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What to look for in a long-term care insurance policy

Some readers were glad they bought a long-term care policy. Others wondered whether it’s a money pit, while one said her experience with long-term insurance has convinced her that it’s a rip-off.

Long-term care insurance can be complicated, so you need to define what you’re looking for before shopping for a policy. Be sure to answer these questions:

How big of a daily or monthly benefit do you need? Do you have other assets or income that will help you pay for long-term care?

“This could reduce the amount of the daily/monthly benefit needed,” said Robbie Menter, a registered financial consultant who sells long-term care insurance.

How long of an “elimination period” can you handle? The elimination period is basically your deductible.

“Just as a $1,000 collision deductible on an auto policy means you will pay the first $1,000 of any damage, a 90-day elimination period means you will pay the full cost of the first 90 days of care you need, and only after that will the policy kick in,” Menter said.

Also, “make sure you understand how the elimination period is calculated,” Menter said. Some policies count only the days you actually receive and pay for care.

There also are certain features you should have in your policy:

Inflation protection — “This benefit ensures that the daily or monthly benefit and total pool of money you buy today potentially keeps pace with the rising cost of care,” Menter said.

Waiver-of-premium benefit — This feature allows you to stop paying premiums once you are eligible for benefits and have satisfied the waiting period.

Like any product or service you’re considering, go into buying long-term care insurance with your eyes open wide. Here are other factors you should consider:

Understand what is and isn’t covered. “The best policies cover care in a variety of settings, including nursing homes, assisted-living facilities, adult day care and your home,” Menter said. “This enables you to receive care where you prefer it. For many people, it’s their home.”

How sick must you be before benefits begin? “Try to get a sense for how much disability you would have to have before the policy would kick in,” said Dee Mahan, director of Medicaid Advocacy at Families USA, a consumer group specializing in health insurance.

For benefits to be paid, a licensed health care practitioner has to say that you are expected to need help with at least two daily living activities, such as eating, bathing and dressing, for at least 90 days, Menter said.

“Or you may be able to do all the activities of daily living, but have a cognitive impairment like Alzheimer’s or some other dementia,” he said.

Check the company’s financial health. Companies that sell long-term insurance have been hit hard by low interest rates because they invest policyholders’ premiums. When rates are low, their investment returns are low, which hurts company profits.

According to the insurance consulting firm LIMRA, 10 out of the top 20 individual writers of long-term care insurance have exited the market over the last five years.

There’s a lot of uncertainty in underwriting a long-term care policy because you’re dealing with an event that may not happen for 20 or 30 years, Mahan said.

“A number of companies that have been really good at doing this have found that this is just tough to do and have stopped writing new policies,” she said.

Understand that you too are taking a risk. You could pay premiums for years and then find that they have risen to the point where you no longer can afford the policy. You then will have paid all this money and not derived any benefits.

Insurance companies can’t raise your individual premium because of your advancing age or declining health. However, each company has groupings of policies based on when they were issued and can apply to raise the entire group’s premiums.

“Insurance companies have to submit reasons for the increase to the Texas Department of Insurance for approval,” Menter said.

Paying for your long-term care is too important to go into lightly, so do your homework and make sure all benefits are clearly stated in the policy. Don’t take anyone’s word for it.

Pamela Yip


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