Long-term care insurance is designed to help cover the costs of extended care should you need it, and may be an important part of your financial planning strategy. But before you purchase a long-term care policy, check out the following:
- The financial strength and stability of the insurer. Since the value of your policy is based on the claims-paying ability of the issuer, choose an insurance company on solid financial footing. Opting for a low-cost policy from a fly-by-night company could mean you don’t have the money you thought you’d have when you need it.
- Policy details. Make sure you understand when the long-term care policy will pay out, for what services (for example, nursing home care and/or home care) and for how long. Also determine the conditions that will trigger coverage. For example, some policies may require that you be unable to perform one or two activities of daily living, such as bathing and dressing, in order to start paying out, while others may require a greater level of incapacitation.
- Elimination period. Determine how long you need to wait from when the disability begins to when the contract will start paying. That may be less than 30 days or more than 100 days.* You may be able to save money on premiums by choosing a longer waiting period, but keep in mind that your care could be very expensive during that time.
- Excluded conditions. Fully understand any limitations of the policy, such as exclusions for pre-existing or certain conditions. For example, some policies may exclude coverage for mental or nervous disorders. Others may sell a policy to someone with a pre-existing condition, but not pay benefits relating to that condition for a specified period.
- Inflation coverage. Consider a policy that has an inflation adjustment. You will likely have to pay extra for it, but it could be worthwhile, especially considering that over the past couple of decades, health care costs have risen faster than inflation. Without inflation coverage, a policy with a daily benefit payment that may seem adequate now may not be enough to pay for nursing home care in the future.
Act Sooner Rather than Later
With the average daily cost of nursing home care in California at $231 (more than $84,000 a year**), long-term care insurance can help protect you from spending down all of your assets in the event of an extended disability. It may also provide enough money to allow you more choice over how and where you receive care.
Premiums are generally more affordable if you are in your 40s or early 50s. If you wait too long to purchase coverage, you may be ineligible due to your age or a medical condition, or the cost may be out of reach. Talk to an insurance representative to learn more about the features and benefits of a long-term care policy. For more information, review the NEA Long-Term Care Program or the California Department of Aging’s “Taking Care of Tomorrow.”
* Source: American Association for Long Term Care Insurance, www.aaltci.org.
** Source: Genworth, “Cost of Care Survey 2012,” www.genworth.com.