Top 10 Things to Consider Before you Purchase Long-Term Care Insurance

Should I get long-term care insurance?

Pros and cons of a common option to pay for senior living

Long-term Care Insurance covers the costs of prolonged health care services for chronic illnesses, disabilities or conditions that leave a person requiring daily assistance. It can fill gaps in coverage from employer-based health plans or private health insurance policies, and it covers ongoing long-term care while Medicare does not.

Where can I use it? Most LTC insurance policies cover care in a wide range of settings, including the policyholder’s home, adult day care centers, assisted living, memory care and nursing homes. Many policies also help cover the costs of modifying a home to make it more accessible.

Do I need it? While it can be a financial lifeline for some policyholders, long-term care insurance can be a significant expense – especially purchased later in life — and isn’t the best option for every case. Here are some things to take into consideration:

What are the upsides?

Senior care can be expensive and can burn through a person’s savings very quickly. Having a policy that covers some or all of these costs can help a senior keep a nest egg intact and stay financially independent.

Having insurance may also give a senior more options for long-term care, including choices that Medicaid does not cover.

A long-term care policy can’t be canceled because of the policyholder’s age, physical condition or mental health. Once started, policy will continue until the holder stops paying premiums or exhausts the benefits.

What are the downsides?

Long-term care insurance premiums can be a big added expense, especially if budgets are tight. Some insurers have hiked premiums by double digits in the past — or reduced coverage. Over the last two decades, a large number of LTC insurers have left the business entirely.

You may not need it. If you have ample savings, you may be able to pay for care on your own.

If you don’t have a lot of money or other assets, you might be closer to qualifying for Medicaid coverage, which pays for some types of care.

What does it cost?

You’ll want to shop around for the best options. The price of long-term care insurance depends on many factors, including:

• Buyer’s age: Policies cost less for younger, healthy people.
• Buyer’s gender: Women tend to live longer, so their policies cost more.
• Marital status: Married people pay lower premiums, but need separate policies.
• Daily benefit amount: How much does it pay per day? ($100-$150, for example)
• Lifetime maximum: How long before the policy’s benefits run out?
• Coverage: Will it pay for stays at a senior care community or only at your home?
• Who offers the policy: What company offers it — and are you buying through a group?
• Location: Policy prices can vary by city and state
• Inflation index: A policy that increases benefits with the rate of inflation will have more expensive premiums, but maintains the purchasing power of its benefits.
• Flexibility: Does it pay for a wide range of needs? Could it adapt to cover technologies that haven’t been invented yet?
• Fixed premiums: Some policies lock in premium fees, while others allow premiums to increase over time. In recent years, some policies had double-digit increases.

Prospective buyers should consider whether they can afford the premiums, especially if prices aren’t locked in. If you lack income and assets, Medicaid might be a better option. A support system of friends or family might also be able to help with care.

Who’s eligible?

Adults can typically buy LTC insurance into their eighties, though older applicants will see significantly higher — and potentially cost-prohibitive — premiums. Standards vary by provider, but there are some health conditions for which insurers commonly reject applications:

• If you currently use long-term care
• If you currently need help performing simple everyday tasks
• Metastatic cancer
• Recent stroke
• AIDS
• Alzheimer’s disease or dementia
• Parkinson’s disease or other progressive neurological conditions

Some insurers offer a free screening to check your eligibility before you apply. It’s good to find out whether you’re eligible before you make the application official. Future potential insurance providers could disqualify you or charge you more if you’ve had applications turned down.

Where can I buy it?

• Private Insurance Specialists: Insurance agents, brokers and financial planners commonly sell policies. States regulate companies and the LTC insurance policies they sell, so check state records to see if a provider has any red flags.
• Employer: Many employers offer long-term care insurance to workers and family members as part of their overall benefits packages. People who leave the company are often able to continue the plan through direct payments.
• Groups and Organizations: Service or professional organizations may offer long-term care insurance at lower group rates.
• State Partnership Programs: People who buy long-term care insurance that’s eligible for partnership programs in many states are allowed to keep some assets and still qualify for Medicaid. This can be beneficial if you hit your lifetime benefit maximum, need Medicaid for additional care and don’t want to spend all your savings to qualify.

How do the benefits work?

An insurance company asks a qualified medical/social worker team to determine whether a benefit trigger has started — usually when someone needs assistance with several activities of daily living (ADL), such as eating, bathing, dressing oneself and using the toilet. Significant cognitive impairment, such as dementia, can also trigger benefits.

The insurer needs to approve the patient’s plan of care before it can start paying.

There is typically an elimination period of between 1-100 days where the policyholder must receive care — and cover the full cost of it themselves — before benefits kick in.

Once payments start, the policy prescribes the maximum amount of money that it will pay for care each day — as well as maximum payment over the policy’s lifetime. In other words, there’s a daily limit and an overall limit to how much you’ll get.

Policyholders typically pay for the day’s qualifying care expenses themselves and get reimbursed by the insurance provider.

Some policies impose only one elimination period on a policyholder. Others re-start the clock with each successive illness, so consider that when you shop. Some policies will also stop charging premiums while they pay out, but others will keep sending you bills.

What if you miss payments?

Policyholders who miss even one payment are at risk of losing access, but many companies make options available to protect their customers. Some offer nonforfeiture options that let you keep a reduced benefit based on what you’ve paid so far.

Other companies offer a continuity option for third parties to pay on behalf of a policyholder who doesn’t. For example, if a policyholder misses paying a premium because of a long vacation or hospital stay, a designated sibling or adult child is given the option of temporarily covering the premium payments.

What should you shop for?

Shop around and make an informed decision about the policy that best meets your needs. Every case is different, but the National Association of Insurance Commissioners recommends people seek out policies that offer at least:

• One year of nursing or home care coverage, including intermediate and custodial care
• Coverage for Alzheimer’s disease
• A free look period, giving you the right to return a policy within 30 days of purchasing it
• An option for home benefits without first having to stay in a hospital or nursing home.

Other things to think about

• Check with your state to see if the company offering to sell you LTC insurance has a long track record of selling insurance with minimal consumer complaints.
• Check the company’s financial strength rating at com or Standardandpoors.com. You don’t want to worry about your insurer going broke.
• Check past records to see how often a company has raised rates.
• Review a written copy of your policy with an attorney or financial adviser.
• Make sure a policy covers the types of services that are available where you live — and if you can make adjustments if you move.
• Don’t pay premiums in cash and make checks payable to a company, not a person.
• Err on the side of too much coverage instead of too little. Paring back coverage later can be easier than trying to add it.
• Lean toward policies with inflation protection. $150 per day a decade from now will buy less than it buys today.
• Look for “pooled” benefits that let you spend daily money on different types of services.
• Don’t rush into a decision and consult a professional before signing anything.

What other options are there?

If long-term care insurance isn’t the best option for you, is there another choice besides paying for everything out of your savings? These ideas may be worth considering:

• Short-term care insurance – Similar to long-term care insurance, but the benefits usually run for only one year. Seniors who don’t qualify for long-term care insurance may be able to buy this kind.
• Life-LTC Hybrids – Another option is a policy that combines life insurance with long-term care insurance. These may be more affordable and less prone to premium price spikes.
• LTC annuities – These accounts often require a big upfront investment, but provide regular payouts to cover the cost of a wide range of senior care needs.
• Health Savings Accounts – An option that lets people put aside money tax-free to cover medical costs, including long-term care and even premiums for LTC insurance.

Home Equity – Seniors who own their homes may be able to use a reverse mortgage, sell the house or take out a line of credit if they need money for long-term care. Be cautious with these options because credit lines carry high interest rates and aren’t as tax-friendly as they once were.