Bouman: What To Look For In A Long-Term Care Policy

Alpine Financial Partners

November is Long-Term Care awareness month. You may have read my last column on Understanding Long-Term Care. That in mind, I’d like to take you through the basics of what to look for in a Long-Term Care Policy. 

Confronting our own mortality is a difficult task in itself. Add to that the notion that we may need someone else to care for us at some point in our lives and it makes for a very difficult topic to broach.

The sooner the conversation begins the better off you will be. Age makes a difference in the cost of a long-term care policy. Generally, the older you are when you purchase a policy, the higher you can expect the premiums to be. Also, current health and medications are taken into consideration. Your health today is no promise for tomorrow.

Long-term care insurance is one of the most complex types of insurance you may consider purchasing. Here’s a list of nine questions to ask that may help you better understand the costs and benefits.

What types of facilities are covered? Long-term care policies can cover:

  • Nursing home care
  • Home health care
  • Respite care
  • Hospice care
  • Personal care in your home
  • Assisted living facilities
  • Adult day-care centers
  • Other community facilities

Many long-term care policies cover some combination of these. Be sure to understand what facilities are included when you’re considering a policy.

What is the daily, weekly, monthly benefit amount?

Policies normally pay benefits by the day, week, or month. Here’s an example. If you have a policy with a $200 daily max you would be responsible for any overage on any given day expenses are incurred over $200. You may want to evaluate what long-term-care facilities in your area are charging before committing to a policy.

What is the maximum benefit amount?

Many policies limit the total benefit they’ll pay over the life of the contract. Some state this limit in years, others in total dollar amount. Be sure to address this question.

What is the elimination period?

Benefits don’t necessarily start when you enter a nursing home. Most have an elimination period.  This is a period during which the insured is responsible for the cost of care. In many policies, elimination periods can range from zero to 100 days after benefits are triggered. 

Does the policy offer inflation protection?

Adding inflation protection to a policy may increase its cost, but it could be important if long-term care services increase in price.

How are benefits triggered?

Insurance companies use specific criteria to trigger benefits. The most common is inability to do a certain number of the activities of daily living without assistance. This number is most commonly 2. The six activities of daily living used by most insurance companies are:

  • Bathing
  • Continence
  • Dressing
  • Eating
  • Toileting
  • Transferring

Many policies also have benefits for Alzheimer’s disease or other forms of dementia.

Is the policy tax qualified?

Certain long-term care policies can offer federal income tax benefits. Generally, premiums paid for these policies can be included with other uncompensated medical expenses for deduction from income if they exceed 7½ percent of adjusted gross income. And benefits received generally will not be counted as income.

How strong is the insurance company?

There are several companies that analyze the financial strength of insurance companies. The ratings can show you how industry watchers view various insurance companies.  You can check with Moody’s, Fitch, and S&P for company ratings.  A policy is only as good as the company’s ability to pay its claims.

What other policy options are available?

There are a number of other long-term care policy options you may want to consider. Waiver of premium allows premiums to be discontinued once benefits are triggered. Third-party notice requires the insurance company to notify a third party whenever premiums have been missed so the insured can have a child or trusted advisor make certain premiums are paid.

There are many factors to consider when reviewing long-term care programs. The best policy for you may depend on a variety of factors, including your unique circumstances and financial goals. 

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