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Tips for Selecting Long-Term Care Insurance

When long-term care insurance first became available about eight years ago, there were few customers. The product contained a large amount of errors; it was untested and overpriced. However, people gave it time to grow because it took a while for most people to become familiar with the need for this type of protection and what it actually means.

After the negative feedback from its original launch, insurers have responded with dramatic product enhancements. But now there is another issue. With so many policies to choose from, it has become extremely difficult to be confident that you’re selecting a policy that is best for you. All policies are not the same and it may be confusing at times, so here are a few tips to help you understand long-term care insurance and obtain the coverage that best fits your individual needs.

What is the best way to calculate how much coverage you should buy?

It’s tricky to give an ironclad answer because everyone has a different comfort level with risk tolerance and how much of their income and assets they’re willing to spend.

So here is a general guide to help out all the indecisive people out there. You should not spend more than 5 to 10 percent of your income (both earned and unearned) on long-term care insurance premiums.

How long a period should I insure myself for?

Just like the first question, there is no right answer. The majority of people buy what gives them peace of mind and is affordable.

If you are between the ages of 50 to 65, consider lifetime benefits with compound inflation options.

If you’re 65 to 75, think about a six-year or lifetime benefit period with simple inflation options.

Those older than 75 years old should consider buying more daily benefit for as long a period as they can afford.

Will the agent provide you with a sample policy?

Sales literature can be helpful in this situation to give you a general overview of policies, but it is extremely important and in your best interest to request a sample policy so that you and a family member, friend or adviser can review it with you before you buy.

Make sure the sample policy you receive matches the policy quoted by the agent; look for a policy series number. 

Is the policy a group certificate type or an individual policy?

Although it may be hard to see the difference, there are significant distinctions between a group policy and an individual policy.

In some states, individual policies are regulated while group ones are not. Individual policies; however, are guaranteed renewable for life and premium increases for a class of insureds must be approved by the state.

Is the policy tax qualified?

Under the provisions of the Health Insurance Portability and Accountability Act of 1996, long-term care premiums may be deducted from your Federal income tax within certain limits and to the extent you have medical expenses (including these premiums) that exceed 7.5 percent of your adjusted gross income.

Any benefits received under a tax-qualifies policy are not taxable if the policy meets certain guidelines.

  • Employers may treat long-term care insurance premiums paid on behalf of their employees just like health insurance and fully deduct the cost
  • Employees do not have to include the premium as income and the benefits when receive will be tax-free.

Are the benefit triggers clearly spelled out?

A benefit “trigger” is the inability of the policyholder to perform specified Activities of Daily Living (ADL’s), such as transferring, toileting, bathing, continence, dressing and eating.

Make sure you ask your insurance agent for a copy of the actual policy in order to see how the benefit “triggers” and ADL performance are described.

The policy you want must include coverage for ADL Standby Assistance. Otherwise, you will own a policy that is harder to qualify for benefits at claim time

Make sure you check the policies language to be sure pre-existing conditions are covered.

Does the policy cover homemaker services?

Homemaker services include cooking, shopping, changing beds, cleaning the house and doing laundry.

Remember not all policies do provide coverage for homemaker services and some require that they be specifically included in a plan of care.  This is why it is extremely important to read and understand what you policy does and does not include.

There are policies that clearly define these services and provide you with a choice. 

How does my health history affect the cost of the insurance?

You personal health history can affect both coverage and premium cost. Since insurance companies differ in the way they view certain health problems, it’s essential that your insurance agent has access to a broad selection of insurance carriers.

Is your agent or broker certified in Long Care (CLTC)? And do they offer a choice of companies?

Insurance agents are now selling long-term care insurance since it has received so much public exposure. Because the purchase of this type of protection is so important, we recommend that you do business with a specialist who is knowledgeable, experienced and has an established reputation in this area of insurance.

Long-Term Care Insurance is an extremely complex product and although the answers to these questions do not cover every possible issue, they are a guide for helping you evaluate long-term care policies and making the decision that’s best for you.

If you have any additional questions, visit our website, contact us or leave a comment and we’d be happy to reply with an answer!

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