There is a popular misconception that Medicare,
Medigap or your private medical insurance will pay for your long-term
care needs. This misconception can be your financial downfall,
because it's simply not true.
Think about this: 42% of Americans 65 and older will
enter a nursing home during their lifetimes, and the current average
annual cost of a one-year nursing home stay is $46,000. Even home
health care, the least expensive alternative for someone who needs
regular medical attention, costs on average more than $1,000 a month.
All long-term care coverage is more expensive in metropolitan areas,
and women are especially vulnerable because they have a 50% greater
likelihood of needing nursing home care than men.
The premiums for this type of insurance are not cheap,
but unless you have assets of $2 million or more, you probably need
it, especially if you want to preserve some assets for your children.
Premiums vary based on your age, sex, geographical location and
policy type, but annual costs can vary from $400 a year for a
40-something male to more than $3,000 for a man or woman aged 70 or older.
If you're married with a family, you should start
considering long-term care coverage as part of your overall insurance
needs. As with life insurance, it's cheaper if you start younger, but
if you're less than 30 years old, you may understandably question its
value. What you have to ask is, "What would life be like if a
debilitating illness hit?"
There are several ways to keep premiums down. Many
employers now offer long-term care insurance as an optional employee
benefit. Usually the employee, the employee's spouse, and the
employee's parents are eligible to buy coverage. Or, you can choose a
longer waiting period, lower benefits or coverage that ends after a
certain time frame. However, as with life insurance, the amount of
the premiums is not the most important consideration when purchasing
long-term care insurance -- in fact, it is one of the least important considerations.
What matters most are the policy benefit amounts and
the specific terms of the contract. These policies are complicated,
but if you ask these 15 questions, you'll come close to finding the
best policy for you.
1. Is this policy "qualified" under the
Health Insurance and Portability Act of 1996?
Purchase a policy that is "qualified"
because only those policies allow you to take a tax deduction for the
premiums and pay out tax-free benefits.
2. Is this policy guaranteed for life, or can it be canceled?
Make sure that the insurance company cannot cancel
your policy if it finds out that you're in poor health. Note that
virtually no companies issue policies with guaranteed premiums
because no one can predict future health care costs.
3. What is the waiting period, and does it only
have to be met once?
The waiting period should be no longer than six
months, and you should only have to meet that requirement once during
4. Does it cover home health care, as well as
skilled, intermediate and custodial nursing home care?
These provisions give you an option to stay at home
and receive care, as well as to receive all levels of care in a
nursing home. That way, if your condition changes, you don't lose any benefits.
5. Do I have to be hospitalized before benefits begin?
Buy a policy where hospitalization is not required.
You may simply start needing home health care, and your medical
insurance might not pay for a hospital stay, in which case you would
have to pay out-of-pocket for a hospital visit.
6. What are the conditions that trigger benefit payments?
The conditions should consist of cognitive impairment
of any kind. It should explicitly include Alzheimer's disease, and
should include the inability to perform two out of five or six
activities of daily living (ADL) -- usually eating, bathing,
dressing, using the toilet, "transferring" (moving
unassisted from a bed to a chair for example), and continence.
7. What are the daily reimbursements for home
health care and nursing home care?
Know the cost of these services in your area so that
you can choose a policy that adequately covers those costs. Your
insurance agent or a state elder care agency should be able to give
you this information.
8. Is there an inflation clause so that my daily
benefits increase over time?
The cost of home health and nursing home care has
skyrocketed in the past few years, so make sure that your policy
benefits keep up with those costs. Again, your agent or state elder
care agency can help.
9. How long will benefits be paid?
If possible, you should purchase a policy with the
longest benefit payment. Usually this is about six years for home
health care and lifetime for nursing home care.
10. How long is the pre-existing clause in effect?
This clause excludes pre-existing conditions (medical
conditions or ailments you already have prior to purchasing the
policy, which are usually listed on your application). Your policy
should have no more then a six-month pre-existing condition clause.
After that, all medical ailments should be covered.
11. Are there specific guaranteed protections
against policy lapses and reinstatements?
This protects you if you are having physical or mental
difficulties and forget to pay the premium. You can have the policy
reinstated even if your premium is late.
12. What specific expenses are covered under the policy?
It is very important that you know which medical and
ancillary expenses will be covered, because you'll want to choose a
policy that reimburses you for expenses rather than one that pays you
a flat daily rate (an indemnity policy). The following expenses
should be explicitly listed in your policy contract as covered:
respite care, home modification, hospice care, caregiver training,
professional health care services, therapeutic devices, and personal
care adviser and bed registration fees if you are moving to a nursing home.
13. How long has the company been selling long-term
Choose a company that has a good track record in the
sales and administration of long-term care insurance. Make sure you
buy insurance from a company that has been selling long-term care
insurance for at least five years.
14. What are the insurer's financial strength
ratings from the major insurance ratings services (A.M. Best,
Standard & Poor's, Moody's, and Duff & Phelps)?
You want to choose a company with solid financial
strength so that if expenses are substantially greater than expected,
the company can handle them with ease.
15. May I have a sample copy of the exact contract
of the policy I would be purchasing from your company?
Here is where you will probably get the answers to
most of the questions listed above. Do not depend on what an
insurance agent tells you verbally; it's what's in the contract that counts.