Financial Services Department

The Decision To Buy Long Term Care Insurance.


Financial well-being of our clients comes first

Long-term care insurance can provide you or a loved one with the financial protection necessary during a period of serious prolonged physical illness, disability or cognitive impairment. It can also help you safeguard your assets and protect your financial stability. But before you buy, there are a few things you should know.

This information is provided as a public service, and should not be construed as individual accounting or tax advice. For information on how these general principles apply to your situation, please consult your Cook & Co. Agent.

For starters, all long-term care insurance policies are not the same. According to the Health Insurance Association of America, there are currently more than 115 private insurance companies that offer long-term care insurance products to individuals. These policies are far from standardized. They offer a wide variety of benefits and coverages. It is important, therefore, that you take the time to find the policy that best fits your specific situation.

Make sure you are eligible for coverage.

Unfortunately, not everyone automatically qualifies for long term care insurance. So before you get involved in significant policy comparison activities, you should take the time to talk to your long term care insurance representative about any current health concerns you may be facing. If you have already been diagnosed with forms of dementia or even a small stroke, chances are you will not qualify. Other conditions that are viewed as legitimate underwriting concerns include Cancer, Multiple Sclerosis, and Insulin-Dependent Diabetes.

While this may all seem a bit disheartening, the good news is that most people do qualify, and the underwriting process is less involved than the underwriting process one goes through when trying to obtain life insurance.

Learn the ins and outs of the policy you are considering.

Take the time to become familiar with all the policy benefits associated with the insurance contract you are considering by reading the outline of coverage that should be sent with any product proposals you are reviewing. This outline not only helps you understand the conditions of your coverage, it provides information on how your benefits will be paid.

Some of the policy provisions you should become familiar with include: the policy’s benefit triggers and when they are activated; if and when the policy premiums are waived; the choices of care facilities that the contract provides; and the additional features that are available. This policy analysis is one of the most important steps in any long term care insurance research and comparison process.

Understand how your benefits will be paid and for how long.

Most insurance companies pay benefits one of two ways: (1) the expense incurred method, or (2) the indemnity method. With the expense incurred method of payment, benefits are paid to either you or the provider when eligible services are received. With the indemnity method, benefits are paid directly to you and no one else without regard to services received. In general, the expense incurred method tends to be less expensive and to provide benefits for a longer period of time. It is also the method of payment used by most policies today.

Payment of your benefits, however, may not begin the first day you receive care. Most policies have an elimination period (also known as a waiting or deductible period) of anywhere from 0 to 365 days (your choice) which means your benefits will not begin until that many days after your first day of care. Of course, the shorter the elimination period, the greater the policy premium.

Policies also vary in the length of coverage. When looking into a long term care insurance policy, you need to choose the benefit period that best fits your situation. Many industry experts suggest a four year benefit period based on some average nursing home duration statistics. Lifetime or unlimited benefit periods are also available with most contracts as well as two-year, and five-year benefit periods. It is important to work with your insurance professional to design the policy with the level of benefits that suits you best.

Know your insurance company.

Take a look at the financial health of the insurance company you are considering. You want to be dealing with a company that has received high financial ratings from A.M. Best, Moody’s and Standard and Poor’s. Many industry experts will also tell you to go with a company that has already paid significant claims. Generally speaking, going with a stronger company does not mean you have to pay higher premiums.

Once you have decided which insurance company you are going to deal with, be sure the company is licensed in your state. If you are not sure, find out by contacting your state insurance department. Insurance companies must be licensed in your state in order to sell long-term care insurance. If the company you choose is not licensed in your state, you should start looking at other companies.

Consult a knowledgeable advisor.

If all of this information seems overwhelming, you should always consider the benefits associated with the knowledge a professional advisor can offer. Be it a financial, tax, legal or insurance advisor, do not hesitate to consult him or her about your specific needs.

If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct expenses you paid that year for medical care (including dental) for yourself, your spouse, and your dependents. Publication 502, Medical and Dental Expenses, contains additional information on who will qualify as a dependent. You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income. You do this calculation on Form 1040, Schedule A in computing the amount deductible.

A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. These expenses include payments for legal medical services rendered by any medical practitioner and the cost of equipment, supplies, and diagnostic devices used for medical care purposes.

Medical expenses include insurance premiums paid for medical care or qualified long-term care insurance. The deduction for a qualified long-term care insurance policy's premium is limited. If you are self-employed and have a net profit for the year, you may be able to deduct (as an adjustment to income) amounts paid for medical insurance for yourself and your spouse and dependents. You cannot take this deduction for any month in which you eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer. If you do not claim 100 percent of you self-employed health insurance deduction, you can include the remaining premiums with your other medical expenses as an itemized deduction on Form 1040, Schedule A. You may not deduct insurance premiums paid by an employer-sponsored health insurance plan (cafeteria plan) unless the premiums are included in Box 1 of your Form W-2.

Medical expenses may include:

Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and Christian Science practitioners for medical care expenses
Payments for hospital services, qualified long-term care services, nursing services, and laboratory fees including the incidental cost of meals and lodging charged by a hospital or similar institution if your principal reason for being there is to receive medical care
Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also deductible medical expenses. You may include amounts you paid for participating in a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal
The cost of participating in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician. In general, you may not deduct the cost of purchasing diet food items or the cost of health club dues
The cost of drugs is deductible only for drugs that require a prescription, except for insulin
Admission and transportation to a medical conference relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
The cost of items such as false teeth, prescription eyeglasses or contact lenses, laser eye surgery, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf, and
Transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees

You may not deduct funeral or burial expenses, over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery. You may not deduct amounts paid for nicotine gum and nicotine patches, which do not require a prescription

You can only include the medical expenses you paid during the year. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.