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If you want to purchase a Long Term Care Insurance policy, consider each of the following subjects. While you could just focus on the seemingly most important subjects such as price, when coverage starts and where coverage occurs, you may end up being unpleasantly surprised if you ever try to submit a claim. The need for long term care can go on for years and can be very expensive. It is preferable to take the time to look for a policy that really fits your needs.

Look at:

Amount Of Coverage

It is desirable to get enough coverage to pay for costs in the area you'll want to live if and when the need arises. To learn the varied local costs of nursing home care, go to MetLife's Mature Market Institute and search the "Topics List" for "Nursing Home". As of 2010, the link is to: offsite link

Check in your area to determine whether assisted living facilities and home care are more expensive than nursing home care. Generally they are less expensive, but the cost can depend on the services required.

One way to determine the amount of coverage you need is to subtract your daily income on disability from the cost of a nursing home. For example, if your daily income will be $3,000 a month (or $100 a day) and a nursing home costs $300 a day, you need coverage in the amount of $200 a day to make up for the short fall.

At least one company has a policy which provides a pool of money instead of a daily or weekly benefit.

  • The pool ranges from $100,000 to $1,000,000. 
  • The policy costs up to 50% less than the company's standard Long Term Care Insurance policy. 
  • The policy requires you to self-insure part of the cost by paying 20% of the daily cost of care until you exhaust the pool.

The Insurance Company's Financial Status And Claims Reputation/Service

Look for an insurer that:

  • Is financially stable so it will be here to pay your claim if you have one. If the company isn't around when you have a claim, all your premium payments will have been a waste. Look for companies with at least an A rating. To find an insurer's ratings, contact at least one of the following rating bureaus. Preferably check more than one to compare what different analysts say.
  • Evaluates ("Underwrites") up front whether you are physically and mentally fit enough to obtain a Long Term Care Insurance policy. If you deal with a company that evaluates whether the policy should have been issued at a later date, you may find yourself without coverage just at the time when you need it.
  • Does not have an unreasonable amount of complaints against it.
    • Particularly look for complaints about price hikes or not paying claims. To learn about an insurer's history, contact your state's insurance department. (For contact information, see offsite link)
    • Check with independent insurance brokers about the company's claims reputation.
  • Has a reasonable history of rate increases for Long Term Care Insurance policies. A history of rate increases does not necessarily indicate the company will make similar increases in the future. Even if a company promises not to raise rates because of age or health problems, it can raise them for other reasons.  Likewise, a few past increases does not mean the company will not impose an increase in the future. However, history in this case at least gives you an idea about the company and the way it prices its products. You can learn about an insurance company's pricing history by contacting your state insurance department. You can also ask the company. (If you ask the company, it is advisable to get the answer in writing).
    • Note that some companies offer a "10-pay" policy. These policies only require 10 annual premium payments. Then the policy is paid up for the rest of your life so rate increases are not a concern. As you might expect, the premiums are higher during the 10 years. However, at the end, you no longer have to pay premiums to keep the coverage.
  • Provides assistance in the event of a claim. The paperwork has been known to be a major problem for families. For instance, ask wehther the company will accept direct billing from an an agency which provides home care, an assisted living facility and/or a nursing home. Some companies provide "care coordinators" who can answer questions about claims, initiate paperwork and help you through the claims process.

Amount Of The Premium

According to the NAIC (National Association of Insurance Commissioners), you should spend no more than 7% of your income on premiums.;

When considering whether you can afford the premium, look beyond what you can afford this year and look into the future as well. If you can't afford to continue to pay premiums once you've started, the coverage will be lost - as will all the money you paid to that date. Financial advisors indicate you should not purchase a policy unless you can afford an increase in premium of 10 or 20%.

You can reduce the amount of the premium by each of the following:

  • Buy a policy with a shorter benefit period. It is likely that you can reduce the annual cost of Long Term Care Insurance by 30 - 40% by limiting your benefit period to three years instead of lifetime coverage. One study found that with a three year benefit period, only 8% of claimants exhausted their coverage.
  • Reduce the amount of the daily benefit.
  • Reduce what is covered.
  • Increase the elimination period - the period of time from the onset of the need until the policy starts paying. NOTE: It is generally better to reduce the benefit period than to extend the elimination period or cutting the daily benefit amount. Each of those alternatives would increase your out-of-pocket costs significantly from day one if you have a claim.
  • All of the above.

Payment Options

You may be able to make a "limited pay" - a single lump-sum payment, or a 5, 10 or 20 year payment plan, or an option that lets you pay for policy in full by age 65. For most people, the monthly payment for the term of the policy is the best option so you can keep and invest more of your money.

On the other hand, while prepaying may cost more money now, reasons to consider prepaying are:

  • Estate planning flexibility: you'll have the Long Term Care Insurance policy paid-up and available when you need it. (To learn more, see: Estate Planning).
  • You don't have to worry about paying later from decreased income.
  • You avoid rate increases.
  • You may pay higher payments when you have the money, and lesser payments thereafter.

You may be able to deduct premium payments if you own a business or are self employed.

To Learn More

Whether The Policy Is Tax Qualified

To learn more about tax qualification, see Long Term Care Insurance: Tax.

The Range Of Services Which Are Covered

It's preferable to buy coverage for as many services as can. To limit the coverage to a few services, or to one location such as nursing home is like asking when you buy automobile insurance whether you want to cover the front or rear of the car instead of the whole.

The variety of services which can be covered by Long Term Care Insurance policies range from skilled, to intermediate, to custodial, to home health care. Long term care is not acute care. Acute care is provided in a hospital with the intent of helping you get better. It usually lasts for only a short time. Long term care is for people who require continued support over a long period of time.

Nursing home coverage generally pays for skilled, intermediate and custodial care. Some policies pay for any care required. Generally this is either through a fixed dollar amount or payment of expenses subject to a maximum. Preferably, coverage includes a cost of living increase.

Home care is subject to more variations.

  • Some policies pay for skilled nursing care only if it is provided by certain qualified providers such as registered nurses or licensed practical nurses.
  • Some policies pay for a home health aide to assist with personal or custodial care.
  • A few policies provide for homemaking services to cook, run errands etc.
  • Sometimes policies permit payments to family members to perform home care services. Other policies forbid it.

Policies may also cover:

  • Hospice (end-of-life) care in either a home or institutional setting. To learn more, see: Hospice.
  • Respite care (payment for a person to cover you while a caretaker takes a break).
  • Staying in an Assisted Living facility, Adult Day Care center or other community facility.

A close reading of any policy you purchase is vital. If you don't have the expertise, engage a consultant such as a Financial Planner or a Lawyer.

Where Services Can Be Provided

Preferably, a Long Term Care Insurance policy will cover care in a variety of places. For example, in your home, community programs such as adult day care, assisted living facilities and nursing homes.

If you may want to live in a different area, for example to be closer to your children, be sure the policy covers care in that location as well.

Length Of Time Benefits Are Payable

Ideally, benefits would be payable for life. However, that length of coverage can be very expensive. As a general matter, insurance experts suggest that benefits for the general population should be payable for at least the national average of 2.5 years. 

For the general population, according to an industry study in 2010, the risk of running out of benefits on a three-year policy is small, particularly for men. Men with a three year policy who begin a long term care claim at age 82 (the typical age) have a 12.4% likelihood of exhausting their benefits, while women face almost twice the risk (23.5%).

We have not found any evidence based advice relating to people with a history of a major medical condition. It seems reasonable that a policy should cover a period of time at least equal to the average amount of time Long Term Care is required for your condition. Your national or local disease specific non-profit organization can provide this information.

Waiver Of Premiums

A waiver of premium feature means you do not have to continue to pay premiums once you start receiving benefits.

Waivers are not included in all Long Term Care Insurance Policies.

The Trigger For Qualifying For A Benefit

Policies define eligibility for benefits differently. Common variations are:

  • Your doctor prescribes specific care. (This is ideal).
  • The care is required because it is "medically necessary for sickness and injury."
  • The care is needed because of a cognitive (mental) impairment.
  • The care is required because you are unable to perform a described number of activities of daily living such as bathing, dressing, walking, transferring from bed to chair, toileting and eating, or because of limitation in mental function. (As a general matter, policies require that the policyholder needs to demonstrate that he or she required help with at least two activities of daily living).
  • A requirement that you be hospitalized for at least three days prior to the need. (This is the requirement used by Medicare for skilled nursing benefits).

The Waiting (Elimination) Period

Most policies include a waiting period (often called an "elimination" or "deductible" period) during which no benefits are payable.  The waiting period can be from 0 to 90 days, or even longer. The longer the waiting period, the lower the premium. You pay all costs during the waiting period.

How the number of days in a waiting period are calculated varies among policies. Some policies use a calendar-day waiting period which means that you start to receive benefits at the end of a period starting on the day the first day you qualify for benefits and receive care. Others use a "days in service" waiting period that only counts those days you actually receive care. For instance, if you have a 30 day waiting period, but only receive care 3 days a week, you have to wait for coverage to start for 70 days. (This is calculated as follows: 30 (the waiting period) divided by 3 (the number of days per week  you need care) = 10 weeks.  10 weeks x 7 days a week = 70 days).

Some companies offer a waiting period of zero days for home care (even if there is a longer waiting period for benefits to start in an assisted living facility or nursing home). Others offer an inexpensive rider (amendment) which allows you to eliminate the waiting period for home care.

Renewability Provisions

Long Term Care Insurance policies can and should be guaranteed renewable - which means that in addition to guaranteed renewability, premiums cannot be increased based on your health or claims. Premiums can be raised if they are raised for all policyholders in your class.

Some policies guarantee no increase in premium for a defined period of time, such as five years.

Inflation Adjustments

To avoid being worth less by the time you need it, it's important to purchase a policy in which the benefit has built-in increases each year to keep pace with inflation. Nursing home costs usually increase at a faster pace than overall consumer prices.

Preferably, an inflation provision should cover increases on a compounded basis which is the way inflation happens - not on a "simple" basis.

With simple interest, the benefit only grows by a flat amount annually. For instance, with 5% simple interest, the benefit grows by a flat 5% annually. As an example: a daily benefit of $100 grows to $105 after one year, to $110 after two years, $150 in ten years and $200 in 20 years.

On the other hand, with compound interest, the benefit grows more in accordance with the way inflation works. With 5% automatic compounding, if you purchase a $100 benefit: after one year the benefit is $105. However, in 10 years the benefit is $162.89. In 20 years it is $265.

A policy with compound inflation protection costs about twice as much as one without it. It is cheaper if a policy is geared to the actual rate of inflation with a cap instead of an automatic number such as 5% per year.

If the premium is too high with a compounded inflation benefit, consider the following options:

  • Look for a policy with a capped benefit. In this situation, the benefit continues to grow with inflation to a maximum provided in the policy.
  • Another option is a provision known as "separate inflators." This involves a separate inflation provision for the daily/weekly benefit and one for the maximum benefit. Note that if the inflation provision with respect to the benefit is higher than the maximum benefit, you will receive the money you need on a daily basis, but run out of it faster than otherwise.
  • Look at a "guaranteed-purchase option" which does not include an inflation adjustment at first, but does allow you to adjust for inflation every few years by purchasing additional coverage. Premiums could eventually be much larger than if purchase a set premium with inflation built in.
  • Consider trimming other benefits in a Long Term Care insurance policy before eliminating automatic compounding.

Guranteed Purchase Option

A Guaranteed-Purchase Option permits you to increase the amount of the benefit based on your age at the time when you purchase the policy.

Notice Of Late Payment

Look for a policy that contains the option of naming a second person to receive notice of any late premium payment.

Historically, policies would be cancelled just when the coverage was needed for lack of payment due to mental or physical impairment. Giving someone else a notice provides the opportunity to keep the policy from lapsing just when you need it.

Non-Forfeiture Provisions

Find out what happens if you can't afford to pay a premium. Ideally you might get at least some of your money back. However, don't count on it.

For Married Couples And Domestic Partners: Shared Care, Survivorship Benefit

Shared Care

A "Shared Care" policy provides a pool of coverage for two spouses instead of obtaining a separate policy for each person. Married couples may be better off purchasing a "shared care" policy instead of two separate policies.

Here's how a Shared Care policy works. Let's say you purchase a pool of coverage for 7 years. If one spouse needs care for 2 years, it leaves 5 years coverage for the other person. It can be said to potentially double the amount of protection for each individual.

Generally, Shared Care policies cost about 10% more than buying two separate policies with the same total years of payouts. However, the policy provides for both spouses -- with a lot of care if one needs it.

Survivorship Benefit

A Survivorship Benefit states that if two spouses or domestic partners have a Long Term Care Insurance policy for a long enough period of time (such as 7 or 10 years), and one of the insureds dies, the other insured has a paid up policy for the rest of his or her life. No further premium payments are required. This is the case even if there have been claims made on one of the policies. The Survivorship Rider has to be in both policies.

Reviewed by:
David Flecker, CLU, ChFC
Executive Vice President
DeWitt Stern Group, Inc.
New York, NY