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By
Ken Story &
Luke Gjurasic |
As Americans live longer and more of us face the potential of needing to pay for our own care outside of the hospital, many are exploring the options available through a Long Term Care insurance policy.
What is Long Term Care Insurance?
Simply put, a Long Term Care (LTC) insurance policy pays for your care, outside of a hospital, resulting from a serious disability or illness. Exactly when it will pay, how much it will pay, who it will pay and where it will pay are important distinctions which separate one policy from another.
LTC insurance is a relatively new form of insurance. The first policy was written less than 40 years ago, but since that time we have seen a literal explosion in terms of the need for the care, the cost of care and the availability of quality insurance policies.
Initially designed to provide nursing home care only, now LTC policies offer the option of nursing home care, home health care and a number of "alternate" forms of care, including assisted living and residential care facilities. Policies that provide the full range of coverage are referred to as "comprehensive" or "integrated" policies. They typically provide coverage anywhere in the United States while a few extend worldwide.
What About my Health Insurance, Medicare or Medicaid?
Many people incorrectly assume that their health insurance or Medicare will pay for the cost of long-term care. In fact, typical health insurance policies provide no coverage, while Medicare provides a very limited amount of skilled care, and in total, pays for less than 3% of the cost of LTC in this country. Medicaid, which is a health insurance program funded by both Washington State and the Federal Government, provides basic coverage for the indigent and poor, but only when they have spent down to the poverty level.
What do I Look for in a Policy?
There are four basic components of any Long Term Care insurance policy:
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1) The Maximum Lifetime
Benefit. Usually expressed in terms of dollars, this figure represents
the maximum the policy will pay over the course of your lifetime. It can
vary from several thousand dollars to an "unlimited" or "lifetime" amount.
These policies are referred to as "pool of money" or "bucket of money"
policies. They are better than the traditional policies which limit you
to a specific number of days or years of care.
2) The Maximum Daily Benefit. The benefit is the maximum amount per day that the policy will pay toward your care. In 1999, the average daily cost of a nursing home stay was $177 ($5,310/month). You may purchase up to $250 per day in coverage but should consider "sharing" some of the cost to the extent you are comfortable.
3) An Inflation Option. This option will automatically increase your coverage by 5% (simple or compounded) for the rest of your life, while the cost of the policy is designed to stay flat. Inflation protection is an important consideration for anyone considering LTC.
4) A Deductible or Elimination Period Option. This option will determine how many days you must wait (once you become eligible for care) before the policy will begin paying. The larger the deductible, the lower the cost of the insurance, but the more you will share in the cost of your care.
Five factors influence the cost of insurance:
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1) Your Age.
The older you are, the more expensive the insurance. However, once you
purchase a policy, the price is designed to stay level (see "can they
raise my rates?")
2) Your Health. The healthier you are, the less you pay. The poorer your health, the more you will pay.
3) Coverage. The more coverage you buy, the more expensive the policy, but the less risk you will assume.
4) Rates. Different companies charge different prices for similar coverage.
5) Your Lifestyle. Discounts are often available for people with active, responsible lifestyles.
Can They Raise My Rates?
In Washington State, the rates can only be raised if they are raised for
everyone in your class and the rate is approved by the Insurance Commissioner's
Office. It is very unusual to see rate increases in LTC insurance policies.
Under no circumstance can the rates be raised because of your health, because
you file a claim, or because you get older.
When Should I Buy LTC Insurance?
While there is no simple answer to this question, policies are less expensive
for people who are healthy and the younger you are, the less costly the
coverage. Suzie Orman, in her book The 9 Steps to Financial Freedom,
says it is best to consider the insurance while you are in your 50's, but
anyone 40 or older should take a look.
How Do I Know I am Not Getting Ripped Off?
Take your time. Attend a seminar. Evaluate both cost and coverage. Find
balance between what is reasonable in terms of coverage with what is affordable
in price. Favor
experienced agents and companies that are financially sound with a proven
track record in LTC.
Role of the Federal Government
During recent years the Federal Government had taken an increased interest
in LTC insurance, because they realize that the more Americans who purchase
policies the fewer will need government aide. Faced with the challenges
of Social Security and Medicare, they are not prepared to deal with the
cost of caring for the disabled elderly.
In the future, look to the Federal Government to be offering increased tax
incentives to those who purchase policies and for it to be sponsoring a
massive education program to help more Americans understand how vulnerable
they might be without LTC insurance.
Tax-Qualified Policies
The cost of certain LTC policies can be treated as a medical expense when
filing your federal tax returns. How you qualify for benefits is virtually
identical among all tax-qualified policies, but varies widely among non-qualified
policies. Be sure to compare the advantages and disadvantages of a tax-qualified
vs. non-tax-qualified policy.
Discounts
We represent a number of nationally recognized companies that offer exclusive
discounts for AAA Washington members. We may be able to save you some
money. Simply e-mail us or give us a call.
Bottom Line
Whether or not you purchase a policy is not the critical issue. What
is important is that you make an informed decision.
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