For millions of Americans seeking to secure their financial future as the approach or enter retirement, Long Term Care Insurance is a fundamental part of the equation. However, though it is important it is also one of the most commonly misunderstood types of insurance. Unlike health insurance, car insurance, or life insurance many people have never even heard of long term care insurance, and those who have may still not know how to properly evaluate a policy. What follows are the top 7 questions to ask your insurance agent before buying a long term care insurance policy.
1) How Long Will The Policy Pay Out?
One of the most important considerations is how long the policy will pay out once you begin receiving benefits. The time period might be one year, two years, three years, etc., up to a full lifetime benefit. If the policy runs out while you still need care then any remaining expenses for the duration of your care will be out of pocket. As a general rule, the longer the coverage time frame the more expensive the premiums. However, the cost will also vary considerably based on your current age and health status, the benefit amount of the policy, and other specifics related to the policy.
2) What Is The Policy’s Daily Benefit?
The daily benefit amount refers to how much the policy will pay out per day once it is in effect. Daily benefit amounts will vary from policy to policy and may be $100 per day, $200 per day, $300 per day, etc. To get an understanding how how that stacks up to the cost of long term care itself, many nursing homes in top areas may cost between $200-$300 per day; however, naturally costs will vary from facility to facility and will be more expensive in some states than others. The cost of home health aides will also vary significantly, but often costs about $20 per hour.
3) Will Unused Daily Amounts Carry Over?
Another important factor to consider about your policy is whether or not unused portions of the daily benefit will carry over or not. For example with some policies if your maximum daily benefit is $200 and your cost on a given day is only $120, you would forfeit the remaining $80. However, other policy types would allow that leftover $80 to be applied to more expensive days down the road, or would use it to extend your coverage time. In this way, policies that have this ‘pool of money’ type of benefit essentially have a maximum total benefit amount that you can as needed whether that is smaller amounts over a longer period of time or larger amounts over a shorter period of time. Obviously the added flexibility is a great option to have; however, by the same token it also typically raises the cost of the premiums somewhat.
4) Does The Policy Have Inflation Protection?
A crucial aspect in terms of how far you will get on your coverage amount is when you will be using it and whether or not the policy has built in inflation protection. It is no secret that health care costs are rising and it almost goes without saying that in twenty or thirty years the cost of a home health aide or nursing home is likely to be substantially more. If your policy has built in inflation protection that may not be a big deal, but if your policy does not, then it may do you relatively little good when you need it. Inflation protection might be a simple inflation protection or it may be a compounding inflation protection. Compounding inflation protection will generally do you more good, but will also cost more. The inflation percentage of the policy will also impact its price as will your current age and health status and other policy specifics. The bottomline is that you need to determine how much coverage you will be getting in future, inflation-adjusted dollars.
5) What Will Trigger The Policy?
Typically for a policy to be triggered the insured will need to be unable to perform at least two activities from a list of “Activities of Daily Living” or ADL. These activities include things such as bathing, eating, dressing, getting in and out of bed, and continence/restroom needs. This means that if the policy requires two of these ADLs to be met and the insured party can no longer dress and feed him or herself, then the policy will be triggered. However, different policies have different requirements and may be more or less strict in terms of when they will trigger.
6) What Is The Policy’s Waiting Period?
Nearly all long term care policies have what is known as a waiting period once the policy triggers have been met but before the policy actually goes into effect. For instance in the example used above, once the insured party can no longer feed and dress by him or herself, he or she may still have to wait an additional 30 days, 60 days, or 90 days, depending on the policy before the daily benefits actually begin. In the meantime the individual would be required to pay for expenses out of pocket. Generally of course shorter waiting periods are more desirable and may also cost more compared to policies with the same coverage but longer waiting periods.
7) What Will The Policy Cover?
A final important consideration is what the policy will cover once it begins paying out. For instance some policies will cover ancillary costs such as “homemaker benefits” that would include services such as cooking, laundry, housekeeping, etc., while other policies will only cover the costs of basic care such as those listed in the ADL. Understanding what will and will not be covered by your policy is crucial for proper planning and budgeting.
The top 7 questions listed here will be important for just about everyone to consider before purchasing a long term care policy. However, additional personal considerations are also likely to come into play, such as your overall financial resources and ability to pay for premiums, as well as your tolerance for risk, and even your family situation such as whether or not you expect your children, spouse, or other loved ones to be able to care for you when the time comes. Considering all of these questions carefully will help you make the best, most-informed decision possible and will ensure that you are well taken care of in your time of need.