Long-Term Care Insurance
A new insurance product has come onto the market within the past few years, and it may be one of the most important investments an individual can make. Long-term care insurance is a product that promotes "planning," not "crisis management."
Do you recall the statistic noted earlier in this chapter? Depending upon your age, you are four to seven times more likely to become disabled in any given year, than you are likely to die! Yet there are millions upon millions of life insurance policies existing in this country, and fewer than one million long-term care policies.
This discrepancy is partly owing to the fact that long-term care insurance is a new product. Many people are unaware of it, and many insurance professionals have not become totally familiar with its details. In fact, not all major insurance companies yet offer this type of policy.
What is long-term care insurance?
Long-term care insurance is designed specifically to provide pre-determined benefits (payable to a policy holder, a care provider or to an institution) to cover the expenses of long-term (after-hospital) care.
Long-term care is generally defined as the necessary ongoing use of skilled, semi-skilled or sometimes unskilled assistance in carrying out one or more of the ordinary "activities of daily life."
A policy typically will be written with an "exclusion" period (waiting period), and may have other limits built into it. There are many options for consumers to consider, each choice having an effect on the cost of premiums for this type of coverage.
Do I have to be in a nursing home to receive policy benefits?
Long-term care insurance is designed to cover all or part of the cost of confinement in a nursing home or convalescent facility, but (depending upon the terms of the policy), it can also provide cash benefits for any type of assistance that is medically necessary.This means that, unlike the standards imposed for Medicaid benefits, an individual with long-term care insurance may remain in his/her own home (or any other location) and still receive all or part of the cost of professional care or even unskilled help, if made necessary because of a disability.
Each policy is different, but as a general rule, the standard for determining whether the policy will pay a benefit is the loss of the ability to perform a certain number of the activities of daily living. The exact number of "limitations" a policyholder must manifest is determined by the language of the policy, and can be as minimal as impairment of one or two activities, or can require impairment of three, four or more.
The "activities of daily living" include: bathing; feeding; toileting; dressing; moving about; and other similar tasks. Many people who are in recovery or rehabilitation are only limited in certain activities and may need to engage unskilled or semi-skilled help in the home to maintain normal functioning. Others will require assistance with several activities, and still others are best served in the environment of a professional care facility.
Long-term care insurance is now widely available and consumers may customize policies to their own projected needs, ranging from policies which offer payments when there is a minimal "loss" of a daily activity, to those requiring loss of several; policies covering only professional care facilities, to those paying cash directly to an insured, who may choose his/her own location and level of help; those with no benefit waiting period, to those with one, three, or six-month exclusions.
In general, the benefit period (including waiting period) will begin when there is a so-called "medical necessity" for assistance with one or more activities of daily living, as determined by a physician.
What will long-term care insurance cost?
The cost of long-term care policies is widely variable, since many policies can be tailored to specific needs. Costs can be kept at a minimum by building into the policy: longer waiting periods for benefits, a requirement that the insured be impaired in several activities of daily living, or by limiting the maximum amount of daily, yearly, or lifetime benefit available, among other cost-saving options.
There is no rule of thumb for predicting policy costs, but obviously a younger person, selecting more restrictive policy terms, will have the lowest premium. For example, the annual premium for a long-term care policy with inflation protection may run about $2000 for someone age 65.(See A Shoppers Guide to Long-Term Care Insurance, published by National Association of Insurance Commissioners, 1993)
If a policy is purchased at age 75, the premium will generally be 2.5 (two and a half) times greater than at age 65, and it will be six times greater than a policy purchased at age 55. Obviously, if you are considering the purchase of a long-term care policy, you cannot begin your inquiry too soon!
Can I afford long-term care insurance?
Given the cost of prolonged health care and the dramatic increase in life expectancy, perhaps the better question is: can I afford NOT to have long-term health care insurance? Remember, as more insurance companies enter the LTC arena, there will be more policies with more options to choose from. These choices will allow you to keep the cost of your premiums at a level that is manageable for you.
Some of the factors to consider are:
- do I want to pay additional premium for "inflation protection?" [automatic increases in the benefits I am entitled to]
- will I be able to continue to pay the premium, even after I retire or must live on a fixed income?
- how long a "benefit waiting period" should I accept? Am I sure that I can "pay my own way" during that period?
- should I accept a limited benefits package, because I know I can rely on other sources of help or income?
- can I coordinate my private long-term care policy with Medicare or other insurance coverage that is available to me?
How do I choose an insurance company?
You may be most comfortable approaching your current life insurance (or health insurance) agent, and inquiring about LTC insurance. But don't stop at that. A careful consumer will do some comparison shopping.
When considering any policy, be sure that the company underwriting it is financially stable. Several private companies or rating agencies conduct financial analyses of insurance companies and grade them. These ratings are published, and are available at most public libraries. Ask for insurance ratings publications by any of these companies: A.M. Best; Duff and Phelps; Moody's Investor Service; Standard and Poor's.
If you have questions about the agent or insurance company, contact your state's insurance department. (Look under State Government in the front of your white pages telephone book.)
Compare policies offered by at least two reputable and solid insurance companies. Ask the selling agent to explain the policy to you, making reference to the actual policy document during your conversation. He/she should show you where each term, condition and obligation is clearly written in the text of the policy.
If you decide that you do not want a policy after you purchase it, you can cancel it and receive a premium refund, if you take action within a certain period of time. This is called the "free look" period, and is 30 days in most states.
Crisis or Comfort?
It is virtually self-evident in most cases that long-term care insurance is a wise investment and a sound alternative to possible Medicaid impoverishment. Additionally, long-term health care coverage can offer you many options that are not available using government programs.
With private insurance, you can choose to stay in your own home. You may be able to provide fair payment to a friend or relative who assists you. You may structure your policy so as to keep pace with inflation in medical costs. You can maintain the right to make many personal choices which are not available to a government-aid recipient.
Whatever long-term care "plan" you put into place, be it purchasing insurance or planning to qualify for Medicaid, it is important to take steps now to guarantee that your plan will be successful. Don't delay that meeting with your insurance agent and your estate planning attorney. Their advice and assistance could save you and your family thousands of dollars and unlimited heartache.
When it comes to facing "crisis" or "comfort," planning makes all the difference.
Dignity, preparation, peace of mind, maintenance of quality of life, preservation of your estate. All of these are valuable and achievable goals, which you can meet if you take steps now to anticipate a period of disability and plan now for its management.
What are you waiting for?
