Long-Term Care Insurance: Should You Self-Insure?
Long-term care insurance is meant to cover the cost of care that Medicare doesn't cover. Medicare covers hospitalization, medical costs related to making you well again, and prescriptions. But what if you become chronically ill and need quality-of-life care? Many 40- and 50-somethings find themselves considering long-term care insurance policies — often called “nursing home insurance” — for themselves and their parents.
Should You Buy?
The cost of long-term care, or LTC, at home or in a nursing care facility can easily run into the tens of thousands of dollars a year. LTC insurance gives you a pool of money beyond your own assets to pay for this care. If you have minimal assets, your state has a program under Medicaid to pay for your care.
With policies costing thousands of dollars per year, LTC insurance is not cheap and there's no guarantee you'll ever be ill enough to use the coverage. Consider a policy if you're concerned about supplementing your care budget and you're sure you can afford the premiums, and any premium increases, for the rest of your life. LTC insurance is like auto or home insurance; you pay annually for the coverage you'll receive the next year, whether or not you have a claim. If you don't think you can afford the premiums, it may be better to plan on using your own assets for care. Buying a policy you keep only a few years could be a waste of money.
What to Look For
Shopping for LTC insurance in your 40s or 50s is ideal because insurability and premiums are based on health and age. Policies pay benefits when you can't perform a number of specific “activities of daily living,” or ADLs, such as getting out of bed, bathing, and eating. Look for policies that provide benefits after the loss of only two out of six ADLs and define loss as needing standby or hands-on assistance because of cognitive or physical disability.
It's important to apply for LTC insurance before you've had a health problem. Insurance companies have very strict underwriting guidelines for LTC coverage. If you want coverage, apply while you're healthy to ensure lower premiums and increase your chances of being accepted.
Other important features are:
Inflation protection so that policy benefits grow over time.
A ninety- or 180-day waiting period. You pay for care during that time, but the longer waiting period keeps the premium down.
Underwritten by a large, well-known company with excellent ratings. The number of insurers offering LTC insurance has reduced dramatically. Don't risk being with a lesser company and having your policy sold or premium increased.
Policy qualified under the 1996 Health Insurance Portability and Accountability Act (HIPAA) to reap the full potential tax benefits on premiums and benefits.
Special Circumstances
If you're concerned about your parents having money to pay for their choice of care, consider purchasing LTC insurance for them. This extra coverage may give you peace of mind if you don't live nearby and you're anticipating home health care or assisted living expenses. Remember, LTC insurance has tough underwriting standards; don't delay discussing coverage with your parents until after someone has already become ill.
Many companies offer group LTC insurance policies to employees. The policies aren't endorsed by the employer and, although they may seem less expensive, they often have more restrictive benefits. Still, group policies often have lighter underwriting standards and may be a good option if your health will make it difficult to get a policy privately.
