...Long Term Care Insurance...
What Intelligent Buyers Need to Know
When shopping for Long Term Care insurance, compare the following:
- Premium costs.
- How long has the company been writing this insurance?
- What is their history on payouts?
- Is there a company history of premium increases?
- How does this fit with your health insurance coverage?
- How do they treat pre-existing conditions?
- What are their choices of daily benefit amounts?
- Are benefits indexed for inflation?
- How is the inflation indexing calculated?
- Under what conditions are premiums waived?
- What benefits are covered, besides basic nursing home costs?
- What are their choices for payout/benefit years?
- What other optional benefits are available? At what cost?
- What are the settings for covered care? Nursing home? Assisted Living Facility? Home care?
- How many days must you wait before benefits start (referred to as the "elimination period" or "deductible")? Choices are: Day 1, day 20, day 30, day 60 or day 90?
Is it smart to plan ahead and to be prepared? We think so... And in this day and age, few can deny the wisdom of owning long term care insurance protection to assure a carefree retirement. It only makes sense to hedge your bets. Few want to spend down assets prematurely for unexpected, prolonged care or be a burden on their family. People do not want to lose control of their money. Most folks want to provide for their future well-being.
That’s why Americans are planning ahead to protect themselves in advance. The most popular solution is long term care insurance that covers visiting nurses, at-home helpers & companions, assisted living homes and skilled nursing homes. Forgive the slang, but the street-wise tip of the savvy, financial advisor is simply this: "Regarding long term care insurance - Get it, or sweat it."
Long Term Care Insurance - A Closer Look
Long term care insurance policies are complicated at best, and the consumer is often overwhelmed in the insurance decision process. It’s important to have intelligent guidelines to follow. If you are GOING TO BUY LONG TERM CARE INSURANCE coverage, then BUY SMART! If you agree, please read on.
Long Term Care Insurance Policy Features Revealed
Several features exist by which to distinguish a truly competitive long term care insurance policy. (Note: These features are in addition to the typical policy features such as guaranteed renewablilty, no prior hospitalization required, bathing included as ADL, care coordination, inflation protection, visiting nurses/aides/chores/companions covered, etc.)
High Ratings
You want your long term care insurance carrier to have a rating of no less than A- by A.M. Best, the industry rating service.
Name Recognition
In long term care insurance, "Name Recognition" and "High Visibility" are not necessarily indications of the highest quality policy. The financial ratings and actual legal wording of each carrier’s contract must be analyzed objectively to determine exactly what the carrier is allowing itself to be liable for. A more highly recognized company may actually get away with a less competitive offer by virtue of the "goodwill and professional reputation" associated with its name, so be very careful.
One can not make a general assumption on how a carrier will behave based solely on past claims administration. It is no longer enough to base the current purchasing decision on past claims behavior. The newer tax-qualified LTCi contracts are a different product entirely, and must be scrutinized as carefully as they have been by the carrier’s own legal staff. Each contract clearly states the conditions under which the company will pay. Long term care insurance carriers do not stay in business by giving money away indiscriminately, and this is certainly no place for sloppy or wishful thinking on your part. It is wise for you to confer with an objective, long term care insurance specialist, such the Buyer's Advocate.
Avoid the Nursing Home
A third feature is that the long term care insurance coverage should bind the carrier to pay out not only for skilled nursing facilities (SNFs), but for assisted living facilities (ALFs) as well as home care. Why? Because an SNF (usually called a "nursing home") is the setting of last resort. No one wants to go prematurely into a SNF environment, so they will make every effort to remain at home or with family.
When staying at home is no longer practical or possible, one will typically want to live in an assisted living facility (ALF) for as long as possible. ALFs go by several names: Adult Care Home, Residential Care Home, Christian Science Facility, Alzheimer’s Unit, Domiciliary Care Facility, Adult Congregate Living, Community-Based Residential Facilities, Board & Care Home, etc.
Some long term care insurance policies limit benefit payments for ALFs. This financial situation may encourage the family decision makers to place the client into a SNF prematurely. This is an area where a long term care insurance carrier may assume less risk through clever policy wording - making it less likely that the carrier will have a claim, as the policy holder may pass away before ever entering the SNF. Watch out.
Look for Liberal Long Term Care Insurance Policy Wording
Committed long term care insurance carriers take a higher road. It may seem a small point, but good policy wording will be very clear about paying full benefits for ANY level of facility, whether ALF or SNF. The better long term care insurance contract will contain a clearly broad definition of ALFs which will hold the long term care insurance carrier liable to pay for ANY state-licensed care facility. Otherwise, the long term care insurance carrier may only pay benefits if one is in a SNF, which is the very last place the person will want to live.
Go for the Tax Breaks
Until there is further clarification from the IRS on tax treatment of non-qualified long term care insurance policies, to be safe the wise consumer should only consider purchase of a tax-qualified long term care insurance policy rather than one that is non-qualified. It is not so much the possible deductibility of premiums that is important. It is that the benefits from qualified plans are guaranteed not to be considered as taxable income, and that could be a big deal for your family.
The IRS has not yet ruled on taxability of benefits received under a non-qualified plan. So there is a legislative risk that one would have to pay taxes on everything received under a non-qualified contract.
By law, all tax-qualified long term care insurance policies must conform to federal guidelines: A) There can be no "medical necessity" trigger for benefits B) For benefits to begin, it must be certified that one’s condition will last for at least ninety days C) One must either have a "cognitive impairment" or require "substantial" assistance with activities of daily living.
The Crux of the Matter
A competitive contract should have a specific, liberal policy definition of the phrase "substantial" assistance. Background: In order to receive tax-qualified Long Term Care status, a policy must state that in order to trigger benefits, one policy trigger must be a certification that the insured need "substantial" assistance with 2 of 6 ADLs (Activities of Daily Living - typically defined as eating, bathing, toileting, transferring, continence, dressing, etc. NOTE: It is essential that Bathing be included as an ADL, as bathing is the activity that one will likely need help with first - a policy that excludes Bathing as an ADL is NOT competitive in today’s market).
Don’t Settle for a "Hand’s On" Contract
Where long term care insurance policies differ most widely is in their definitions of the word "substantial". A conservative interpretation would mean personal, one-on-one, "hands-on" help from another human being. This wording may not allow benefits until much later on, when one is "on their last legs." A more desirable interpretation of "substantial" includes "directional" assistance ("Mr. Smith, now it’s time to eat. Pick up your spoon now.").
Another desirable phrase is "stand-by’ assistance (which means that a human being is nearby to monitor, observe and help if needed). Each of these desirable phrases should be included in any policy under consideration!! Specific, liberal policy wording is definitely in the consumer’s interest, as a liberal policy may pay benefits weeks, months or even years before the restrictive, "hands-on" policy - saving one untold thousands of dollars.
Again, beware of restrictive or vague definitions of "assistance". Think about it: A long term care insurance carrier may be sold, or it may get new management. Specific legal wording is crucial, because it is all that is enforceable. Vague wording is always vulnerable to unfavorable "interpretation"by whoever is in charge at claims time. Restrictive or vague definitions could leave a policy holder out in the cold when they can least handle it, costing them untold thousands. That’s NOT why we take out coverage! A knowledgeable, objective long term care insurance broker can help select a competitively-worded policy. Contact your Buyer's Advocate for long term care insurance decision assistance.
Be Prepared
Every financial professional now has a moral, if not fiduciary, duty to recommend that each client consider long term care insurance protection - no matter what the client’s age or net worth. Failure to do so may be grounds for a malpractice suit. No person who is aware of the long term care insurance dilemma wants to allow their own family to continue to be exposed to this serious risk. Yet financial planner amy not be the best person to help you with your Long Term Care insurance decisions. It is best to work with a Long Term Care insurance specialist broker.
Long Term Care Insurance - Now It’s Up to You
The message from Washington is clear: With regard to long term care insurance, don’t count on Uncle Sam. With lawmakers virtually subsidizing private long term care insurance through tax breaks and scaling down entitlement programs such as Medicaid/AHCCCS, certainly now is the time to plan.