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Long Term Care Insurance (Part 2)

(This is the second installment of our discussion of long term care insurance. This month we will focus on what to look for in a long term care policy. Next month we will discuss the use of a long term care policy as part of a Medicaid plan.)

Last month’s article focused on assessing a need for long term care insurance (“LTCI”). The publication of the article prompted several calls and letters. The subject of LTCI does not lack for opinion or advice. Such discussion is good and makes this column worthwhile. The purpose of these articles is to give you different opinions for your consideration.

Let’s review last month’s article. One source that I have reviewed states that LTCI works best for people who have at least $500,000 in assets. At that level, people usually have enough income to pay the premiums and enough assets to protect and make the insurance worthwhile.

On the other hand, for people with assets of $200,000 or less, LTCI is inappropriate, since those with small financial resources likely will qualify for Medicaid. Further, people with limited resources can do themselves harm by buying inadequate LTCI.

We are going to assume that you have made the decision to explore LTCI, based on an evaluation of your assets and your income.

What Should You Look for in a Policy?

COST: The first consideration many of us look for is cost. That is important. Consider what you can afford. I still remember the catch-phrase “insurance poor.” The cost of your policy needs to fit within your financial plan, without making you insurance poor. It may be because of circumstances and such that it is impractical or impossible for you to obtain affordable LTCI. In that case, you should be looking at other alternatives, such as the possibility of Medicaid planning or self-paying.

Is the premium fixed? How long is it fixed? If it is variable, how often will it vary? Is there a limit on increases? Is there a guarantee of limit of increases over the life of the policy? Is there a maximum amount that it can go up to per adjustment period?

CANCELLATION: The second consideration is whether the policy can be cancelled. And, if it can be cancelled, under what terms? You do not want to have a policy that can be cancelled just because you later develop an illness. Find out what it takes to cancel your policy (most all policies will be cancelled for nonpayment – can’t get around that one).

AMOUNT AND LENGTH OF COVERAGE: The third consideration that you need to look at is the amount of coverage and length of coverage. My client with the $500 per month coverage is probably not getting anywhere. But a client with $1,500 to $2,500 per month coverage, right now looks pretty smart.

Also, look at whether the policy coverage will increase with inflation, increase based on other factors, or if the coverage amount is fixed (does not change).

Not only should you look at the per-month benefit, you need to look at the length of the benefit. One year is probably inadequate (some statistics suggest that the average nursing home stay is 20 to 24 months). Lifetime coverage may push the cost out of most people’s reach. A policy with a term of two to ten years will be more affordable and more practical.

TYPE OF COVERAGE: The fourth consideration is the type of coverage. The various differences in coverage can be the subject of several articles. Many of the policies do not cover in-home care. In some states, the policies may not cover assisted living. That is really unfortunate.

Everything I read is that the availability of in-home care or assisted living, which delays the entrance into a long term care facility, ends up holding down the total cost of care for an elderly person. In other words, the longer you can stay out of the nursing home through other alternate means, the better off you will be, the better off your finances will be, and if later you go into long term care, the less Medicaid that will be out-of-pocket. Try to compare the differences between the policies that you are considering.

ELIMINATION PERIOD: The fifth consideration is elimination periods. Many LTCI policies have elimination periods, which are waiting periods that act as deductibles. Individuals must pay for their own care during that time.

The longer the elimination period, the lower the premium. Whatever you decide, be sure you can afford the out-of-pocket costs you will incur before your policy begins paying.

Are There Other Factors That Affect My Insurance Rates?

Sure, just like any insurance. The factors include where you live (it costs much more for nursing home care in certain regions of the country than others); your current health and past health history; your age (the older you are, the more the insurance costs); your family medical history; the amount of coverage you are seeking; the scope of the coverage you are seeking; and whether the insurance includes inflation or other cost increase factors.

Summary of What to Look for in a Policy.

Price is not the only factor to consider when reviewing a policy. Weigh the benefits of the policies. Perhaps the reason a policy is so much less is because it is poor coverage.

When looking at a policy look at combining it with other plans. As an example, you may obtain a $1,500 to $2,000 per month long term care insurance policy with the plan that you will use your excess assets to pay the difference between the policy limit and the actual nursing home costs. That type of plan may save you high premiums and make the long term care insurance feasible for you.

Who Do You Talk to About LTCI?

There are several insurance companies in the area that have divisions that specialize in LTCI. You may want to start with a trusted insurance agent that can send you to the proper source. Do not stop there. Get some cost estimates with an idea of the various coverages that we have talked about above. Then compare it with one or more other policies.

Do not be afraid to take the policies to your attorney and/or your accountant to be reviewed. Many times your accountant can give you a good idea of what the insurance is actually costing you, while your attorney will be able to describe to you what exactly the benefits are and what the differences are between the policies. Then you can make an informed decision.

Just like life insurance, LTCI consideration needs to be a part of your estate planning. Whether or not to have LTCI, the level and scope of coverage, and its appropriateness, varies from situation to situation. It may be that you have such assets that LTCI is not necessary or your situation may be that the LTCI is not practical. Either way, be sure and review its possibility with your attorney and accountant, as well as your estate planning professional.

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