Buying a long-term care insurance policy can be expensive, but there are steps you can take to make it more affordable and flexible.
The phrase "long-term care" refers to the help that people with chronic illnesses, disabilities or other conditions need on a daily basis over an extended period of time. The type of help needed can range from assistance with simple activities (such as bathing, dressing and eating) to skilled care that's provided by nurses, therapists or other professionals.
Employer-based health coverage will not pay for daily, extended care services. Medicare will cover a short stay in a nursing home, or a limited amount of at-home care, but only under very strict conditions. To help cover potential long-term care expenses, some people choose to buy long-term care insurance.
Policies offer many different coverage options. Since you can't predict what your future long-term care needs will be, you may want to buy a policy with flexible options. Depending on the policy options you select, long-term care insurance can help you pay for the care you need, whether you are living at home or in an assisted living facility or nursing home. The insurance might also pay expenses for adult day care, care coordination and other services. Some policies will even help pay costs associated with modifying your home so you can keep living in it safely.
Factors to consider
Your age and health: Policies cost less if purchased when you're younger and in good health. If you're older or have a serious health condition, you may not be able to get coverage — and if you do, you may have to spend considerably more.
The premiums: Will you be able to pay the policy's premiums — now and in the future — without breaking your budget? Premiums often increase over time, and your income may go down. If you find yourself unable to afford the premiums, you could lose all the money you've invested in a policy.
Your income: If you have difficulty paying your bills now or are concerned about paying them in the years ahead, when you may have fewer assets, spending thousands of dollars a year for a long-term care policy might not make sense. If your income is low and you have few assets when you need care, you might quickly qualify for Medicaid. (Medicaid pays for nursing home care; in most states it will also cover a limited amount of at-home care.) Unfortunately, in order to qualify for Medicaid you must first exhaust almost all your resources and meet Medicaid's other eligibility requirements.
Your support system: You may have family and friends who can provide some of your long-term care should you need it. Think about whether or not you would want their help and how much you can reasonably expect from them.
Your savings and investments: A financial adviser — or a lawyer who specializes in elder law or estate planning — can advise you about ways to save for future long-term care expenses and the pros and cons of purchasing long-term care insurance.
Your taxes: The benefits paid out through a long-term care policy are generally not taxed as income. Also, most policies sold today are "tax-qualified" by federal standards. This means if you itemize deductions and have medical costs in excess of 7.5 percent of your adjusted gross income you can deduct the value of the premiums from your federal income taxes. The amount of the federal deduction depends on your age. Many states also offer limited tax deductions or credits.
Policy coverage amounts and limits
Long-term care policies can pay different amounts for different services (such as $50 a day for home care and $100 a day for nursing home care), or they may pay one rate for any service. Most policies have some type of limit to the amount of benefits you can receive, such as a specific number of years or a total-dollar amount. When purchasing a policy you select the benefit amount and duration to fit your budget and anticipated needs.
"Pooled benefits" allow you to use a total-dollar amount of benefits for different types of services. With this coverage option you can combine services that meet your particular needs.
To determine how useful a policy will be to you, compare the amount of your policy's daily benefits with the average cost of care in your area and remember that you'll have to pay the difference. As the price of care increases over time, your benefit will start to erode unless you select inflation protection in your policy.
Qualifying for benefits
"Benefit triggers" are the conditions that must occur before you start receiving your benefits. Most companies look to your inability to perform certain "activities of daily living" (ADLs) to figure out when you can start to receive benefits.
Generally, benefits begin when you need help with two or three ADLs. Requiring assistance with bathing, eating, dressing, using the toilet, walking and remaining continent are the most common ADLs used. You should be sure your policy includes bathing in the list of benefit triggers because this is often the first task that becomes impossible to do alone.
Pay close attention to what the policy uses as a trigger for paying benefits if you develop a cognitive impairment, such as Alzheimer's disease. This is because a person with Alzheimer's may be physically able to perform activities but is no longer capable of doing them without help. Mental-function tests are commonly substituted as benefit triggers for cognitive impairments. Ask whether you must require someone to perform the activity for you, rather than just stand by and supervise you, in order to trigger benefits.
All policies have some conditions for which they exclude coverage. Ask the agent to review these exclusions with you. Most states have outlawed companies from requiring you to have been in a hospital or nursing facility for a specific number of days before qualifying for benefits. However, some states permit this exclusion, which could keep you from ever qualifying for a benefit.
Coverage exclusions for drug and alcohol abuse, mental disorders and self-inflicted injuries are common. Be sure that Alzheimer's disease and other common illnesses, such as heart disease, diabetes or certain forms of cancer, aren't mentioned as reasons not to pay benefits.
Waiting and elimination periods
Most policies include a waiting or elimination period before the insurance company begins to pay. This period is expressed in the number of days after you are certified as "eligible for benefits," once you can no longer perform the required number of ADLs. You can typically choose from zero up to 100 days. Carefully calculate how many days you can afford to pay on your own before coverage kicks in. (The shorter the period, the higher the price of the policy.)
Choose a policy that requires you to satisfy your elimination period only once during the life of the policy rather than a policy that makes you wait after each new illness or need for care.
Many policies allow you to stop paying your premium after you've started receiving benefits. Some companies waive premiums immediately while others waive them after a certain number of days.
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