Selecting a Long-Term-Care Policy
When the time comes to purchase long-term-care insurance, finding an established insurance company is the first and most important step. It may be more comfortable to choose a company that is familiar to you, but you should investigate its financial strength before finalizing. The best insurance companies earn grades of AAA or AA from Standard & Poor’s. We also like to check the COMDEX number when considering the strength of a company, which is not a rating itself, but a composite of all the ratings that a company has received from the various insurance rating companies. When considering long-term-care coverage, you should examine the following:
Exclusion period. We like to think that having coverage that kicks in immediately is good; however, in the case of long-term care, it is not always the best choice. To reduce the cost of coverage, select a policy with a 90-day to six-month “elimination period.” The “elimination period” refers to the amount of time that you will have to pay out of pocket before your benefits begin. The advantage here is that your premiums can be as much as one-third lower than those with a 30-day elimination period.
Inflation protection. This is an expensive option to add, but the younger you are the more important it is. The cost of care is rising very rapidly every year. In order for your policy to keep up with the increasing costs of care, the amount of coverage needs to increase as well.
Premium protection. You want a policy that only allows the insurance company to raise your premium when it raises the premium for everyone holding the same policy. Before the company can raise rates, it must apply to state regulators for approval to increase premiums. This offers protection from excessive increases (though they are still possible).
Type of care covered. Most policies issued over 10 years ago only covered care received in a facility. Policies now offer more options: home care, well assisted-living care, as well as nursing home care. Much of the early care can be done in the home and paid for by the policy.
Coverage trigger. The coverage trigger is based on your ability to do what are called “activities of daily living.” There are normally six of these activities, and a good policy will be triggered if a doctor certifies that you can no longer perform two of the six. On the other hand, a cheaper policy might not be triggered until you cannot perform four or five such tasks.
Coverage length. According to the U.S. Department of Health and Human Services website: “About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time.” On average around 90% of people with 3-5 year policies will not exhaust their benefit*. While a stay in a facility longer than 3-5 years is unlikely, the purpose of insurance is to help protect you against this unlikely, but financially crippling scenario.
If you have not considered long term care for you and your spouse yet, we would be happy to sit down and review potential coverage for you. Ultimately, purchasing long term care insurance is a gift of love to those who would otherwise have to provide care for you, when they themselves may be unable to do so.
Let us help you plan for this and other financial issues that are prudent when planning for yourself and the ones you love.
Jason Egli, CFP®, CHFC®, CLU®
Long Investment Advisory, Inc.
North Carolina Office California Office
5101 Dunlea Court, Suite. 204 C 1752 11th Street
Wilmington, NC 28405 Reedley, CA. 93654
*Kliplinger’s Personal Finance 12/2008