Why Should You Buy Long Term Care Insurance?

By: Kurt Stammberger


Long Term Care Insurance has been around since the beginning of the national Medicare program. However, as one can imagine, things have changed dramatically since then. Long Term Care insurance now covers a wide range of services, including nursing home care, care in assisted living facilities and adult day care.

As one approaches an older age, the question begs; should you or anyone buy a long-term care policy?
Protecting Your Assets. Long Term Care insurance is often referred to as a form of "asset protection." In order to justify buying a policy, individuals need to have assets worth protecting. If you do, then you should consider it.

Health is an important aspect in the decision process and a determining factor in one's ability to secure Long Term Care protection. This can pose a problem, as many of us don't often think about Long Term Care insurance until an unfortunate event has affected our health or the health of a family member.

Long term care is usually required as a result of the effects of aging, either because one has become physically or mentally impaired. Therefore, care may be required by just about anyone, not just seniors, due to chronic disease or perhaps while recovering from an accident or serious illness.

Tips Before You Start Looking. If you’re considering the possibility of purchasing a long-term care policy, here are some points to think about prior to your journey:

Contact several companies.
Is it always smart to contact several companies before you buy, to comparison shop. Compare benefits, the types of facilities you have to be in for coverage, as well as the limitations of coverage, the exclusions, and, naturally, the premiums and all costs.

Don’t fall prey to pressure tactics or faulty advertising. Try not to buy a policy the first time you speak with an agent. Simply ask for an outline of coverage, which summarizes a policy's benefits and highlights important features. Compare outlines of coverage for several policies and try not to “listen” to a great deal. Make sure it’s in writing, not simply in the form of a great TV spot.

You’ve probably seen celebrity endorsements on television. It’s important to remember these people are professional actors who are paid to tout products and are not insurance experts. Neither Medicare nor any other federal agency endorses or sells long-term care policies. Therefore, always be skeptical of any advertising that suggests the federal government is involved with your policy, even if it seems possible.
Further, it pays to be wary of cards received in the mail that look as if they were sent by the federal government.

The bottom line is that they weren’t.
Who offers these types of policies? Private insurance companies sell long-term care policies through authorized agents via postal mail and many others solicit through senior organizations, retirement communities and others. Employers now are beginning to offer long-term care policies to their employees as a perk, as well.

What kind of product offerings are out there? Standardized long-term care policies actually do not exist in the long-term care market. Therefore, comparing policies can be extremely difficult because companies sell policies with many different groupings of coverage. The majority offer to pay a fixed dollar amount each day you receive care, while companies offer to pay a specific amount to cover the charges. Without inflation protection, which is described below, a consumer will be left with a benefit that is essentially worthless.

The facts behind inflation protection. Insurance companies provide inflation protection in two ways. Some offer the right to buy additional coverage in the future at the future price that will be possibly be charged by a company.

The caveat is that the new premium is based on your current age, which means it will be more expensive because it is more probable that you will need nursing care. The major disability here for is that the price of purchasing additional coverage increases hastily, and because of this, customers often decline the additional protection because they simply cannot afford it. Furthermore, when shopping, find out about which companies will disallow your right to buy more coverage in the future if you fail to purchase it when it is offered.

The second avenue to inflation protection is through automatic benefit increases. However, even in this case, while a daily benefit increases by a fixed percentage, carriers usually cap coverage at the end of one or two decades. Some companies may offer unlimited increases and others end benefits when a customer reaches age 80 or 85 and some use a "simple interest" approach, which adds to the daily benefit each year by a stated percentage of the original coverage.

Always buy a policy with automatic increases that are calculated using the compounded method.
The bottom line is that the cost of services will increase, not decrease. Long Term Care services are no different.

How much does it cost? Long Term Care services are very expensive. Therefore, it is critical to truly understand not only the costs that your policy may require, but also the costs of nursing homes, etc., in your area, as home care is also very costly. Be sure to ask your insurance agent about all of the details about all of the costs, as they can vary widely.

Policies vary from company to company, so be sure to ask question and record them as they are explained.
In addition to the all of the above, try to have a thorough grasp about the following, prior to signing on the dotted line:

Start Dates and Elimination Periods
Most policies do not pay benefits until after a certain period, often called "an elimination" or a deductible period. This translates into the fact that benefits will begin 20, 30, 60, 90 or 100 days after one is properly admitted to a nursing home. Some policies have no elimination period and they generally cost more.

Having a reasonable waiting period during which you are personally responsible for your care (and costs) means that your insurance company will have to pay out fewer benefits and, consequently, underwriters can establish lower prices for contracts.
Waiving of Premiums

A provision that waives premium payments is quite common in health insurance policies, and discontinues your obligation, legally, to pay premiums if you are receiving benefits. Some companies cease billing as they make the first benefit payment, as others will wait 60 to 90 days. Often premiums are not waived while you are in a hospital or if you are receiving care at home.

Nonforfeiture
Nonforfeiture benefits in policies provide that at least some benefits will be paid even if the buyer fails to keep up premium payments and the policy is cancelled for non-payment. The benefits provided are usually minimal, so, as with the rest of a policy, be sure to get to the nitty-gritty details before agreeing to the terms.

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Kurt Stammberger is VP, Marketing at Healthia Inc. Healthia provides integrated comparison-shopping information on health care products and services, doctors and health insurance plans to empower the drive towards Consumer-Driven Health Care.

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