Long-term care insurance: 12 questions to ask
who aren't getting older can skip this story.
Still with us? Good. You are getting older,
and at some point, your body will break down. Here are some scary statistics:
Studies indicate that as many as 40 percent of Americans over 65 will spend
time in a long-term care facility, that more than 70 percent over 65 will use
some form of home health care, and that a year in a nursing home can cost anywhere
from $40,000 to $100,000 or more today, with costs likely to more than quadruple
30 years from now.
Considering these factors, long-term care insurance may
be the most important purchase you ever make.
Unfortunately, long-term care insurance policies are complex,
and seemingly minor details can make a tremendous difference in the level of
care you eventually receive. You'll need to sample a variety of policies, ask
lots of questions and have your broker or agent explain the intricacies of the
policy in detail because what may seem minor now could mean the difference between
being covered or not at a crucial time.
The following 12 questions will help unravel the complexities
and gather the information hou need in shopping for a long-term care policy,
including whether you should be shopping for one at all.
Why buy long-term care insurance?
There are many elderly people who, due to some physical
or cognitive disease, are unable to care for themselves. Long-term care insurance
could potentially cover nursing homes, assisted living facilities, adult day
care, in-home care and other functions that help us get through everyday life.
It is NOT medical insurance; it is simply for everyday life functions and living.
It is also not, however, just for the elderly. If a person
in his 30s were to purchase long-term care insurance, and soon after become
paralyzed in an accident, or be diagnosed with a degenerative disease, he could
then be covered for life as far as functioning care -- depending on the individual
What happens if I get sick and don't have this insurance?
If a person is in need of, let's say, a nursing home,
and is without insurance, the home would need to be paid for out of the person's
assets. Government assistance would usually not kick in until not only that
person's assets were virtually depleted, but the assets of their spouse as well,
if that assistance were available at all. Therefore, anyone with assets to protect
may want to consider this insurance.
At what age should long-term care insurance be purchased?
It is sometimes advised that people 60 and over should
be looking at this insurance. However, there are a few reasons to reconsider
this advice, and instead think about purchasing it as early as possible.
Reason one is that, as stated above, a life-changing occurrence
can occur at any age. If you are left paralyzed at 30, you could conceivably
need life assistance of some sort for the next 60 years. If you're covered,
you could be set. If not, it's too late.
But the second and less-obvious reason is that purchasing
the policy at a younger age may cost less overall than purchasing it when older,
even accounting for inflation. If you're shopping for this policy at a younger
age, ask your financial adviser to compare your purchase now with a purchase
at 60. You may find the numbers work more favorably if you purchase now.
Where should I shop?
Once you make the decision to purchase long-term care
insurance, you need to go shopping. While there are several big insurance companies
that offer the insurance, you should also consider working with an independent
Clay Cotton is a former broker, and founded the National
Advisory Council for Long Term Care Insurance in late 1996. Ironically, Cotton,
now 53, hadn't yet purchased this insurance for himself, but was preparing to
in 1997 when he was diagnosed with multiple sclerosis. Now, he's ineligible.
He did however, purchase a policy for his wife Suzanne, who was soon after diagnosed
with hepatitis C.
Cotton is a strong advocate of using independent brokers
to purchase insurance (and has a list of them on his Web
site), as opposed to agents bound to one company, who he calls "captive"
"Avoid a captive agent," advises Cotton. "They
can only sell you their company's party line. If that company doesn't have favorable
wording on things like the deductible, that's all that agent has to offer."
Cotton also recommends consumers read the National Association
of Insurance Commissioners' "Shopper's
Guide to Long Term Care Insurance," a booklet that most insurance agents
and brokers who sell that insurance will carry.
How expensive is long term care insurance?
Of course, this number can vary wildly depending on
numerous factors, age being the most important. For people in their 30s, the
insurance may cost in the $400-per-year range, while that can increase closer
to $1,000 per year for those in their 50s and 60s.
What type of setting for coverage does the policy provide?
While the wording may differ per policy, there are
three basic categories into which care may fall: home settings, assisted living
and skilled nursing facility. The ideal policy will cover all three, since you
never know which you'll need. You could wind up with a condition that could
be cared for at home, but if your policy covers only nursing home care, you
may be out of luck, or maybe prematurely forced into a nursing home.
Conversely, if you're only covered for home and assisted
living care, you're out of luck if your condition worsens to the point where
you need the full-time skilled care only a home can provide.
How long will the policy pay out once it's triggered?
The best is an unlimited payout, but there are policies
that cover smaller increments of time, such as four years or six years. You'll
need to weigh what you can afford against how much you're willing to gamble
you'll need. Obviously, the longer coverage is provided, the better.
What triggers the policy?
Different policies dictate different reasons for the
policy to kick in, such as cognitive impairment, failure of ability to perform
daily activities, and medical impairment. But not all policies allow for all
reasons, and some policies even refuse to consider medical necessity as a trigger.
Make sure you understand the policy's trigger, and try to find one that will
include medical necessity.
Also, certain policies require you to be hospitalized before
any nursing home or home health care benefits kick in. Try to find a policy
without this restriction.
How much will it pay out every day?
Some policies may cover expenses totaling more than
$50 or $75 per day, and others may cover $200 and up. All are different. Make
sure you fully understand the payout policy on any coverage you're considering.
In doing so, take into account the difference in potential nursing home costs
where you are. For example, the cost of a nursing home in New York may run $300
to $400 per day, while a home in the Midwest may be less than $100.
What is the deductible?
This part gets especially complex. These policies
can measure the deductible not in dollars, but in days. A policy's deductible
may run 30 days, 60 or 120. And, the length may mean different things, depending
on the policy's wording. The days may be consecutive, or not. The deductible
that's right for you will depend on your ability to cover your own costs until
the policy kicks in.
Be sure you fully understand the implications of the deductible
before signing on, and weigh it against your projected assets at age 70 or 80.
This is one topic you should definitely discuss with your financial adviser.
Does the policy have inflation protection?
Many policies include a clause that increases your
benefit with inflation, without raising your premium. Be sure to ask about it.
Does your policy allow for shared care?
Some policies allow you to link your policy with your
spouse's, so that if your coverage runs out, you can draw on your spouse's coverage.
Discuss with your spouse if this is something you want to have.
Make sure you fully understand every aspect of a policy
before signing on, as any detail could make a big difference come redemption
Larry Getlen is a freelance writer based
in New York.
-- Posted: Sept. 23, 2003