The Decision To Buy Long Term Care Insurance

by Gregory J Cook, EA, CPA

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…

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.