Buying long-term care insurance - everything you need to know

The best place to start an introduction on long term care insurance is with the definition of "long term care." This phrase is associated with individuals who, because of their old age or condition, are suffering from physical or mental illness or injury and are in need of assistance when they eat, bath, dress, go to the toilet and when they walk or transfer. These activities are known as ADLs or activities of daily living. Individuals who cannot perform at least two ADLs are considered to be in need of "long term care."

Long term care is important because statistics indicate that almost half of all Americans who reach the age of 65 will eventually be admitted to a nursing home because of their inability to perform these ADLs. The term itself appears to be a misnomer, as individuals who are in need of 'long-term care' usually do not need it for a long time, and often for less than a year.

Also, one need not be a senior citizen to be in need of long-term care. A young person or a middle-aged individual suffering from a debilitating illness or one who got involved in an accident may also have the same need.

Long-term care insurance: How it works?

Long term care insurance policies can vary from one insurer to the other. The variances can be in terms of the effectivity of the coverage, the period of time the benefits are paid and on the amount that the insured individual receives.

  • When will a policy take effect? - many policies have an elimination or waiting period that precedes the granting of benefits. This time period can be from days up to one year. How long this time period is will have an impact on the premium payments. Insurers also set certain conditions that have to be met so that the policy's coverage is deemed effective. These conditions may include:
    • Certification from the doctor that the insured individual should be provided with certain type of care.
    • Individual must be able to show he or she is unable to perform certain ADLs. For some insurer, inability to perform one ADL may not be enough.
    • Mental competence examination. Usually a requirement in instances where an individual is still capable of performing ADLs but may be suffering from a cognitive illness like dementia.
  • Limits to benefits --- these refer to the amount and time period that one can receive the benefit payouts. There are basically two types of limits - the maximum policy limit and the monthly or daily benefit limits. This is the limit on the amount that will be paid out for long-term care per day or month. Both types of limits directly influence the premium rate on a policy.

The effectivity of the policy and the policy limits can have an impact on the care provided. It is therefore important that the consumer understands these factors thoroughly.

Advantages and Disadvantages of Long-Term Care Insurance

Advantages:

  • Can be customized to fit the consumer's budget while meeting his or her needs.
  • Premium payments are based on age, hence if you are forty years old your payments are lower than someone who is seventy five.
  • Many policies allow for a time period wherein premium payments are made; once this time period elapses, no additional payments will be charged. For example if a policy provides this feature for twenty years, once the twenty years have elapsed, the policyholder will stop making payments.
  • Another benefit is the potential tax deductibility of premium payments.

Disadvantages:

  • Coverage limitations, for instance, many insurers will not cover long-term care services availed of outside of the U.S.
  • While there is a wide range of long-term care facilities covered, certain facilities are not. For instance, facilities that treat drug addiction or alcoholism are usually not covered. Even government facilities are not covered.
  • While many policies cover the cost of training of family and friends on how to provide long-term care, these policies will not pay for the services rendered by these people to the covered individual.
  • Individuals with certain serious health condition may not get covered. Examples are Alzheimer's and AIDS.

What is covered?

  • Current policies may cover custodial care (given by volunteers, aides, friends and family) as well as skilled care (provided by medical specialists).
  • May also cover services provided by non-skilled nursing caregivers, home health providers, physical therapists and homemakers.
  • Coverage may include adult daycare services, assisted living, alternate care and also respite care for the care service provider.

What is not covered?

Exclusions differ from one policy to another. Examples are:

  • Treatment of alcohol or drug addiction.
  • Care provided in a hospital, with exception from a unit that specifically provides hospice or nursing home services.
  • Injury or illness arising from war, insurrection, riot or felony.
  • Injury that is self-inflicted.
  • Services or care rendered outside of the U.S.
  • Service rendered that can be reimbursed under Medicare with exception of cases where Medicare is considered secondary as provided by applicable law.
  • Services received under a government sponsored program or in government run facility.

Eligibility / Qualification Requirements

  • Age - no limits or requirements on age. However, younger consumers have the advantage of getting lower premiums.
  • Health or disabilities requirements - Those who apply have to be in good health. Those who already need ADL assistance may be denied coverage as well as those who have certain health conditions like Alzheimer's, AIDS, dementia, etc.
  • Marital or family status - one's marital status may have an impact on the premium amount.
  • Financial status - has no effect on eligibility; the only requirement is that the individual can pay the premiums.
  • Geographic location - has no impact on eligibility but may affect premium rate and benefit amounts.

Types of Long Term Care Insurance

  • Reimbursement type - very common type of long-term care policy. Under this type of coverage, the insured individual's actual charges are reimbursed. For instance, if his policy allows for a $200 reimbursement per day and his charges amount to $150 for a single day, he is reimbursed of this amount with the $50 balance remaining in his pool.
  • Indemnity type - under this type, the insured individual gets back all of the amount that is covered  by the policy. For instance, if the individual's one day charges amount to $150 and his policy provides for a $200 coverage, he gets the $200 back. This policy is usually the more costly compared to the reimbursement type.
  • Partnership long term care policy - this policy offers protection of the policyholder's assets while allowing him to qualify and receive benefits under Medicaid. States have their own specific policies with regard to this type of long term care coverage.

Long term Care Policies and Pre-Existing Conditions

Insurance companies may differ in their requirements with regard to pre-existing conditions. For example, an insurer may have a provision that excludes coverage for a pre-existing condition for a period of six months.

When should you buy long term care insurance?

It is best to purchase a policy when you are young.

One benefit of purchasing long-term care insurance at a younger age is better chances of getting approved for coverage. For those under 50 years old, only one in ten is turned down by insurers. Whereas, 25 percent of those who belong to the 60 to 69 age bracket get turned down.

What to look for in a LTC insurance policy?

  • If benefit is the same or different when services are received at home or at a nursing facility. In certain policies, the benefits paid for care provided at home is half of those provided in nursing homes. Other policies pay the same amount of benefits.
  • The provision on ADLs have to be specific - under some policies, inability to perform at least two ADLs is a condition for coverage. In others the minimum is three.
  • Cognitive impairment - many policies cover Alzheimer's, Parkinson's and stroke but exclude other types of mental incapacity.
  • What events will trigger payouts of benefits - certain policies make it a requirement that the individual stay in a hospital for a minimum of three days before benefit payments are allowed. This type of provision can be disadvantageous.
  • What are the elimination or waiting periods. The longer is the period to wait for benefit payments, the lower is the cost of the premium.
  • The length of time the benefit payments will last. The time may be short (two years) or long (lifetime). The longer the time the more costly is the premium.
  • Is there protection against inflation? The recommended protection is 5 percent. This feature is important in the face of rising prices of care services.

How to save when purchasing LTC insurance policy?

  • Foremost is to purchase a policy as early as you can.
  • Be in good health. Being healthy can get you discounts on premiums.
  • Take advantage of spousal discounts. Insurers usually offer 10 to 35 percent discounts to married couples.
  • Claim tax deductions. In certain situations, premiums on LTC policies are deemed medical expenses. When these expenses go beyond 7.5 percent of an individual's gross income, tax deductibility may apply. Tax deductions may also be applicable to certain business owners.
  • Get group discounts. Employers who offer LTC coverage usually can get them at discounted price. Just be aware that benefits may be reduced.
  • Get smaller coverage. Reducing the benefit amounts, say by 20 percent, will lead to lower premium payments. The same goes with shortening the time period that benefits are paid out..
  • Get a longer elimination time period. This is the time that the insured individual pays out of his pocket before coverage kicks in. The longer is the time period, the bigger the savings.
  • Pay annually. Paying a lump amount for the entire year can save you up to 8 percent.
Get the advice of a trusted insurance agent. He should be able to help you find a policy that fits both your budget and your needs.
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