Long Term Care Insurance: Questions to Ask
Many Americans assume that if they ever develop a chronic, long-term disability, their health insurance, Medicare, or Medicaid will pay for their care. The reality is that private health insurance and Medicare cover only limited home health care or nursing facility costs, and Medicaid pays only under certain conditions. For this reason, purchasing long-term care insurance may be a wise choice for many people.
What is Long-Term Care Insurance?
As with any form of insurance, when you purchase long-term care insurance, you are regularly paying a relatively small sum (or premium) to protect against the risk that you might someday have to pay a much larger amount—in this case, the potentially huge cost of extended care in a nursing facility. Most long-term care insurance policies cover not only nursing facility care, but also some types of home care and other care options.
Who Should Have It?
Financial planning can be complicated; it may not be a simple decision for you whether or not to purchase long-term care insurance. Your financial advisor, elder law attorney or insurance agent can help you weigh the advantages and disadvantages.
One thing to consider is your age. The best time to buy insurance is when you don’t need it yet. Certain existing health conditions that are more common as we grow older normally cause an applicant to be turned down. These include Alzheimer’s disease or other dementias, muscular dystrophy, Parkinson’s disease, or severe osteoporosis. People who already need help with several activities of daily living (ADLs), such as bathing, dressing, or going to the toilet, would also in most cases be denied. Other health conditions, such as high blood pressure, diabetes, emphysema, or history of stroke, might also disqualify you. Even if you aren’t denied outright, the premium in your case might be prohibitively expensive. As with most insurance, “buy it before you need it” holds true.
Another consideration when thinking about long-term care insurance is your financial status. Once you begin paying the premium on your policy, you must continue to do so in order to retain your coverage. Is this a realistic expectation, given your current and/or projected income? Will you still be able to pay the premium after you are retired?
How Much Will It Cost?
The cost of long-term care insurance depends on several factors:
- Your age when you purchase the policy. The younger you are when you purchase your policy, the lower the annual premium will be. Once you have purchased the policy, your premium will not be raised just because you grow older; you lock into a rate that only changes if it is raised for all policyholders, or if you change your coverage.
- Your current health and health history. As mentioned above, certain health conditions, if they don’t cause you to be disqualified entirely, make it impossible to purchase a policy at the normal price or with full coverage. A rated or modified policy, which restricts coverage and costs more, might be an option, but not all companies offer them.
- The particular benefits the policy will pay. Remember: in general, you get what you pay for. The lowest-priced policy might not be the best choice if the coverage will not be adequate to meet potential future needs.
Even if the premium seems like a lot of money, weigh this against the cost of a year’s care in a nursing home. It is not uncommon for a person’s life savings to be quickly wiped out by a catastrophic illness, and his or her spouse left in a difficult financial position.
As with any insurance, it’s important to know the exact details and options of the policy you’re considering. Comparison shop, and read the fine print. Avoid high-pressure sales, and don’t rely on marketing materials or general descriptions. Instead, request that the company provide you with a sample policy and outline of coverage. Your insurance agent or financial advisor can help you decide which policy is best for you.
Questions to Ask When Shopping for a Policy
- Is the company reputable and in good financial health? It’s important to purchase your policy from a company that will still be around if you need to collect benefits. Your insurance agent, elder law attorney or financial advisor can help you learn which companies have a good reputation, are highly rated, and have a good track record for policyholder service.
- What is the benefit amount and time period of coverage? What is the maximum daily dollar amount the policy will pay? For how long a period of time? Some policies offer lifetime coverage; others are for a limited period of years.
- What is the elimination period? The deductible in long-term care is measured by days, not dollars, and is called the elimination period. This means the number of days you must pay for your own long-term care during a particular illness before your insurance will pay—normally between 20 and 100 days. In general, the shorter the elimination period, the higher the premium. You should also find out the details about what is considered a “separate spell of illness.” Will the waiting period start over if you experience a temporary improvement of condition?
- What is covered? Though a few policies cover nursing facility stays exclusively, most long-term care policies today are comprehensive, covering not only nursing facility care, but also home care services, such as nurse or home health aide visits. Many also cover assisted living and other residential care settings, adult day care services, respite care, and hospice. Of those that cover home care, some pay only for home health care provided by a licensed agency. Others include chore services, such as cooking, grocery shopping, home modification, and other tasks. Ask to see a detailed description of coverage.
- In what circumstances can you make a claim? Be sure to find out what it takes to qualify for benefits. Are any levels of prior care required before benefits begin? Must you have been hospitalized first? How many activities of daily living (ADLs) must a policyholder need help with to trigger a claim?
- Are pre-existing conditions an issue? Some policies require a wait, typically six months, before you can receive benefits for a health condition you already had when you obtained the policy.
- Does the policy restrict where and from whom care can be received? Some long-term care insurance policies include the same types of limitations as preferred provider-type health insurance. The company contracts with a list of providers and facilities, and will only pay benefits if the policyholder chooses those providers. The company may pay a smaller amount if the policyholder goes outside the list of approved providers.
- Are there any other limitations? Most of today’s long-term care policies cover Alzheimer’s disease and other dementias; but, as Alzheimer’s is a leading cause for nursing facility admission, be certain that it is included in the policy you select. Other limitations may typically apply: for example, many policies specifically exclude coverage for alcoholism, drug abuse, or the effects of self-injury.
- Are benefits adjusted for inflation? This is a very important consideration. The cost of long-term care is rising faster than the cost of living, and a daily benefit amount that is appropriate today will be inadequate to cover costs in future years. About 5 percent per year is the typical increase. Some policies also allow you to purchase increased coverage later on.
- How much are the premiums expected to increase? Companies can raise their premiums from time to time, as permitted by state insurance commissions. Ask to see a rate increase history for policies you are considering and compare them. Some companies have a record of frequent, large increases; others have fewer and smaller increases.
- Is the policy renewable? Under federal law, long-term care policies are renewable so long as the premium is paid on time. Be sure to check your policy to see what conditions might cause your policy not to be renewed.
- What about group policies? Your employer or professional group may offer long-term care insurance as part of its benefits package. These policies are often less expensive than those you buy individually, and some companies will also let you enroll family members, including parents. Be sure you have all the facts before you sign up. Find out what happens if you leave your employer: can you continue the policy on your own? Would the premium be higher? Are benefits different?
To decide whether long-term care insurance is right for you, and which policy best meets your needs, consult with a reputable insurance agent. Discuss the policy with a trusted person, such as your health care provider, financial advisor, elder law attorney or a knowledgeable friend or relative. Locating the best policy for your needs takes time and effort, but it can pay off by protecting your assets and giving you greater choice, should you need long-term care in the future.
For More Information
The State Health Insurance Counseling and Assistance Program (SHIP) offers seniors free counseling and information about long-term care insurance. A directory of websites for each state’s SHIP program can be found on the Medicare website.
The National Association of Insurance Commissioners website includes information for consumers about deciding whether long-term care insurance is a good choice, and selecting a policy.
Right at Home is a national organization dedicated to improving the quality of life for those we serve. We fulfill that mission through a dedicated network of locally owned, franchised providers of in-home care and assistance services