|What To Look For - And Insist On - In A Good
Long-Term Care Policy
Over the years, Long-Term Care
Quote has been diligently studying the long-term care insurance marketplace. During this
time, we've developed - and are continuously updating - a list of what to look for when
purchasing long-term care insurance.
This list contains three general suggestions and 21 more specific
ones. The three givens are: A safe, reliable company; a comprehensive policy; and a fair,
stable price. Let's take a look at each in a little more detail.
A Safe, Experienced And Reliable Company
Without question, the long-term financial stability of the insurance
company you choose is of critical importance. And that's because your coverage - as the
old saying goes - is only as good as the company behind it.
- Insist that your insurer be rated "A Excellent" or better
by A.M. Best Company, a leading analyst of the insurance industry.
- Insist that your insurer be rated in the "strong" category
by at least two other independent rating agencies like Standard & Poor's, Moody's,
Duff & Phelps and Weiss.
- Insist that your insurer have assets of $500 million or more.
- Insist that your insurer has been doing business for at least 50
years. This is important. The fact that it has been in business for 50 or more years means
it's stable, active and profitable.
- Look for an insurer with at least five years experience underwriting
long-term care. Long-term experience underwriting long-term care means the company has had
opportunities to pay claims, which translates into a more accurate ability to price the
coverage. The last thing you want is to get stuck with a company that jumps into the
market but, when sales don't measure up, jumps right out. The more experience, the better.
- Insist that your insurer have a low percentage of high-risk assets.
Comprehensive, Consumer-Driven Coverage
- Insist on a plan that covers all types of care. Most long-term care
policies cover nursing-home care, home-health care, assisted living care, adult-day care,
respite care and hospice care. This is called a "comprehensive," or
"integrated," policy. Since you never know what type of care you may need, we
generally recommend this type. If you can afford one, get one. If you can't - or if you
don't want to invest the money in one - apply for a policy that covers just facility care
or one that covers just care at your home. Both are about 20% to 40% cheaper. If you go
for a facility-only policy, check to see if it covers care in an assisted living facility,
- Insist on a plan that pays sufficient benefits for an adequate period
of time. I know this sounds obvious, but it's important to note. Consider the cost of care
in your area - or where you intend to retire - and purchase coverage which would cover 80
to 90 percent of that cost. The national average cost per day for skilled nursing home
care is about $110. For the average cost in your state, see the table on page nine. The
average length of a nursing home stay is 2.3 years. As such, we recommend a policy which
has at least a three-year benefit period. The benefit period, by the way, is the length of
time the insurance company will pay for your care, if and when you need it in the future.
Most good plans offer longer benefit periods, including unlimited "lifetime"
coverage. If you can afford a longer policy, get one. If not, go with a policy that covers
at least three years.
- Insist on a policy that pays 100% of actual expenses - up to the
daily amount you've selected - regardless of where you receive care. Avoid polices that
require you to make a co-payment for personal home and community care and avoid policies
that use the term "usual and customary" or "prevailing" expenses. It's
generally up to the insurance company's Claims Department to determine what's usual and
- Insist on a policy that covers Alzheimer's, Parkinson's and senility
in writing, does not require a hospital stay prior to receiving benefits, and is offered
only after the company has done a full check of your health history. For most policies on
the market, these are standard features and practices. And for most companies, full
underwriting is a given.
- Insist on a plan that has reasonable and straightforward
"benefit triggers." These are the requirements you have to meet before the
insurer pays you your benefits. Generally, there are either two or three, depending on the
type of policy you select. Of course, regardless of whether there are two or three
different triggers, you only have to satisfy one. The triggers include:
- Medical necessity. You need "medically necessary" care due
to an injury or sickness. Note: Only non-tax qualified policies include medical necessity.
- Inability to perform certain activities of daily living. You need
care because you're having trouble performing basic activities of daily living. Typically,
policies require an inability to perform at least two of either five or six
"activities of daily living" (called ADLs). These usually include bathing,
eating, dressing, toileting, transferring and continence. Some policies have a seventh,
mobility. Also, some newer policies require deficiency with only one activity.
- Suffering a cognitive impairment. You have suffered a deterioration
or loss in your intellectual capacity which requires continual supervision to protect
yourself or others as measured by clinical evidence and standardized tests. These tests
reliably measure your impairment in the following areas: Your short- or long-term memory;
your orientation as to who you are, where you are, what time and day it is; and your
deductive or abstract reasoning. Avoid plans that require you to demonstrate an inability
to perform more than two ADLs, or one that omits bathing altogether as an ADL. Studies
show that bathing is the first ADL people have difficulty performing. Also, look for a
plan that covers both "hands-on" and "stand-by" assistance.
- Insist on a policy that lets your doctor certify your eligibility for
benefits. Some policies give the authority to a doctor they hire and others share the
control with "care coordinators" or "personal care advisors." A care
coordinator is typically a registered nurse who specializes in long-term care and
geriatrics and who lives and works in your community. A personal care advisor is typically
a home office employee who specializes in long-term care services. We prefer a policy
which allows your doctor to certify eligibility and one which offers care coordination and
personal care advisors as an option. Also, look to see who pays for this care coordination
feature - you or the company. The better plans make this optional and cover the cost.
- Insist on a plan that offers built-in inflation protection. This is
extremely important, especially for those 75 and younger. Basically, it allows your
benefits to increase over time while your premiums stay level. Without it, your benefits
could shrink to obsolete levels by the time you need care.Most plans offer you a choice:
Either 5% of your original amount (known as "simple," or "equal") or
5% of the previous year's amount (known as "compound"). Compound is better
because it increases your insurance benefits faster, but it's also costlier. As we said
earlier, we generally recommend
5% compound for applicants up through age 65 and 5% simple for those age 66 to 75. For
those 76 and older, we recommend you buy slightly more daily benefit than you may need,
but forego the added expense of inflation protection. As the chart below reveals, you'll
see there is not a whole lot of difference between compound and simple during the first 10
years. Some plans now offer to let you buy more coverage (that is, increase your daily
benefit amount ) in the future without having to be approved. It's guaranteed, if you can
afford it. And that's important to consider. The company can charge you anything they want
for that coverage. You have no way of budgeting for it. We recommend the built-in
inflation protection if you can afford it and are within the recommended age limits.
- Insist on a policy that offers a wide choice of deductibles,
or"elimination periods" - and requires it be met only once. The elimination
period is the equivalent of a deductible. It's the number of days at the beginning of a
claim that you agree to pay out of your own pocket. It works just like your auto insurance
deductible: The higher the deductible, the lower your premium.Typically, companies offer a
choice of either zero-day (or first-day coverage), 30 days, 60 days or 90 days. Some
carriers now offer longer elimination periods, like 180 days and even 365 days. We
90 days for three reasons: It keeps the premiums reasonable (in other words, it's
economical). It's possible you may get some help paying your deductible from Medicare
(remember, Medicare pays the first 100 days of a skilled-care need). And most people
considering long-term care insurance are well-off enough that they can afford 90 days.
They're worried about the catastrophic event. Note: Some policies require your elimination
period be met each time you need covered care separated by a six month period when you
don't. Avoid those.
- Insist on a plan that covers homemaker services and look for one that
covers home modifications, in-home medical equipment and safety devices. Let's face it:
Most people want to remain at home. These benefits give them a better opportunity to do
- Look for a policy that pays you a monthly or weekly maximum versus a
daily maximum for care at home. Since nursing facilities charge you room and board, your
cost is fixed and easy to budget. However, your costs at home can fluctuate tremendously
from day to day. Imagine if you had to install a ramp or widen your doors to accommodate a
home care need. Of course, the expense incurred that day would be much higher than a
typical daily limit of, say, $100. In fact, you could incur costs of up to $1000 in one
day. This "weekly or monthly maximum" feature gives you more flexibility in how
you spend your insurance dollars.
- Insist on policy language you fully understand. When you receive your
contract, you have 30 days by law to review it. I urge you to take the allotted time and
do just that. If there is anything you don't understand, ask your agent to explain it.
Insist on an answer you understand. Don't let the salesperson "punt" by offering
some meaningless response.
A Fair, Stable Price
- Look for a company that hasn't raised premiums on existing policy
owners. Typically, long-term care premiums - which are based on your age the day you apply
- are "level." This means that once you are approved for coverage, your rate is
projected to stay the same - year in and year out. However, it's not guaranteed in most
policies. Most insurers reserve the right to adjust your premium in the future, but only
if they do so for everyone within your state who owns the same policy. In other words, you
cannot - for any reason - be singled out for a price increase. Any adjustment to premiums
has to first be approved by the Insurance Department in your state. Typically, insurance
commissioners will want documentation attesting to the fact that a company's claims are
inordinately high compared to their earlier projections. Note: There is a new policy on
the market that guarantees your premium won't change for the life of the contract - and
you can elect to pay off your policy in 10 or 20 years. That's right, premiums that can't
go up and no further payments after 10 or 20 years.
- Insist that your premiums be waived in the event you require care.
With many policies, the company will allow you to waive, or stop, paying premiums once you
start receiving benefits in a nursing facility. Insist on one that waives it for all types
of care, not just nursing-facility care. Plus, look for some creative new premium waivers
on the market. One policy waives your premium payments for life (in other words, gives you
paid-up coverage) if you're confined to a nursing home for 120 consecutive days - even if
you recover. Some plans waive both spouses premiums when one spouse goes on
claim. And still others waive premiums for a surviving spouse after the death of his or
her partner. This is called a "survivorship benefit."
- Look for a policy that offers a discount if you're married and
another if you're in above-average health for your age. Most insurers offer married
couples a discount, usually 10% to 20% off each spouse's premium. Some companies will
extend the discount even if only one spouse applies. Others will extend the
"marital" discount to two people living under the same roof. And one company
will allow a healthy, insurable spouse to add a rider, or additional feature, to the
policy which could help insure his or her uninsurable spouse. If you're in superior, or
above-average health for your age, you're eligible for another discount. It's referred to
as a "preferred health discount" and can range anywhere from 10% to 20% off your
premium. Preferred health usually means you haven't suffered a severe health problem in
the recent past; you aren't scheduled for surgery or medical tests; you have a fairly good
height-to-weight ratio; you don't smoke; you're still active outside your home at least 10
hours a week; and so on. One company offers a "preferred lifestyle discount" for
non-smokers who are active outside their home for at least 10 hours a week.
- Insist on a plan that is reasonably priced. This may sound obvious,
but it bears mentioning. Make sure your annual premium fits comfortably into your budget -
especially if your budget is fixed. According to the Health Insurance Association of
America, your premiums should not amount to more than 10% of your adjusted gross income.
The national average is seven percent. Notice I left price until last. That's because
long-term care insurance is not a price only decision. You get what you pay for. If
affordability is an issue, consider a nursing facility only policy.If you insist on a plan
that meets these strict guidelines, you'll sleep well knowing your coverage is
comprehensive and your insurer is reliable.
Proceed to Step 3: The
5-Minute Long-Term Care Needs Analysis
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