The Money Class (33 page)
You can learn more about LTC policies at the website
www.longtermcareinsurance.gov
. The consumer section of the American Association for Long-Term Care Insurance (
www.aaltci.org
) is also a good resource for learning about LTC insurance as is the Life and Health Insurance Foundation for Education (
www.lifehappens.org
). Below I walk through the ins and outs of LTC; after you read what I have to say I encourage you to explore these websites and learn more.
LONG-TERM CARE BASICS
Long-term care insurance is a lot like car or home insurance. You choose the parameters of your coverage and pay an annual premium to keep the policy in force year after year. Eventually, if your physical or mental capacities decline and a doctor deems you need care, you then file a claim on your LTC policy that will give you money you can use to pay for your care. During any period when you are receiving an LTC insurance benefit you are not required to pay the premium. The challenge is that you must carefully think through exactly what coverage you want; unlike car or auto insurance, there are no mandated guidelines. You are in charge of building your own custom policy that fits your family’s needs and, most important, your budget.
I highly recommend you work with a qualified insurance broker who specializes in long-term care insurance. An LTC specialist can help you build the right policy for your situation and will get you quotes from multiple LTC insurance companies. Ask friends for leads, or refer to the websites I mentioned above for more information on how to locate qualified LTC insurance agents.
Here are the key points you want to discuss with an LTC insurance agent:
•
The daily or monthly benefit amount
. This is one of the most important decisions you will have to make. How much will your policy pay you per day, or monthly, to cover you if you need care in an assisted living facility or a nursing home?
•
Find out what care costs in your area
. The cost of care—be it home care, assisted living, or nursing home care—varies widely depending on where you live. Genworth Financial publishes a comprehensive annual cost survey that breaks down costs by state and metro region. You can get a free copy of the report at
www.genworth.com
.
•
Buy only what you can afford
. One of the biggest mistakes people make when evaluating LTC insurance policies is to think that they must buy a policy that covers 100% of the cost in their area for a certain number of years. A 100% policy is a nice goal, but it may not be realistic for many of you. Please do not be discouraged. And please do not stretch your finances to buy a policy that is not really affordable. That makes no sense.
I want you to focus on what is possible and realistic. Focus on what you can do, not what you can’t. Every penny in LTC benefits you can realistically afford today is a penny that you—and your children—will not need to pull out of your own savings if you indeed require care at a later age.
•
How your benefits will be paid
. There are four basic ways you can receive payment.
- Reimbursement
. You are paid back for daily or monthly costs you incur. - Indemnity
. You receive a set daily or monthly benefit regardless of your expenses for that period. - Cash
. You receive a check each month and can use the money as needed. This means you can use it to pay informal care-givers like family, friends, neighbors, or sitters, as well as companions provided by a caregiving agency. Be aware, though, that if you choose this method you will likely be responsible for the Social Security, Medicare, and unemployment tax of people you pay for care. - Hybrid
. This is a new offering that allows you to take up to 40% of your home healthcare benefit in cash to use in any way you choose. A qualified LTC insurance agent will help you sort through the best choice for your circumstances.
•
The type of care that is covered
. You can choose a policy that will only pay a benefit if you are in an assisted living facility or a nursing home, or you can opt for a plan that offers coverage for at-home care in addition to coverage for care in an assisted living facility or nursing home. I highly recommend you consider as broad a policy as possible that covers not just nursing home care, but all types of care. Nearly 70% of current LTC claims are made for at-home or assisted living care. Flexibility here is so important.
•
The elimination period
. Sounds awful, doesn’t it? This is simply the number of days you must pay out of your own pocket before your policy begins to make payments. It is the LTC version of an insurance deductible. You can typically choose a 30-day, 60-day, or 90-day elimination period. The longer the period, the lower your premium will be. But please be very careful here and make sure that if you choose a longer elimination period you can afford to cover those costs on your own. Ask your agent to calculate the expected daily cost at age 75 and age 85 and then multiply those costs by 30, 60, and 90 days. That is what you must have in savings to pay for your own care during the elimination period.
•
An inflation rider
. We all know that healthcare expenses in our country keep going up and up, far more than the general inflation rate. And long-term care is no exception. That is why I absolutely insist that you purchase only an LTC policy that includes an annual inflation adjustment that increases the value of your benefit each year. I recommend you lock in a 5% annual inflation adjustment and make sure that the inflation is calculated using “compounding” rather than simple interest. Compounding will give you the largest benefit increase over the years if you start in your 50s.
Note:
State-approved partnership policies require some type of inflation benefit if you are under age 76 when you buy, and compound if you are under age 61.
Go to The Classroom at
www.suzeorman.com
:
You will find more information there about the various inflation choices you have when purchasing an LTC policy.
•
Spousal/partner policies
. Couples have some LTC options that can reduce their total costs, including having access to each other’s benefit pool if one needs more care or to inherit unused benefits when one dies. Another option is to buy one policy that either person can use. Make sure your agent explains how a combined policy could work for you and your spouse. Also, if you are in a same-sex relationship many policies will also give you a discount if you and your partner both apply. In most cases you just need to be living together and be able to prove that you are in fact a true partnership.
•
How long you want benefits to be paid
. The average claim period for an LTC policy is about three years. Common choices are 2, 3, 4, 5, or 6 years, and unlimited. A policy that pays benefits no matter how long you need care can be very expensive; a policy that will pay for three years of care will be far less expensive. Ask your agent to explain the difference in premium costs if you were to purchase a policy with a three-year, five-year, or unlimited benefit pool.
Note that this is where the Long-Term Care Partnership plans I mentioned earlier can be especially helpful. With a partnership plan you buy the amount of time you can afford and if you wind up needing care longer, the state will let you apply for Medicaid’s help while keeping assets equal to what your policy has paid out in benefits. But please also think about more than money here. If your family has a history of dementia or Alzheimer’s or other long-term debilitating illnesses, you will want to weigh the possibility of needing care for more years, not fewer.
As you can see, there are many variables that will impact the cost of your premium. You want to work with an LTC agent who will get you quotes for a variety of scenarios, and then you can sit down together and carefully assess what makes the most sense. If you do not have access to a local LTC insurance specialist, or cannot find good references, contact LTC insurance consumer advocate and educator Phyllis Shelton at
GotLTCi.com
for advice. Phyllis is a tremendous resource; she helped me purchase my own LTC insurance policy. And just to anticipate a question: I have no business arrangement with Phyllis and do not receive a penny from any policy you might purchase.
Employer-Sponsored LTC Insurance Policies Can Be a Great Deal
Be sure to check and see if your employer offers access to a long-term care insurance policy. This can be a great way to get coverage, as there is typically a more lenient process for assessing your health status.
If your employer does sponsor an LTC insurance benefit you can purchase, other family members—parents, grandparents, siblings, and adult children—may be eligible to apply and will have access to the same premiums as you. The same idea works in reverse as well: Ask your adult kids if their employer offers an LTC insurance benefit that is extended to family members.
As you narrow your choices, please make sure you follow these two steps:
1. Add 50% to the quoted premium
. When you buy an LTC insurance policy in your 50s, you could pay the premium for decades before you ever make a claim. And the reality is that over those years there is a very real possibility your premium will rise. Insurance companies are not allowed to raise premiums on an individual-by-individual basis; they must apply to the state insurance commission for an across-the-board hike that is applied to all policyholders in that state, or within a group policy. But I need to be up front here: We are seeing some insurers win very large premium increases of 25% to 40% as the insurers are learning that their claims are running much higher than anticipated.
So that’s why I want you to compute what a premium quote you receive today would cost you if it were to rise as much as 50%. Let’s hope you aren’t hit with such a big premium increase. But I need you to decide if you could in fact afford the premium if it were to rise that much. Please face up to this possibility, because it is so important. It makes no sense to buy a policy today if you cannot handle an increase. I am so saddened by the many people who have been hit with a large increase and then abandon their policy after having paid thousands of dollars in premiums. That is such a tragic waste of money.
So what do you do if you already own an LTC policy and your premium has increased to a point where you can’t afford it? The worst possible outcome is that you walk away from the policy entirely. Talk to your LTC insurance agent about how you may be able to keep the cost affordable, possibly by reducing your benefits. I also encourage all parents to talk to their adult children about what is happening. If you drop the coverage entirely it raises the likelihood that you and your children may one day need to pay all the costs for care. I would recommend you ask your children if they could help you pay for the increase in the premium. I know how hard that is to contemplate, but please think through what a gift this may be for them. By contributing $1,000 or $2,000 or so a year now to help you pay your premium, they are buying insurance for themselves as well: the insurance that they will not need to pay what could be tens of thousands of dollars a year if down the line you need care and you do not have the LTC policy.
Now, if after adding 50% to the current cost you decide the policy is unaffordable, that doesn’t mean you shouldn’t buy LTC insurance. What you want to do is rethink the level of coverage so you can reduce the premium enough today that it will still be affordable if in the future you face a premium increase.
2. Consider policies from financially strong insurers that have been in the LTC business at least 10 years
. When you purchase an LTC policy it is with the expectation that the insurance company will still be alive and well 10, 20, 30 years from now when you might make a claim. I want you to focus on insurers who have strong financial strength ratings from one of the major rating agencies—Standard & Poor’s, Moody’s, or A.M. Best. Each firm uses a slightly different rating scale. Here’s a guideline for what constitutes a very strong rating for each insurer:
- Standard & Poor’s: AA or better
- Moody’s: AA or better
- A.M. Best: A or better
I also recommend you only work with an insurer that has a good track record in the LTC market, and that has not run into complaints with your state insurance commissions for unjustly denying LTC benefits claims. You can find a list of companies selling LTC insurance in your state at
www.naic.org/state_web_map.htm
. You can research complaints at
https://eapps.naic.org/cis
.