Long-Term Care Insurance
filed under: Retirement Advice
As the number of Americans entering retirement increases sharply over the next 20 years, many are buying Long-term care insurance. Long-term care insurance provides financial support if you become unable to perform basic activities of daily living (ADLs).
Features to look for in a long-term care policy include:
Maximum periodic benefits. Maximum periodic benefits are the total amount of benefits the insurer pays during a prescribed period.
Maximum lifetime benefits. Maximum lifetime benefits are the total amount of benefits the insurer pays over the lifetime of the policyholder.
Applicable services. Check what level of care is provided in the policy. Some policies will pay for skilled care, while other policies may also pay benefits for personal care.
Applicable points of service. Some policies will pay for care provided only in a licensed facility, while others may also pay for home-based care.
Inflation protection. A long-term care policy with inflation-protected features may help to shield you from health care costs that tend to rise at a faster rate than the general rate of inflation.
Cost of premiums. A long-term care insurance policy may cost thousands of dollars a year in premiums. You may only want to buy a minimum amount of coverage to prevent your premiums from spiraling out of control. According to the National Association of Insurance Commissioners (NAIC), long-term care insurance premiums cost about two times at age 65 as they do at 50. At 75, premiums cost about seven times as much as for a 50-year-old person.
If you are living entirely off Social Security, you may be able to qualify for the Medicaid program for long-term care, provided you pass a means test.
Life insurance companies also sell individual long-term care policies. Some employers may offer a group policy for long-term care insurance. With a group policy, you're less likely to face as rigorous a health condition questionnaire as you will for an individual policy.
You may want to keep in mind the following additional pointers on long-term care:
Tax deductibility. You can add a portion of your premiums to your medical expenses and deduct that amount that exceeds 7.5% of your adjusted gross income (AGI). The portion of your premiums that may be deductible is based on your age.
Medicare and health insurers don't pay. In general, Medicare, Medigap insurance, and private health-insurance plans don't pay for long-term care, the NAIC says.
Pre-existing conditions and exemptions. Some insurers will not issue you a policy if you have a pre-existing medical condition. You may also want to see whether coverage for Alzheimer's disease is covered in the policy. Some insurers exclude Alzheimer's disease.
Health questionnaires. Be honest when answering health condition questionnaires. If you misrepresent the facts about a pre-existing condition, an insurer generally has the right to cancel the policy within a period of time.
Insurer's credit ratings. Since long-term care policies are issued by life insurance companies, it pays to check the insurer's credit rating. You should aim to buy a policy from an insurer with a credit rating of single-A or higher.