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Pitfalls of Long-term Care Insurance
Due to the benefits of modern medicine and health advances, Americans tend to live longer nowadays, which adds years to their retirement. As life expectancies rise, so does the likelihood that more and more people will require long-term care.
The cost of long-term care is notoriously high and may put a family's assets at threat. Private insurance and Medicare cover no or little of the necessary costs and Medicaid will provide coverage only after you have spent down your assets.
The need to consider financial planning for long-term care is now more obvious than ever. However, it is important to take a reasonable approach to obtaining Long-term Care Insurance, because this insurance product is not the panacea. It may be too risky and too expensive for many consumers. While there are certainly a number of advantages to buying this type of insurance, there are also some common pitfalls you may encounter and should seriously consider beforehand.
Long-term Care Insurance policyholders are free to design their own coverage according to their needs. By choosing the daily benefit amount, waiting period, benefit payment period, inflation protection and other coverage options a policyholder determines the premium cost and the level of coverage.
It is advisable to contact your insurance agent and request a document called Long-term Care Insurance Outline of Coverage. It contains information on terms, conditions and limitations of your insurance policy. Be very attentive to such details as health criteria, pre-existing condition waiting period, renewal, the length of the benefit period, rate increases etc.
Knowing the specific coverage details of the policy is a must if you don't want to be left uncovered. Note that most insurers providing Long-term Care Insurance will only pay for certain types of conditions, and will exclude others. Therefore it is crucial to learn whether the prospective insurer will pay for mental conditions or nervous breakdowns, or conditions related to alcoholism, for instance.
The waiting period, i.e. a period of time during which you have to rely on your own funds for long-term care before the insurance company starts to pay, could be extended to over six months. Make sure you know exactly how long it will take you to pay out of pocket. You can choose a longer waiting period and cut your premium, paying more out of pocket.
The cost of nursing home care keeps increasing by at least 5% a year. Without inflation protection, value of your daily benefit can become insignificant within a decade.
Be aware of the cancellation conditions of your insurance policy. Mind that in case it is not guaranteed renewable, your insurer may refuse a renewal of the policy. In other words, don't sign a policy unless it has a guaranteed renewable provision.
You may choose to reduce your Long-term Insurance premium by shortening the benefit period. According to statistics, a four- or five-year period may be sufficient to cover your needs or give you time to plan for a greater financial demand. In case you have a chronic disease, a lifetime benefit period may be the right choice.
There are no universal standards of a long-term care facility, and this may be another pitfall. The definition of an "assisted-living facility" or "adult day-care center" varies from state to state and from policy to policy. For example, in case you purchase a policy in one state and retire to another state, you may fail to find the facilities in a new state which match the definition in your Long-term Care Insurance policy. Therefore, it is vitally important to understand what kind of facilities the policy will cover. You are also recommended to check whether the facilities fit the criteria stated in your insurance policy.
Long-term Care Insurance normally pays part of the daily cost of long-term nursing home or home health care. LTC policies cover facility charges for inpatient nursing home and skilled nursing care, and some may cover home health care and assisted living facilities. However, they do not cover prescription drugs and medical care and supplies. Beware of the policies which pay home care or custodial benefits only after skilled care has been given, policies which only cover skilled nursing care or only care from Medicare-certified nursing homes.
Another pitfall may be connected with the time of purchasing LTC insurance type. On the one hand, consumers may be willing to obtain a policy early in order to be able to lock in lower premiums. The younger a consumer is when he/she buys a policy, the lower his/her premium will be. On the other hand, experts claim that it is smarter to purchase a policy no earlier than within 10 years of expected use. Buying a Long-term Care Insurance policy before the age of 60 is reasonable only in case you have a chronic condition that is likely to disable you in time. If it is not the case, you may wait until you reach 60 in order to assess whether you need this coverage. The industry is rapidly changing, and the types of long-term care facilities defined in your insurance policy today might turn out outdated when time comes, and not match the types of facilities available for you to move into. In addition, you may never need to use the coverage, which means that you have paid a lot of money in vain.
Prices depend on a number of factors, and typically go up if more features and benefits are included. Make sure you are aware of all the features your policy offers. Many consumers may be prone to buying benefits they don't actually need. However, excessively low-priced policies are as undesirable as over-priced. Low-balled premiums often mean that your rates will increase later considerably.
The language and wordings of your policy may be very tricky and many important definitions may seem rather vague and open to misunderstanding. Never sign a policy if you don't understand something, even if this is just one section. Make sure that the language of your insurance policy states that your rates won't be raised unless the premiums for all policyholders in your state are raised. Premiums are likely to go up in future and when considering a policy purchase, think whether you will be able to afford it. Unless an insurance policy has language that specifically defines what it will offer, don't base your purchasing decision on the benefit which can be misinterpreted.
Choose an insurance company with high ratings. Remember that you need not only a financially stable company, but a company that is most likely to be in the market 25 years from now, i.e. at the time when you need to receive the benefits.
Individuals qualify for Long-term Care Insurance benefits if they are unable to perform certain activities of daily living (bathing, eating, dressing, using a toilet, and walking). However, some policies make it difficult to qualify for benefits. Choose a policy that increases your chances to qualify, for example, the policy which requires inability to perform no more than two activities of daily living before paying benefits. Covering cognitive impairment and medical necessity may also be advisable.
Many companies offer spousal discounts if you and your spouse buy identical policies. This may sound good, but it is important to understand that this option also has its advantages and disadvantages. Discounts may not be valid if you get different policies. Moreover, buying identical policies is far from being a smart decision, as the spouses' state of health may be different. Then, women tend to live longer and may have different long-term care needs.
If your family has a history of chronic or debilitating illnesses, which family members tend to suffer in their sixties, purchasing a Long-term Care Insurance could be the right decision. However, besides a number of options and benefits, Long-term Care Insurance may have some pitfalls. In order to avoid them, you are highly recommended to work with an independent financial planner and determine the necessity of obtaining such a policy based on your particular situation and needs.
Long-term Care Insurance is often purchased by individuals who possess a substantial estate and don't want to lose it to long-term care costs. This type of insurance seems a smart decision if buying it does not create any sort of financial problems and does not involve changing one's lifestyle to afford it.