While most people make room in their budget for car, home, and perhaps life insurance, long term care insurance is still something that a much smaller percentage of us choose.
Long term care insurance (LTCI), of course, is coverage that provides for access to care if we are no longer able to live independently due to disability or cognitive impairment. With the annual cost of care in Washington State ranging from $49,192 for home care, to $87,600 for nursing home care, LTCI provides benefits that offset these costs. It appeals to the buyer because it addresses so many of our core fears about the aging process:
*We don’t want to “be a burden” on our family members as we age, but rather to provide for ourselves as long as possible.
*We don’t want to deplete our estate with the cost of care, but rather to have assets left to live on and to share.
*We don’t want to live our lives worrying about potential disasters, but rather to plan carefully to minimize known risks
*We don’t want to have our living options reduced to Medicaid-funded alternatives, but rather to maintain the widest options and the highest quality of life possible.
The problem is that decisions about long term care insurance need to be made years before we need it, and the cost of LTCI is quite high. It is recommended that premiums for LTC insurance not exceed 7% of income, but even if capped at that percentage it is out of reach for many families. Add to that the uneven performance of some long term care insurers who lose paperwork, deny coverage, and are painfully slow to qualify legitimate claims, and many people choose to avoid this coverage altogether.
The National Association of Insurance Commissioners and various senior advocacy groups have been trying to smooth out the problems in the long term care insurance industry so that more people have access to care when they most need it. Among their recommendations are these:
- An applicant is more likely to be insurable when they are young and healthy. Even if it is theoretically possible to apply in your senior years, you may no longer be insurable.
- For LTCI to be useful, you need to be able to project that you will be able to cover essential expenses adequately. If your assets will be stretched just to cover housing, food, and utilities through your senior years, LTCI is not a prudent choice.
- It is important to be strategic in the application process. Many companies will include a question on their application about whether you have ever been denied coverage, and will categorically deny anyone who answers yes. Apply first where you have the best chances!
- Learn the lingo! In order for your policy to actually cover the things that matter most to you, you will need to read through the fine print. Here are some helpful terms:
- DB or MDB – the daily benefit, or the maximum daily benefit, that a policy would pay for qualifying care.
- Elimination period-the number of days you are required to pay for care before the plan’s benefits kick in.
- Benefit period – how long benefits are payable once a qualifying claim begins
- Inflation protection – this is a rider that can be purchased to ensure that your coverage limits keep pace with inflation over the life of the policy
- Triggers –the conditions and definitions that trigger a benefit being payable.
- Settings- the living options in which care may be provided, and how are they defined
- Premium protection – the options for protecting oneself against premium increases, such as a pay-up period after which no further premiums are due
- Tax qualified – whether a LTCI product’s premiums or benefits can be excluded from taxable income
- ADL’s – Activities of Daily Living, such as bathing, dressing, and toileting, that are often used as a measure of independence vs. disability
- Gather information and advice from a neutral source that has no vested interest in your final decision, such as AARP, Area Agency on Aging, the National Council on Aging, and the National Association of Insurance Commissioners.
Most of us will need help at some point in our life continuum. That care will most likely be underwritten by one of three sources: family members, long term care insurance, or Medicaid. Which will you choose?
Sources: Working with Seniors: Health, Financial, and Social Issues, Society of Certified Senior Advisors, 2009; National Public Radio, “States Iron out the Kinks in Long Term Care Insurance”, 10/17/12; Genworth Financial, 2012 Cost of Care Comparison by State.