Before buying Long Term Care Insurance,
Jul
10
Written by:
7/10/2010 7:31 AM
Long-Term Care Insurance,
A BITTER PILL THAT CAN BE HARD TO SWALLOW
LTC insurance can protect your or your loved one in the event of a long-term illness. According to the LTC industry it can protect your assets and provide you with peace of mind. Like all insurance, long-term Care insurance was created to help with the costs of nursing home care. Typically, when insurance of any kind is sold, it is presented as a “cure-all” for every problem and need. Given that the cost of nursing home care is often touted at about $5,500 per month (a more realistic figure is about $8,500.00 per month with an annual cost at about $100,000). It is not difficult to see why so many people, especially elders, are purchasing LTC insurance at a record pace. In fact, according to the LTC industry the rush to purchase LTC policies in the last several years has more than doubled.
Long-term care insurance can be very costly and usually has a two-prong problem; it limits how much it will pay as well, as for how long it will pay for the care of a loved one. Each policy is different and it is hard to generalize, but it is safe to say that these two limitations exist in the vast majority of all long-term care policies. Assume that Long Term Care (LTC) policies are limited as to time and amount of coverage. So, if you purchase a policy, it may have a limit of twelve (12) months or, say, twenty-four (24) months of benefits. After that, you are on your own! The problem with the time caps in Long Term Care (LTC) policies is that the family member in a nursing home with dementia or Alzheimer’s may need nursing home care for up to ten (10) or more years! The result is that the policy purchased turns out to be a band-aid approach to your long-term care needs.
Secondly, a long-term care policy usually has another hidden problem. If the policy pays anything at all (and some policies have so many exclusions that they may pay very little of what is there stated benefit), payment is often limited to a monthly amount. Assume that the benefit calls for $100.00 per day or approximately $3,000.00 per month. However as we have already mentioned, nursing home care can easily run from a low of $5,000.00 per month to a high of $30,000.00 to $50,000.00 per month, depending on your medical needs and level of care. The result is that the policy can turn out to be inadequate to help the family meets its financial obligations to the nursing home. Keep in mind that the cost of nursing home care will escalate with the amount of time that a sick family member requires that care.
Before you go out and sign on the “dotted line”, have someone review the policy and tell you exactly what you can expect, or see someone like ourselves that will discuss with you other alternatives as well and provide you with answers for your long term care concerns. Again, before you spend a lot of money on something that may not live up to your expectations or the sales pitch, you should ask several questions from several different sources.
There are clauses that you should watch out for.
- ‘Prevailing Expensive” Feature – Instead of getting reimbursed for your actual expenses, you will get what the carrier determines is the prevailing rate for a service, which may be less than what you paid.
- The dollar-per-day benefit. Coverage can range from about $50 to $300 a day. It is considered a good idea that you buy at least the cost of a nursing home stay in your local home area. The ideal policy should cover all levels of care, such as at home, in a nursing home or assisted living.
- Length of coverage. Most policies cover from two to five years. The premium will reflect the length of the coverage period; the rule of thumb is the longer the period of coverage the higher the premium. Policies for Lifetime coverage will be the most costly.
- Pay particular attention to the waiting period (Also known as the elimination period) before the insurance becomes obligated to start paying. The longer the waiting period, the less expensive is your premium.
- The elimination period should only be required once over a lifetime. The better policies let you combine the number of home days of care with facility days as well as assisted living days.
- Inflation Protection. I would suggest that you absolutely consider adding this feature if you are in fact going to spend the money on long term care coverage. To assure that your daily benefit keeps pace with inflation, a 5 percent yearly increase is strongly suggested. Remember with inflation protection that your premium increases every time there's an adjustment. Every increase is based on two factors, one a newly adjusted benefit level and the other your age at the time of the actual adjustment. Premiums often rise with age and in the long run can prove to be so costly that they are not a real solution to the long-term care issues facing the family.
- Nonforfeiture" Protection. Certain policies let you decide whether to have your benefits stay in force for a set period even if you miss payments. This added feature is often considered too costly and with out real benefit for the insured. Again the best thing to do is get additional information and do your homework prior to purchasing any of these benefits.
Long term care insurance like any insurance certainly has a role to play. Unfortunately we have found that it is often difficult to obtain long term care once there are pre existing medical conditions. In fact, for that very reason (pre existing health care issues) most of these policies are sold to the younger crowd. The goal seems to attract people in their 50s to purchase the insurance. Now if it works the way the industry sees it, you will purchase this policy from age 50 through your retirement at 65. Remember that you are making your greatest income during this time period. Also remember that the policy for a couple can easily cost $8,000 per year. At age 65, upon retirement, you and your wife will find that you are now on a fixed income and no longer have the extra funds. In any event, after ten or more years of caring this policy you may find that it is too expensive and you are unable to continue with it. That is exactly what the industry is banking on. How often this happens I cannot say, but that it does happen is well established.
NHS can be reached at (800) 773-6467 for further information.