Printer FriendlyLong Term Care Insurance: Research The Options Before You Buy
The growing interest in long-term care insurance can be attributed
largely to the aging of America. According to the U.S. Census Bureau,
the median age in the United States was 35.9 in 2003 — the highest
ever. This demographic shift is due to the 76 million Baby Boomers, the
last of which will reach age 65 by 2030.
The U.S. Department of Health and Human Services estimates that about
40% of people aged 65 or older have at least a 50% lifetime risk of
entering a nursing home. At a time when the average cost of a private
room in a nursing home is $192 per day — or about $70,000 annually —
long-term care insurance can be viewed as a solid investment for those
who have assets to protect or who want to avoid becoming a financial
burden to their families.
Unlike other types of insurance, in which policies are fairly
standardized, long-term care policies are complex and vary widely.
Virtually every company's policy differs on such matters as who
qualifies for coverage, when the policyholder can begin receiving
benefits, premium costs, etc. Therefore, before you begin comparing
policies, it is important to understand some of the basics.
What Long-Term Care Insurance Is — And Is Not
Long-term care insurance is not life insurance, disability insurance,
or health insurance. Instead, long-term care insurance includes a range
of nursing, social, and rehabilitative services for people who need
ongoing assistance due to a chronic illness or disability. Long-term
care insurance can be used by anyone at any age who suffers an accident
or debilitating illness, but it is most frequently used by older adults
who need assistance with essential physical needs, such as bathing,
dressing, or eating.
Neither Medicare, nor Medicare supplemental coverage, also known as
Medigap insurance, nor standard health insurance policies cover
long-term care. That leaves most of us with two options when faced with
such expenses: pay out-of-pocket or rely on private long-term care
insurance.
Most long-term care policies are "expense-incurred," meaning they pay a
fixed-dollar amount toward the cost of daily care. Policies tend to
cover a variety of care settings, including nursing homes, home health
care, assisted living facilities, and adult day care. Premium costs
increase depending on your age at the time of enrollment, so the
younger you are when you purchase a policy, the lower the premium
you're likely to pay.
Shopping for Long-Term Care Insurance: Know What to Look For
When shopping for long-term care insurance make sure you take your time
and compare the features of several policies. In general, pay special
attention to the following:
Company Reputation and Legitimacy. Make sure the insurance
companies under consideration are licensed in your state and carry
favorable financial ratings from well-known ratings agencies such as
A.M. Best Company, Duff & Phelps, Inc., Standard & Poor's
Insurance Rating Services, and Moody's Investor Services, Inc.
Coverage Parameters. Policies will differ in the types of
services they support. Some cover nursing home care others cover
custodial or personal care in a variety of settings such as assisted
living, adult day care, and home health care. Some include a
combination of services. Be sure to choose a policy that best meets
your potential needs.
Benefits Payout. How much does the policy pay per day for care
in a particular setting (e.g., nursing home or assisted living)? How
does the policy pay out services (e.g., a fixed daily amount or as
reimbursement for the cost of care up to a daily maximum)? Does the
policy have a maximum lifetime limit? If so, what is it for nursing
home care? Home health care?
Eligibility. Does the policy use "benefit triggers" to determine
when you will be eligible to receive benefits? Such triggers could
include activities of daily living that the insured needs help with,
such as bathing, eating, and dressing; cognitive impairment, such as
Alzheimer's disease; or a prerequisite hospital stay for nursing home
benefits. The number of activities of daily living covered is state
specific. Please check with your financial advisor for specific
information.
Benefits Protection. The policy should include an inflation
adjustment feature to ensure that benefits stay in line with rising
care costs. Additional protections include a "guaranteed renewable"
clause, which states that the policy cannot be canceled when you get
older or if you suffer physical or mental deterioration, and a
"non-forfeiture" benefit, which ensures that some portion of your
benefits are still available to you if you cancel your policy or
unintentionally let it lapse.
Tax Implications. Most long-term care policies sold today are
federally tax-qualified, which means premiums paid, as well as
out-of-pocket expenses for long-term care, can be applied toward the
7.5% medical expense deductions contained in the federal tax code.
Additionally, long-term care benefits received are not taxed as income
up to certain limits. Consult with a tax advisor to learn more about
the tax implications of long-term care insurance.
Because of the many variables involved in determining whether long-term
care coverage is right for you, it is important to do your research.
Luckily there are many information resources available on long-term
care and related health care issues.
Complete the following form, or call us toll-free at 888-854-7526 if you would like to speak with someone or get more information.