BENEFITS
Q. Who should buy long-term care insurance?
A. Buying long-term care insurance will assure that you have access to quality care within the competitive private marketplace. Anyone who:
-
realizes the objective risk of needing long-term care
-
understands the value of avoiding Medicaid dependency and paying privately to obtain quality care at the necessary level
-
has the income or resources to fund the premiums (after giving this coverage priority among competing spending alternatives) should buy long-term care insurance.
COST
Q. Who pays for long-term care?
A. You do. Medicare only pays for short-term stays. Medicaid may pay if you are qualified for government assistance after spending down most of your assets.
Q. How much does a long-term care insurance policy cost?
A. Age is usually the determining factor when it comes to pricing a long-term care insurance policy.
The older you are when you purchase a policy, the higher your premium. Take for example the same low-option policy bought by a 50, 65, and 79-year-old individual. The annual premium for the person at age 50 is about $400. For a 65-year-old person, the premium is about $1,100 per year, and for a person age 79, the policy would cost more than $4,300. Of course, the younger person pays the premium for a longer period of time. Yet, if long-term care were needed at age 85 in each of these cases, the 50-year-old person would have paid a total of $14,175 for long term care insurance, as opposed to $26,232 paid by the 79-year-old. The 50-year-old will also receive a higher benefit amount due to the inflation adjustment. The bottom line: the earlier you buy the policy, the less expensive it will ultimately be.
Even though you cannot control your age at the time of purchasing a policy, the options that you chose to accompany your policy are up to you. Higher daily benefits and other special features including inflation protection and nonforfeiture benefits will increase the cost of your premium. In fact, it has been observed that there is a three-fold disparity in pricing between a low and high-option long-term care insurance policy.
Overall, long-term care insurance is going to be expensive. When you purchase and what your policy includes will cause a difference in price. Remember that the cost of a policy does not even compare to the out-of-pocket spending level resulting from no insurance coverage.
Q. What is the difference in cost between a group long-term disability insurance policy and an individual long-term disability insurance policy?
A. Usually, a long-term disability insurance policy will be cheaper in a group setting rather than individually for the following reasons:
-
Benefits are usually coordinated with Worker's Compensation and Social Security benefits.
-
Employer's benefits pay some of the premium, ultimately reducing the amount employees pay in premium costs.
-
Plans typically include longer maximum benefit periods, a ``noncancelable`` feature, an ``out-of-pocket`` rider, and the option to add more coverage. These features are not automatic when purchased individually, causing higher payments.
-
Lower marketing, administrative, and underwriting costs.
Q. What about inflation?
A. When purchasing long-term care insurance, you need to consider inflation results on the proposed benefit amount. Costs of home and nursing home care have gone through the roof in the past decade. Just imagine what it is going to be when you reach the age of 85.
There are a couple of ways to go about this inflation issue. One way is to purchase 5 percent compounded inflation protection, if you are under the age of 75. Through this method, the benefit amount increases 5 percent annually from the policy's amount the previous year. Or you could buy a simple rate inflation adjustment, which increases the benefit amount by 5 percent of the original benefit instead of the previous year's benefit amount.
Make sure you determine whether your inflation protection plan has a limit on its operating length. Some policies limit the increase of the benefit amount to a specific number of years. Generally this is about 20 years or until the policy doubles, which is about 16 years for a compounded rate of inflation and 20 years for a simple rate. Other policies will increase the benefit amount until the policyholder reaches a certain age. Remember to take into account how reasonable this time period is in relation to your current age. A 60-year-old individual with an inflation plan increasing benefit amounts for 20 years might be left with ten years to live and a nonexistent inflation adjustment plan.
Some policies allow you to purchase additional benefit amounts in future years. However, these additional amounts will have to be bought at the higher premium based on your present age. You may want to consider this option if you are under age 50. For older age groups, this option is substantially more expensive than the automatic annual inflation adjustment option.
Ask your financial advisor to compare various inflation options and the resulting premiums. You should select the inflation option that is best for your situation.
COVERAGE
Q. How much long-term care insurance should I buy?
A. Like most insurance policies, long-term care insurance policies have a fixed dollar amount that you cannot exceed while receiving covered services. Limits are a typical component of insurance policies.
It is your job to assess what those limits should be within your insurance policy. The following are four subjects you should consider before purchasing a policy.
Benefit amount-The benefit amount is generally 80 to 100 percent of today's long-term care cost. It is the fixed dollar amount awarded to you each day and ranges from around $40/day to $200 /day. In determining how much benefit amount you will need to buy to accommodate your needs, price the cost of a nursing facility of your choice and figure how much of your income you could spend per day. The difference between the nursing home price and your daily income allotment is the benefit amount that you will need to purchase. Couples need to assume that their income is going solely to cover the other spouse; therefore, their personal benefit amount would receive no help from income.
Benefit period- The benefit amount refers to the length of time you will receive coverage from your policy. First assess the benefit amount and then consider how long you might need long-term care. Benefit periods range from two years to an unlimited amount of time. However, the average length of stay in a nursing home is 2.5 years. Realistically, there is a very small chance that you will stay in a care facility for more than five years. This is why amount should be first and foremost in your assessment. Then you can determine the length of coverage.
Deductible period- The deductible period, or elimination period, is a length of time in which you have to pay for the covered services before the policy takes over. This amount of time ranges between 20 and 100 days usually. The longer the deductible period, the lower the premiums. Yet, this also means you have to spend more money out of your own pocket during that time frame. Ultimately, the length of your deductible period should take into account the available assets you have that can be used for uncovered services during that time and how much is affordable in terms of premiums.
Q. When should I consider purchase of a long-term care plan? Should I purchase long-term care insurance now while I'm young and healthy, or wait until I am older?
A. Because your lifetime annual payment amount is frozen at the age that you apply for a policy, the best time to purchase is NOW! Each year that you do not buy a long-term care insurance policy the price rating increases. Whatever rate you end up getting remains constant until you enter a care center- then there is no premium rate to pay. Therefore, you could save tremendously by buying young.
Not only do the premium rates increase for each year that you do not purchase a policy, but also you increase the probability that you will experience a medical problem while uninsured. This could deem you uninsurable, further restricting you from receiving long-term care coverage.
So, remember these quick pointers:
-
Buy a policy before a major medical illness, accident, or disability occurs.
-
Buy when younger to save on premium costs.
-
Consult the State Health Insurance Assistance Program (SHIP) in your area before making a decision.
Q. When purchasing any policy, what criteria should I look for to ensure an educated buy? A.Your long-term care insurance policy should:
-
Provide a premium waiver when you are receiving benefits
-
Have ONE deductible for the life of the policy
-
Cover pre-existing conditions without a waiting period (if these are disclosed in application)
-
Provide the option to upgrade or downgrade coverage if policyholders cannot afford premiums
Q. What is generally not covered in a long-term care insurance policy?
A. It is important to realize that no insurance can cover everything without making the premiums highly unaffordable. In the case of long-term care, certain conditions are not covered. They include:
-
Health problems detected prior to purchasing the policy (some insurance companies exclude coverage for pre-existing conditions for six months)
-
Mental and nervous disorders or diseases, other than Alzheimer`s disease and related dementia
-
Alcohol and drug addiction
-
Illnesses caused by an act of war
-
Illnesses resulting from intentionally self-inflicted injury
-
Attempted suicide
-
Treatment already paid for by the government
DEFINITIONS
Q. What is long-term care insurance?
A. These are individual insurance policies that may help you when you are unable to take care of yourself due to prolonged illness or disability. However, policies may or may not cover home health care, adult care, or other alternative services.
Q. What is the difference between a qualified and a nonqualified plan?
A. Benefits paid by a qualified long-term care plan generally are not taxable as income. Benefits from a nonqualified long-term care plan may be taxable as income. Check with your tax advisor about the possibility of deducting a portion of the premiums paid in addition to the individual tax consequences involved.
MISC.
Q. What if I die without ever using my long-term care insurance?
A. There are a few things that could happen to your coverage if you should die.
-
You don't get any money back. This is the same for both home and auto insurance: no use, no recovery. Protection was granted while you were alive, but you never had to take advantage of it.
-
Your heirs could receive any premiums that were not paid out for your care. This is through the Return of Premium Upon Death Option, located as a rider on your policy.
-
Your spouse can be freed of further payments on his/her long-term care payments. This is under a survivorship rider within your policy. With this option, the survivor receives automatic full payment on his/her existing coverage upon the first death.
Q. When considering purchasing either long-term disability or short-term disability coverage, which one is better?
A. If you need to decide between either long-term disability insurance or short-term disability insurance, consider the risks covered by each. Long-term disability will protect you for many years, or a whole lifetime, and therefore will ease major losses acquired from the disability. Short-term disability covers only a limited and short time of loss of income, which can be more easily handled by your family than the long-term magnitude of losses. Consequently, it may be more beneficial for you to purchase the long-term disability insurance policy rather than short-term, when having to decide between the two. However, individual circumstances must be assessed as well in order to find the best policy to suit your needs.
Q. What "definitions of disability" might be present within my short-term or long-term disability insurance policy?
A. Policies differ in what exactly they label a "disability". It is important for you to look closely at your policy's definition of disability before purchasing. A policy could use the words "total" and "permanent" when describing disabilities that are granted coverage. Other policies use words such as "partial" or "temporary". This information is essential to know. Without it, you as the policyholder could potentially be denied coverage in the event of a disability.
Also the "occupation" language varies in policies. The "occupation" segment of the policy states the skills the disabled must not be able to perform in order to acquire benefits from the policy. Some policies use the wording, "own occupation," when referring to the activity the disabled is unable to perform. This is the job the disabled had at the time of the injury or onset of sickness. The other term, "any occupation," refers to the job or skills that the disabled has had the necessary training to perform, but is not necessarily the job the disabled had at the onset of the disability. Most people prefer to have the "own occupation" clause because it is more liberal than the "any occupation" stipulation. Take for example a neurosurgeon who becomes disabled and can no longer work as a neurosurgeon. The policy that defines a disability as not being able to perform her current job as a neurosurgeon, or the "own occupation" clause, would pay her benefits. The "any occupation" clause in another policy might respond to the disability differently. The neurosurgeon has the training and skills to be a family practitioner and may not receive coverage if these functions can be performed yet neurosurgery cannot. This type of policy could fall back on prior jobs and skills to dodge coverage of your inability to work at the job you had at the time of the disability`s onset.
Thirdly, look at the loss requirements needed for coverage. Policies can differ in their coverage for disabilities arising for sickness or accidental injury. Some provide sole coverage for disabilities rising from accidental illness while excluding sickness-caused disabilities.
Because the language of disability definitions varies so much, it is crucial that you examine your policy closely before purchasing.