What to Look for in a Long Term Care Insurance Policy
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UPDATED: Jul 15, 2021
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As our population ages, we have to take seriously the subject of long-term care. Long-term care is not necessarily medical care, but rather “custodial care” which provides individual assistance with activities of daily living or supervision of one who is physically or cognitively impaired. Thinking about long-term care in advance of needing it is probably one of the best things you can do for yourself as you begin to age. This article describes what to look for when choosing a long-term care insurance policy.
Choosing a Solid Insurance CompanyOne of the difficulties in shopping for long-term care insurance is that coverages vary so much; the different policies are very difficult to compare. The first step, however, is to choose a solid insurance company. Because it is likely you won’t be using the policy for many years, you’ll want to make sure the company will still be around when you need it. Make certain that the insurer is rated in the top two categories by one of the insurance rating companies, such as https://www.ambest.com/, https://www.moodys.com, Standard & Poor’s, https://www2.standardandpoors.com or Weiss. Also, read The Best & Worst of Long Term Care Insurance Companies.
Other Factors to Consider:
Adequate Daily Benefit
You want to be certain that the policy you are buying will provide you with an adequate amount of coverage for daily care, referred to in the industry as “daily benefit”, whether that care is at a nursing home, an assisted living facility, or at home. Contact some home health agencies that provide aids and find out the daily cost of care. Inquire about the cost of nursing home care in your community and figure out the average daily cost. It may easily exceed $130 per day in some parts of the country, and in metropolitan areas, it may exceed $200 a day. Do the same with Assisted Living Facilities.
Over time, the cost of services increases and long-term care services are no different. For example, a nursing home that charges $130/day today will charge $260/day in 14 years assuming a 5% growth rate. Inflation options need to be selected at the time the policy is issued. Buyers are given the option of purchasing an inflation rider with the policy, which typically provides that the daily benefit increases by 5 percent a year, either on a flat or compound basis. Such riders can significantly increase the annual premiums. A rule of thumb some advisors follow is that purchasers under age 70 should purchase an inflation rider and those over age 70 should not.
The elimination period is the period of time the insured must wait before the policy will kick in. You will have to pay long-term care expenses yourself while you wait. This waiting period can be between 0 and 90 days, or even longer. The longer the elimination period, the lower the premium. This is similar to a deductible.