With nursing home costs skyrocketing and the likelihood of 6 out of every 10 people over the age of 65 today eventually needing extended care, there is no lack of articles in the media addressing the topic of Long Term Care insurance (LTCi). Most agree on one thing: whether or not you should purchase it depends on your situation. If your family has a history of longevity, and if your finances put you anywhere from middle class to moderately affluent, you should plan for Long Term Health Care insurance.
In any case, purchasing LTCi coverage is an overwhelming prospect to many people. The language of the policies is not standardized from one company to another. In attempting to get a lower premium, it is easy to sacrifice benefits you would have kept if you had understood it better. For these reason, and to help you determine whether you actually need LTCi, it is important to search out and discuss your situation with a highly ethical agent.
In the meantime, the following points will help you know a good policy when you see one.
Activities of Daily Living (ADLs): Activities identified by CMS as the criteria for initiating use of your policy. These are eating, bathing, dressing, toileting, continence, and transferring (getting from your bed to wheel chair and back). Note, the ability to walk independently is not an ADL.
Bed reservation guarantee: If you are in a nursing home and suddenly need to go to a hospital, or if you are able to take a trip with family, you will not lose your bed.
Benefit multiplier: A term that varies from company to company, it refers simply to the number of years–calculated as days–that your policy will last.
Cognitive Impairment: The onset of a disease such as dementia, Alzheimer’s, Parkinsons, etc. Cognitive diseases allow you to activate your policy regardless of your physical health.
Custodial Care: Care provided in a nursing home or assisted living facility that involves room, board, food, and assistance with the ADLs. Medicare does not pay for custodial care, but nearly 75% of the patients in the nursing home need only this type of care.
Daily benefit: The maximum amount of money that can be spent on your care per day.
Elimination period: A period of time during which you must pay the bill before your policy kicks in.
The best companies offer policies with a lot of features that are included; that is, you receive a benefit without any reduction in your "pot of money." Ask about the following.
Guaranteed renewability: Your policy cannot be cancelled so long as you pay the premium.
Home care: Good policies will offer you the option of using your policy at home or in an assisted living facility.
Home modification: If the doctor prescribes home care, the company will pay for modification of your home–such as ramps, rails, etc.,–up to a percentage of your maximum yearly or monthly benefit. The language and terms vary.
Inflation rider: A rider that increases the value of your policy each, including daily amount and total pot of money. Your policy value could increase 3, 4, or 5 percent compounded or could have a flat 5% increase, depending on the company. This allows the cost of care to keep up with inflation without an increase in premium later. It does add significantly to the initial premium.
Intermediate Care: Care in a nursing home, assisted living facility or physical therapy unit that involves a combination of custodial care and some skilled or therapeutic services. A person who is admitted temporarily for physical therapy–for example, following a broken hip–would be receiving intermediate care.
Medically Necessary: A criteria used for non-tax qualified policies. Instead of having to certify that you are unable to perform the ADLs, the doctor can simply say that the care is “medically necessary.”
Premium: Your monthly payment.
Respite care: A feature that provides for your care so a family caregiver can take a vacation.
Restoration of benefit: Allows you to use your policy more than once. For example, if you broke a hip and needed care for 6 months or so, you could use your policy. When you get well and no longer needed care, your benefit would be restored as if you had never used it.
Return of Premium Rider: A rider that returns your money if you never use the benefit. If you die without using the benefit, the money is returned to a beneficiary. Be aware, however, that you usually get the money back over a period of years, the same way it is paid in. Neither you nor your beneficiary will get a large lump sum.
Rider: An attachment to the original policy giving you additional benefits and increasing your premium.
Shared Benefit Rider: A rider that gives you a third pot of money from which either you or your spouse can draw if your initial benefit is exhausted. The shared benefit rider is not restored if you are able to stop using the care.
Spouse Survivor Rider: Arguably one of the most valued of all available riders, this rider gives the spouse a complete waiver of premium whenever the first spouse dies, subject to having owned the policy for a specified period of time.
Stand-by Help: Contrary to common belief, you do not have to be completely helpless in order to activate a LTC policy. You simply have to be impaired so that you need someone within arms’ length to assist you.
Tax-qualified vs Non-Tax Qualified: A tax qualified policy is one that allows you to deduct the premium from your taxable income, providing you have medical expenses in excess of 7 ½ percent of your gross, or are self-employed. A tax qualified policy can also be a deduction for an employer who pays the premium for his employees. To activate a tax qualified policy, you must be unable to perform any two of the ADLs without hands-on or stand-by help, or must be cognitively impaired such that you would be a danger to yourself if left alone.
Waiver of premium: When you have to go on care your premium is waived.
Companies compete at least partially on the basis of price. Riders increase your premium, but you will most likely want certain ones. Don't settle for a lower price without knowing whether a more expensive policy has simply included some of these riders. Ask about such things as shared benefits, spouse survivorship rider, return of premium, and guaranteed non-forfeiture as well as inflation riders.
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