When it comes to preserving your retirement savings, long-term care insurance may be one of the most important purchases you will make. While medical advances and healthier lifestyles are continuing to extend our life expectancy, our risk for needing long-term care also continues to grow. Most health insurance plans (and Medicare) severely restrict or exclude long-term care. As you consider your options, here are some important questions to ask the policy provider.
- What types of care will be covered by the policy? There are several types of care one may need, including skilled nursing (nursing home), assisted living, visiting nurses or in-home care, and companion-type care (meal preparation, assistance with bodily functions, etc.). Ideally, you want a policy that covers all types. It is important to know which types of care are included in the policy, how much will be paid for each service, and how long you can receive benefits for each service.
- What is the qualifying, or triggering, event required for benefits to begin? Some policies are very specific about the functions you must be unable to perform in order to begin benefits. Also, certain policies require you to experience a hospital stay before any benefit begins. Make sure you understand exactly what events will trigger benefits, and try to purchase a policy that includes medical necessity as qualifying event.
- What is the daily payout limit of the policy? Most policies cover a specific amount per day. The range covered by various policies is broad with some being as low as $50 per day and others as high as $200 or more per day. Of course, the higher the benefit, the higher the premium—but the greater your choice in obtaining care when you need it.
- What is the waiting period? While your health insurance has a deductible expressed in a dollar amount, long-term care policies usually have a deductible expressed in number of days before benefits begin. It is not uncommon to see a waiting period of as few as 20 days and as many as 100 days. Also ask if the days are required to be consecutive in order to claim benefits.
- Does the policy include inflation protection? Some policies contain a clause that increases your benefit with inflation, but does not increase your premium. If you purchase a fixed daily benefit policy without inflation protection, you may face the risk that inflation drives the cost of your care higher than the amount your policy will pay.
- How financially solid is the company selling the policy? You want to purchase a policy from a company with financial strength to avoid being unable to collect on the policy due to insolvency. Ask about the company’s claim processing record and what percentage of claims filed are paid. Keep in mind that a company has the right to raise premiums over time—not yours only, but for a “class” of policyholders. Beware of policies priced significantly lower than their competitors, and ask your agent to show you details of premium increases in recent years.
- Is the agent or broker you are buying from certified in long-term care, and does he or she offer a choice of companies? These policies are very complex, and we recommend seeking a LTC specialist who will answer your questions and make sure you fully understand the policy you are purchasing. Look for an agent who offers policies from several companies so that you can choose the policy that best fits your budget and potential needs.
While long-term care insurance may feel expensive, it could be your best protection against running out of money in your lifetime. Studies show that a couple aged 65 retiring today will need about $250,000 for healthcare and related expenses. A few years of in-home care or in an assisted living facility can drain your savings. Long-term care policies can significantly reduce that burden in your later years. And the earlier you purchase a plan, the lower your premiums will be.