to have.
When do benefits start?
Before you are eligible for benefits, your health would have to deteriorate to the point where you are suffering from a cognitive impairment or have a need for assistance in two or three activities of daily living. The activities include things like dressing, eating, moving around your home, bathing, toileting, etc.
Check each policy to see what the requirements are. Remember that the greater the requirements, the more difficult it will be make a claim.
What happens if the cost of your care goes up?
Many policies today have an inflation rider which can be added to the policy to provide additional protection, usually at an additional cost.
The rider increases your benefit each year. Of course, the increase may not be enough if health care costs increase faster than your inflation rider.
How long do you have to wait until your coverage can start?
Most policies have some waiting period before the benefit begins. This keeps the cost of insurance more affordable, much like a higher deductible on your car insurance or health insurance can keep your premiums lower.
Generally, the longer the elimination period, the lower the premium.
How hard is it to collect benefits?
For some companies, the claims process is easy. You submit the documentation and they pay. Others make the process more difficult. Two articles are worth looking at. The first from the New York Times in 2007 is here and another from the Wall Street Journal in 2011 is here.
Remember that some claims are denied because applicants did not disclose their entire list of medical issues. If the insurance company discovers a misrepresentation, they likely have a right to deny the claim. So best to be up front when applying. Even if you are denied, you will know where you stand and can plan accordingly.
Can premiums increase?
One of issues with long-term care insurance is that premiums can increase over time. As companies learn more about their claims experience, they may need to raise rates from time to time.
Several companies recently filed for rate increases and the industry expects this to become part of normal practice. The downside to this is obvious. The upside is that companies who increase premiums to their proper level, are much more likely to be around to pay claims if and when you need the coverage.
If you can afford it and find the idea attractive, check out companies that offer a 10 pay option which means you pay for 10 years and after that, no more premiums and no chance of increased rates.
The key to remember is that the need can arise at any time. If protecting your assets is important to you, long term care insurance is a tool that should be looked at as part of your overall protection strategy.
Only an attorney or agent who is accredited with the Veterans Administration can assist with the application for benefits. As an accredited attorney, he/she is unable to charge Linda for any work assisting with the application.