How to Buy Long-Term Care Insurance

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The decision to buy long-term care insurance is largely one for people to make before they reach retirement age. It's usually prohibitively expensive for an older person or unavailable because of the person's health status.

Long-term care insurance is medically underwritten, meaning that people with preexisting conditions that are likely to get worse are priced out of the market or may not be offered coverage. Most people who buy long-term care insurance are in their 50s and 60s, although some companies sell policies to people in their 70s.

The decision to buy long-term care insurance depends on many factors, such as your (or your parent’s) age, health status, other savings or assets that can be used to pay for long-term care, and other financial responsibilities such as tuition for college-age children. To these factual considerations, I would add an emotional one: your tolerance for risk and uncertainty.

If you will feel more secure with a long-term care insurance policy and you can afford the premiums, then your task is to investigate the options and choose a company that you trust. Thirty-one states now have long-term care group insurance options that don’t require medical underwriting.

Purchasing the policy as part of a group may — but is not guaranteed to — offer some protection against steep premium increases, which have become common, even among large group policies. You may be eligible for some limited federal tax credits for qualified long-term care insurance policies, and some states have tax credits too.

Some employers offer group long-term care insurance to their employees. You should certainly consider this possibility if you have a medical condition that would make you ineligible for coverage as an individual. If you are in good health, you should compare the cost of the employer-based option with what you would pay as an individual. You might find that individual coverage is cheaper.

Remember too that your employer may not continue the offer or could change insurance carriers, which would have financial implications for you. See the SCAN Foundation’s policy brief on employer-based long-term care insurance.

Current or former federal employees, active and retired members of the uniformed services, and their qualified relatives can apply for coverage under the Federal Long-Term Care Insurance Program. You can apply at any time during the year. There are exclusions for certain medical conditions or combinations of conditions described in the application (find out more by calling 1-800-582-1337).

When you look into long-term care insurance, make sure you ask insurers the following questions:

  • Are there coverage exclusions for some conditions, such as mental-health problems or substance abuse?

  • Are there waiting periods for some preexisting conditions? Long-term care insurance policies usually define a preexisting condition as one for which you received medical advice or treatment within a defined period, for example, within the past six months or a year.

    The policy may include a provision that it will not pay for costs related to that condition for a specific period such as six months or longer after the policy goes into effect. Some companies look further back in time than others.

  • How long is the elimination or waiting period before benefits start? This is different from the waiting period for preexisting conditions. The waiting period in this instance is like a deductible. You have to pay a certain amount of your own money after you are eligible for a benefit before the policy kicks in.

    Some people decide to pay for the first 30, 60, or 90 days of their care, so their policies don't begin paying benefits until the waiting period has expired. Some companies sell policies with a specific dollar amount as the policy deductible instead of a waiting period.

    Some companies count only the days you receive paid care against the waiting period; others count every day from the first day you become eligible for and receive care. Some companies require you to meet this waiting period once in your lifetime; others require you to meet it each time you qualify for benefits and need long-term care assistance.

  • What does the policy pay for? Does it cover services provided at a range of facilities, including assisted living, adult daycare, and nursing homes? Do these facilities have to be licensed?

  • Does the policy have restrictions on who can provide the services? Does the home healthcare aide have to be licensed or supervised by a home health agency, or can you hire a family member, friend, or neighbor? Are there restrictions on the services the home healthcare aide can provide, such as administering medications?

  • How is eligibility for services defined? Usually there is some threshold of activities of daily living (ADLs), which include bathing, dressing, and going to the toilet. A good policy should include the need for supervision due to cognitive problems, such as wandering or memory loss, as a trigger for paying for services.

  • How much does the policy pay? It may be a fixed amount per day, per month, or a percentage of the costs.

  • Who decides what is covered and what is not? You may disagree with the company about whether a service is needed.

  • How long will coverage last? If you choose a shorter period, say three years instead of ten, the premiums will be less.

  • What is the payment schedule? Some policies pay a daily or monthly amount. Others have what has often been called a pool of money, and if you don't use your full benefit in one month, it will roll over and extend the life of your policy.

After you gather all this information, you can evaluate whether a policy provides the coverage you may need in the future. Then ask yourself one important question: Can you afford the premiums? Remember that if you purchase a policy in your 50s or 60s, you are likely to pay premiums for 20 to 30 years or long before you need the benefits.

And you should expect your premiums to increase over time. One suggestion is that if the premiums amount to more than 7 percent of your income, you probably can't afford them. But like all rules of thumb, this depends a lot on your situation and values.

Premiums are more affordable if purchased in your 50s or 60s when you are eligible for coverage. Remember that once you're diagnosed with a medical condition considered serious by an insurer, you will likely be unable to purchase long-term care insurance.

Long-term care insurance does not replace Medicare. It is intended to cover the services that Medicare does not.

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