Assess Your Long-Term Care Insurance
Insurance policies probably aren’t on your list of fun reading material.
They’re hard to understand, and as a result, very few people read them
or know what to expect until they file a claim. But with long-term care (LTC)
insurance, understanding the policy terms is critical to help you plan for the
uncertainty of your later years.
Understand the Basics: General
Policy Information
Check your insurance company’s financial rating, not only when you buy but
also every year thereafter. Selecting a financially strong insurance company
increases the likelihood of benefit payments when you need them, especially
during periods of economic uncertainty. Businesses that rate insurance companies
include A.M. Best, Moody’s, Standard & Poor’s, Fitch, and Weiss. Look
for a rating that’s strong, excellent, or superior.
Also know whether your policy is tax-qualified or non-tax-qualified. Depending
on your age each year, the premiums for a tax-qualified policy may be partially
or fully deductible as an itemized deduction on your income tax return; also,
your benefit payments aren’t considered taxable income. Both of these benefits
can save you money. Policies sold today are generally tax-qualified, but the
IRS hasn’t ruled on older, non-tax-qualified policies, so it’s uncertain whether
their premiums and benefits receive the same treatment.
Likewise, make sure your policy is renewable. Policies sold today are renewable,
but if you have an older policy, ask about this.
Also ask what your options are if the insurance company increases your premium
and you can no longer afford it. Many companies have increased premiums
on one or more existing policies. Although you may purchase a policy
from a company that has never raised premiums, you have no guarantee that
it won’t happen in the future. Ask whether premiums will be waived while
you receive benefits.
Consider whether you could afford the premium if it were to increase by 30
percent or more. Also, ask how you’d pay if you encounter financial difficulty.
Unless you choose to pay premiums over a shorter period of time, such as ten
years or until age 65, you’ll pay premiums until you start receiving benefits.
Shorter premium payment periods greatly increase the premium paid.
Be clear on where your policy covers care. Most current policies cover care
in a skilled nursing facility, an assisted living facility, a home (yours or that of
someone you live with), an adult day care facility, a hospice home, or other
living arrangements listed in the policy. Continuing care retirement communities
include independent living, assisted living, and a skilled nursing unit, so
you want a policy that offers comprehensive coverage.
If you plan to remain at home for as long as possible, be familiar with your
policy’s respite care benefit. Check how many days per year are allowed for
your caregiver to take a break, and what your options are for where respite
care can be provided. If you do have to move to a care facility, know the
number of days your policy will pay for reserving your room if you have to be
in a medical facility or if you’ll be temporarily absent for other reasons.
Know How You Qualify for Benefits
The age of your LTC insurance policy determines the requirements for
receiving benefits. Policies issued after 2000 generally require that you need
substantial assistance with at least two of six activities of daily living, which
include eating, bathing, dressing, transferring (from a bed to a chair or wheelchair),
toileting (using the toilet), and managing incontinence.
Otherwise, you must need substantial supervision due to cognitive impairment.
Policies issued earlier than 2000 often have more lenient requirements.
The definitions of substantial assistance and substantial supervision are important,
too. These definitions vary widely in older policies and are much more
consistent in newer policies. If these definitions don’t appear in your policy,
contact the company.
Review Policy Conditions
Know who will write your plan of care. Many policies specify a certified home
health practitioner of your choosing. Some policies make a care coordinator
available. This person is usually paid directly or indirectly by the insurance
company.
Some insurance companies offer incentives, such as a reduced or waived
waiting period, if you use their care coordinator. And some companies actually
penalize you if you don’t use their care coordinator by reducing certain
benefits or eliminating a benefit. Be sure to understand the terms of your
policy. If incentives are offered, find out what the additional premium would
be if they were added as a rider. The insurance company has to make up
these costs somewhere.
