What to Look for in a Long-Term Care Policy
Tip: How Old Are You? Age can makes a difference in the cost of a long-term care policy. Generally, the older you are when you purchase a policy, the higher you can expect the premiums to be.
Source: U.S. Department of Health and Human Services, 2015
Long-term care insurance is one of the most complex types of insurance you may consider purchasing. Here’s a list of 10 questions to ask that may help you better understand the costs and benefits.
What types of facilities are covered? Long-term care policies can cover:
Many long-term care policies cover some combination of these. Be sure to understand what facilities are included when you’re considering a policy.
What is the daily, weekly, monthly benefit amount? Policies normally pay benefits by the day, week, or month. You may want to evaluate what long-term care facilities in your area are charging before committing to a policy.
What is the maximum benefit amount? Many policies limit the total benefit they’ll pay over the life of the contract. Some state this limit in years, others in total dollar amount. Be sure to address this question.
What is the elimination period? Benefits don’t necessarily start when you enter a nursing home. Most have an elimination period—a period during which the insured is responsible for the cost of care. In many policies, elimination periods can range from zero to 100 days after nursing home entry or disability.
Does the policy offer inflation protection? Adding inflation protection to a policy may increase its cost, but it could be important if long-term care services increase in price.
How are benefits triggered? Insurance companies use specific criteria to trigger benefits. The most common is inability to do a certain number of the activities of daily living without assistance. The six activities of daily life used by most insurance companies are:
Many policies also have benefits for Alzheimer’s disease or other forms of dementia.
Fast Fact: Costly Care. The national average cost of care in a skilled nursing facility is $91,250 a year. Care in an assisted living center averages $43,200 a year.
Source: Genworth 2015 Cost of Care Survey
Is the policy tax qualified? Certain long-term care policies can offer federal income tax benefits. Generally, premiums paid for these policies can be included with other uncompensated medical expenses for deduction from income if they exceed 7½% of adjusted gross income. And benefits received generally will not be counted as income.1
How strong is the insurance company? There are several companies that analyze the financial strength of insurance companies. The ratings can show you how industry watchers view various insurance companies.
What other policy options are available? There are a number of other long-term care policy options you may want to consider. Waiver of premium allows premiums to be discontinued once benefits are triggered. Third-party notice requires the insurance company to notify a third party whenever premiums have been missed — so the insured can have a child or trusted advisor make certain premiums are paid.
There are many factors to consider when reviewing long-term care programs. The best policy for you may depend on a variety of factors, including your unique circumstances and financial goals.
Touch of Grey
In 1900, the average person lived to age 47. The average life expectancy stood at 78.8 years in 2014, the most recent figures available.
1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties.