Long-Term Care Insurance: Do You
Susan, 62, and her husband Michael, 55, purchased long-term care insurance for themselves five years ago. “My mother and my maternal grandmother both had severe osteoporosis,” she says. “I’ve seen my stepfather enter a nursing home with Alzheimer’s, and Michael’s mother, who moved into a retirement facility, continues to need a good deal of medical care well into her 90s. I guess when you live with the constant reminders of aging and physical decline, the long-term care option makes especially good sense. "Besides,” she jokes, “I once said to my son—who was really good with his grandfather, knew how to be with him, talk to him—‘You’re really good with Grandpa.’ He looked at me and said, ‘I’m practicing.’”
Adapted from Caring for Your Parents
Each year, about 7 million Americans receive some type of long-term care, which encompasses many kinds of help that people with chronic illnesses and disabilities need to function day-to-day.
Most people need help only with basic daily activities like bathing, dressing, and preparing meals. Others need skilled nursing attention. Long-term care includes a wide range of services offered in personal residences, the community, or in group settings such as nursing homes.
But long-term care services can be expensive. Neither employer health insurance nor Medicare pays for long-term care services for an extended time. This is where long-term care insurance shoulders the load. It can even cover the cost to modify your home so you could continue to live there safely.
The older you are, the higher your monthly premiums go, often into the range of thousands of dollars a year. So take some valuable advice:
Things to Consider Before You Buy Low income If your income is low or will become low in the years ahead, it might not make sense to spend thousands of dollars each year for long-term care insurance because you may soon qualify for Medicaid benefits.
Support system Can your family and friends provide some of your long-term care? Think about whether you would want this.
Premiums Consider seriously whether you can afford to pay the premiums for long-term care insurance not just now but far into the future. Remember that premiums may rise as your income falls.
Out-of-pocket payments Your assets may cover out-of-pocket expenses for long-term care. Discuss this with a financial advisor or lawyer who specializes in elder law and estate planning. But with the right equation, long-term care insurance enables you to protect a good chunk of those assets.
Why Buy Long-Term Care Insurance?
- To save resources for heirs
- To spare family members from providing your care
- To live longer—and independently—at home
- To make it easier to get into the nursing home or assisted living residence of your choice
When to Buy
- Take into account your health, family medical history, needs, finances, lifestyle, and other factors.
- The older you are, the higher your premiums will be.
- Some companies might offer you a discount if you buy a policy when you are healthy.
- If you already have a serious condition or need help with daily activities, some companies may deny you coverage; if you have a condition you think may keep you from getting coverage, obtain an informal opinion before you apply.
How to Shop for Coverage
- Your State Health Insurance Assistance Program (SHIP) provides free long-term care insurance counseling. Check the government section of your local phone book for a program near you.
- Ask your state insurance department for a list of long-term care insurance policies approved for sale in your state. Find out if there were complaints about any of the policies or companies that sold them.
- Do additional research to make sure the policy you’re buying comes from a company that is financially stable and has experience with this type of insurance. Organizations such as Standard and Poor’s, Moody’s, and AM Best rate the financial strength and viability of insurance companies. Compare at least three major companies, with an eye toward how often they increase their premiums.
- Ask if your employer is among the many who now offer long-term care insurance. A group rate usually costs less than an individual policy.
How to Choose the Right Options Because you can never know today what your long-term care needs will be in the future, it’s a good idea to buy a policy with flexible options. Ask lots of questions and understand all aspects of the contract. Get answers in writing about how the policy covers the following:
- Nursing Home Care: A nursing facility that provides a full range of assistance, such as nursing care, aid with daily activities, and skilled help such as rehabilitation
- Assisted Living: A residence with apartment-style units that provides meals and meets individual needs
- Adult Day Services: A program outside the home for adults who need some help during the day with health, social, and other support services in a supervised setting
- Home Care: This includes many services such as bathing, grooming, and help with chores
Things to Know
- Choose a policy that requires you to satisfy your deductible period only once during the life of the policy rather than one that makes you pay a new deductible each time you need care.
- Long-term care insurance often will not cover all your long-term care costs, so be ready to pay some costs out-of-pocket.
- Compare the amount of your policy’s daily benefits with the average daily cost of care in your area and be prepared to foot the difference.
- Some insurance companies force you to use services from a certified home care agency, while others allow you to hire independent providers—so make sure your policy covers what you want.
- Make sure the policy will cover you if you move to another state.
- Don’t buy more than one policy—it’s expensive and doesn’t necessarily give you better coverage
When You’re Ready to Buy Read the policy very carefully before you sign. Don't let anyone pressure you into a quick decision. Never pay for an insurance policy in cash and always make your check payable to the company. Nearly all states require insurance companies to give you 30 days to review your signed policy and return it for a full refund.
Contracts vary in their words and definitions, so make sure you understand everything in the policy. A few terms you’re likely to see:
- Daily Benefit: The amount the insurance company will pay each day you qualify for benefits.
- Benefit Period: How long your coverage lasts, usually one year to a lifetime.
- Elimination Period: The number of days you must pay for your own care before the insurance company begins to pay; figure out how many days you can afford your own care before coverage kicks in.
- Benefit Triggers: The conditions that determine whether and when you start coverage.
- Tax Status: Whether your benefit payments are taxed, and whether your premium costs are tax deductible.
- Pool of Money: How companies measure benefits by a total dollar amount instead of days or years; this type of policy gives you a lot of flexibility concerning how much of your assets you spend and for how long.
- Inflation Protection: This is important if you buy relatively early, because it allows the daily benefit you choose to keep up with the rising cost of care; if you’re younger than 70 when you buy in, then automatic compound inflation protection is critical.
- Non-forfeiture Protection: After you’ve paid your premiums for a length of time, some insurance policies guarantee you a limited benefit even if you stop paying.
- Premium Waiver: This lets you to stop paying your premium after you enter a nursing home or qualify for home care.
- Guaranteed Renewal: This makes sure your policy won’t expire unless you’ve used up your benefits or haven’t paid your premiums.
Deciding whether long-term care insurance is right for you can take some time and research. Because of the cost, it’s time well spent.
Some of this material appears in slightly different form in Caring For Your Parents: The Complete AARP Guide.
© 2003, 2004, 2007 AARP. Reprinting by permission only.