Take care with long-term care policy

FCW.com's Friday Financials column offers a buyer's guide because long-term care insurance has become almost as important as medical insurance

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"Long-term care"

It's buyer beware when looking to purchase long-term care insurance, which is becoming a necessity.

People are living longer and requiring more care than ever before, making long-term care insurance almost as important as medical insurance.

In order to avoid costly surprises with your long-term care insurance policy, review the fine print, determine up front what type of care is covered and select a company that has been in the long-term care business for several years.

Who is Eligible?

Anyone over 18 years of age can purchase long-term care insurance, but it becomes increasingly important as you get older. "Those over 50 should consider buying a long-term care policy to avoid high out-of-pocket expenses in the case of an accident or unplanned medical problem," said Diane Pearson, a certified financial planner at Legend Financial Advisors Inc., Pittsburgh.

Why Purchase a Policy?

Neither standard medical insurance nor disability insurance provide long-term care benefits. Medicare provides partial coverage following a period of hospitalization but only for a brief period and only for skilled care. And to receive Medicaid benefits, under which only skilled nursing care is covered, you first have to spend virtually all of your assets.

Buyer Beware!

It is important to investigate before buying and look for a company that has not raised prices in the past. Pearson says that this may be difficult to accomplish because many companies have raised their premiums during the past year to 18 months. Other attributes to look for are a company that is not offering unusually low rates right now and has a good reputation for paying claims.

"It is important to buy a policy that has only one "elimination period' to satisfy," Pearson said. "The policyholder must pay out-of-pocket expenses during this waiting period—usually anywhere from 90 to 180 days—before the benefits kick in. By only paying these expenses the first time, the policyholder can save thousands in the long run by not having to incur these expenses again."

Benefits and Flexibility

It is best to obtain the largest daily benefit possible, if affordable. Why? Simply put, you are buying the benefit for tomorrow, not today. If affordable, an inflation protection rider (5 percent compounded is the best) is also a necessity, although it may not be enough. That is why a higher daily benefit is necessary. Make sure the definitions in the policy are flexible enough to cover expenses such as going to a doctor or requiring the services of a nurse's aid, care manager, therapist, hairdresser or a cleaning service. When it comes to unexpected costs, there is no such thing as having too much coverage.

Be sure the policy is flexible enough to cover extra bills that crop up during long-term care. Companies often want to pay providers directly, which means filing monthly claim forms, not an easy task for elderly sick people. However, some policies offer indemnity coverage, which requires a one-time claim form. Also, monthly payments are sent to the individual policyholder to do with as they please.

Assisted living is an important consideration but can often be hidden under the same policy roof as home health care or nursing home care coverage. Oftentimes in long-term care policies, benefits for these coverages are limited to 50 percent of the nursing home daily benefit unless you purchase an upgrade in coverage.

"It is usually best to increase the benefit to 100 percent of the skilled care facility daily benefit," Pearson said. Although many people prefer to remain in their own homes, assisted living costs much less than staying at home. Costs do accumulate, so it's important to understand what the maximum benefits of this coverage are.

Premium Issues

"Companies offering a 10-year premium guarantee should usually be avoided because the company may increase prices exorbitantly at the end of 10 years," Pearson said. Instead, it may be best to select a company offering a lump sum or 10-pay policy where the end of the payments is in sight even if the price rises. Annual premium payments, which are lower and even more affordable, are fine as well.

The Bottom Line

Like all insurance, there are no guarantees that rates will not go up for long-term care, but a financially stable (rated AA- or better by Standard & Poor's for claims-paying ability) company that develops conservative, flexible policies is more likely to keep rates down and less likely to offer too-low introductory rate.

Outdated policies should be updated immediately, assuming the insured is insurable. Have a new policy issued and pay the premium before dropping an existing policy. Supplementing a current policy is a sound option, and the new policy can be written with specific needs in mind, such as home health care or assisted living.

When considering long-term care insurance, you'll save money in the long-run by selecting a reputable company, paying close attention to the fine print and defining specific benefits and coverage.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.

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