9 Questions to Ask
Before Buying
Long-Term Care Insurance
When long-term care insurance first became
available about eight years ago, there were few customers.
The product was full of holes, untested, and overpriced. Not
surprisingly people took a wait-and-see attitude, mainly
because it took a while for most people to even become
familiar with the need for this type of protection.
Fortunately, insurers have responded with
significant product enhancements and lower prices. But with
so many policies to choose from, it has become more
difficult to be sure that you're selecting a policy that's
best for you. Because all policies are not the same, we have
prepared this guide for helping you understand long-term
care insurance and obtain the coverage that best fits your
individual needs.
1. What is the best way to calculate how much
coverage you should buy?
 It's difficult to give an ironclad answer
because each individual has a different comfort level with
risk tolerance and how much of their income and assets
they're willing to spend to avoid risk. The amount of
coverage depends in part on what you need and in part on
what you can afford. As a general guide, you should not
spend more than 5 to 10 percent of your income (both earned
and unearned) on long-term care insurance premiums. In terms
of the size of the daily benefit you purchase, it should
make up in the shortfall between your income and the average
cost of nursing home care in your area.
2. How long a period should I insure myself for?
Again, there is no one right answer for
everyone. Most people buy what gives them peace of mind and
is affordable. If you're between the ages of 50 to 65,
consider lifetime benefits with compound inflation options.
If you're 65 to 75, think about a six-year or lifetime
benefit period with simple inflation options. Those older
than 75 years old should consider buying more daily benefit
for as long a period as they can afford.
3. Will the agent provide you with a sample policy?
Although sales literature can be helpful
to give you a general overview of policies, it's in your
best interest to request a sample policy so that you and a
family member, friend or adviser can review it with you
before you buy. Be sure the sample policy matches the policy
quoted by the agent; look for a policy series number.
4. Is the policy a group certificate type or an individual
policy?
The difference between a group policy and
an individual is significant even though the distinction may
not be obvious. In some states, individual polices are
regulated while group ones are not. Individual policies,
however, are guaranteed renewable for life and premium
increases for a class of insureds must be approved by the
state. 5. Is the policy tax qualified?
Under the provisions of the Health
Insurance Portability and Accountability Act of 1996
(commonly known as the Kassebaum-Kennedy bill) which went
into effect on January 1, 1997, long-term care premiums may
be deducted from your Federal income tax within certain
limits and to the extent you have medical expenses
(including these premiums) that exceed 7.5 percent of your
adjusted gross income. Any benefits received under a
tax-qualified policy are not taxable if the policy meets
certain guidelines. Employers may treat long-term care
insurance premiums paid on behalf of their employees just
like health insurance and fully deduct the cost. Moreover,
the employees do not have to include the premium as income
and the benefits when receive will be tax-free. 6.
Are the benefit triggers clearly spelled out?
A benefit "trigger" is the inability of
the policyholder to perform specified Activities of Daily
Living (ADL's), such as transferring, toileting, bathing,
continence, dressing and eating. Ask your insurance agent
for a copy of the actual policy in order to see for yourself
how the benefit "triggers" and ADL performance are
described. The policy you want must include coverage for ADL
Standby Assistance. Otherwise, you will own a policy that is
harder to qualify for benefits at claim time. Don't make the
mistake of focusing your comparison of companies on less
important details like a 21 day vs. 31 day bed reservation
benefit. Moreover, check policy language to be sure
pre-existing conditions are covered. 7. Does the
policy cover homemaker services?
Homemaker services include cooking,
shopping, changing beds, cleaning the house and doing
laundry. Not all policies do provide coverage for homemaker
services and some require that they be specifically included
in a plan of care. Look for policies that clearly define
these services and provide you with a choice. 8.
How does my health history affect the cost of the insurance?
Your personal health history can make a
difference in both coverage and premium cost. Since
insurance companies differ in the way they view certain
health problems, it's essential that your insurance agent
has access to a broad selection of insurance carriers.
9. Is your agent or broker Certified in Long Care (CLTC)?
And do they offer a choice of companies?
Many insurance agents are now selling
long-term care insurance since it has received so much media
attention. Because the purchase of this type of protection
is so important, we recommend that you do business with an
agent or broker who is knowledgeable, experienced and has an
established reputation in this area of insurance. Long-term
care insurance is a complex product. Look for a CLTC
specialist. (See the link to the Corporation for Long-Term
Care Certification on our Partners page.) Also, you want an
agent who represents a number of insurance carriers so you
can choose from a variety of policies.
Although the answers to these questions
do not cover every possible issue, they are a guide for
helping you evaluate long-term care policies and making the
decision that's best for you. |
