10 Questions to Ask Before Buying Long Term Care Insurance
The decision to purchase long-term care insurance is one that needs to be considered carefully. While this type of insurance policy is expensive, the cost of full-time care as you age is astronomical in comparison. Before you make a purchase, ask the following questions.
How much coverage do I need?
The average long-term care policy has a set limit for the amount that can be spent per day, with different limits for in-home and nursing home care. Your needs and desires, especially if you want to stay in your home, need to be considered as you look at the daily amount.
What is the overall coverage limit?
Keeping the daily limit in mind, what is the total # of days covered. Many policies will give you a year of coverage, but most people need care from anywhere from 1-5 years, with 2 ½ years being the average. Most policies can be written from 1 to 6 years.
Does the policy include an inflation guard?
The cost of living at age 50, when you’re healthy and might make a purchase, will probably be lower than when you’re 65 or 70 and actually need to use your policy. Is there a built-in inflation guard that will adjust the value of your policy over time so that it’s still good for the average cost of care?
What is the policy waiting period?
Let’s say you need long-term care in a nursing home? A lot of policies have waiting periods of either 20 or 100 days. Don’t panic. Most of the time, the first 20 days of long-term care is covered by Medicare (100%). Days 21 – 100 require you to pay a portion of the fee, and that’s where things get tricky, especially if your long-term insurance doesn’t kick in until day 100.
What type of care will my policy cover?
Some long-term care policies limit the type of care offered, focusing on nursing home care but not in-home care. In-home care usually costs more, which is why (as noted above) it can sometimes be limited. Make sure the type of care you want is covered.
When will my long-term insurance company allow me to begin using my benefits?
You don’t necessarily need a hospital stay to cash in on your benefits, but you do need to have difficulty with your activities of daily living (ADL). ADL activities usually include getting into or out of your bed, bathing, using the toilet, getting dressed, and even eating. Most companies will allow you to start receiving care if you have trouble with 2 or more of these activities.
Does the policy provide coverage for mental health care?
Alzheimer’s, dementia, and other mental-healthcare needs are not always covered. Make sure the policy you’re looking at includes this type of coverage, especially if you have a family history.
Will the policy waive my premium obligation while I’m receiving care?
Some policies will allow you to stop paying premiums while you’re receiving long-term care. Most will ask you to continue paying for the first two or three months before giving you a waiver. Check the terms before you make a purchase.
Is the insurance company financially stable?
Ask your agent to help you make this determination. The company you buy from should be well established (in business for 10-20 years) and have a good financial rating. Insurance companies that are not in good standing might become insolvent before you have a chance to use your policy, resulting in wasted premium payments.
Will my policy be tax-qualified?
A tax qualified policy is one that allows you to deduct your long-term care premium from your federal tax return if your medical expenses total to more than 7.5% of the total when your adjusted gross income is calculated. If your policy is tax-qualified, you may not have to pay taxes on some of your benefits. You’ll need to discuss this in further detail with a financial advisor or your insurance broker.
While you should seriously consider including long-term care coverage in your overall financial portfolio, there are a lot of nuances to take into consideration. Make sure you discuss your needs with your insurance broker to ensure you’re choosing the right policy and coverage.