Being that they are inherently confusing, comparing long term care insurance policies side-by-side can be very difficult for those who are unaware of how they work and what to look for in terms of the benefits and costs you can expect.
Fortunately, I have a friend who sells long term care insurance who sat down with me to explain the ins and outs of the policies. And I am now able to pass along this important information to you.
Benefits vs Pricing
Economists like to talk about trade offs, meaning that there is no such thing as a free lunch. If you want to experience a particular benefit, then there is an associated cost to that benefit.
Long term care insurance works the same way. But the price of the policy is not necessarily the most important component to your decision. For example, while a policy offered by one company may initially seem to be far cheaper than another policy offered by another company, there are different types of long term care policies that could account for the discrepancy.
As an example, some companies nursing home only policies as well as home home health care only policies that will be far cheaper than those policies that offer comprehensive coverage. But the problem is that you are limiting your options…and you don’t know what your health or financial situation will be 20 years from now.
I only point this out because when you are comparing long term care insurance policies people will inevitably look at the price first. And in the long run that may turn out to be the least important part of your decision
Inflation Protection In Long Term Care Insurance
Unlike price, the inflation protection option may be the most important decision you make when it comes to comparing long term care policies. It is often one of the ,most overlooked features of policies as well…which is why I am pointing it out here.
The best way to illustrate the inflation protection feature is by giving an example. Let’s say you purchase a long term care policy with a daily benefit of $250 a day at age 60. (I pick this number because with the current average cost of a nursing home as I write this in 2013 being about $80,000 a year, a $250 daily benefit would cover that).
But if you do not choose the inflation protection option and end up in a nursing home at age 80…your policy is only going to pay the $250 a day daily benefit! And being that nursing home costs are going up at greater than the rate of inflation, you can be sure that 20 years hence that came nursing home will probably cost around $1000 a day…and you are on the hook for the $750 difference between what your policy pays and what you owe.
Now do you understand the importance of inflation protection?
Really, your only choice is the type of inflation protection to look for when comparing long term care policies. The first, and most expensive, will automatically increase your benefit each year without an increase in premium. As you could imagine you are paying for the increase by your monthly premium being higher…sometimes as much as double the initial amount without this layer of protection.
Needless to say, it is a very expensive option but this feature gives you the benefit of doubling or tripling your monthly benefit over the life of the policy…so that you never reach the point where your coverage outstrips the costs of your care.
The other choice is to receive inflation protection in the form of an option. This option let’s you purchase more coverage at specific times in the future without undergoing any further medical underwriting. As you are purchasing more coverage, your premium goes up.
So for this reason this version of inflation protection is more economical. But it should also be remembered that because you have the option of turning down the coverage in the future, combined with the fact that many policies freeze the daily benefit once you file a claim, you need to understand that this type of inflation protection really is incomplete coverage. And you could still be hurt in the future financially if you take this option.
Waiver of Premium
The waiver of premium benefit allows you to continue to collect your benefit after you have filed your claim without having to pay the premium. And while just about every long term care policy has this benefit today, there can be substantial differences in how the waiver of premium actually functions. So this is one of the things to check when comparing long term care policies.
As an example, the premium may only be waived if you are receiving care in a nursing home. So if you are receiving home health care the waiver of premium does not apply.
I only point this out because you need to be aware of how the waiver benefit exactly works with your particular policy.
Home Care Details
This can be one of the most important elements of a policy, especially if the policy holder is looking to age in place without going to a nursing home. These policy holders may need help with groceries, errands, housework, laundry, shoveling the driveway, cutting the lawn, etc… But they may not require 24-hour care and not require to be a nursing home resident.
Now most policies will cover in home medical care provided by a nurse from a Medicare-approved agency. Additionally, some polices will let you hire a freelance caregiver who is licensed but does not work for an agency (it makes sense for the insurance company to cover these costs because they are cheaper than having to deal with an agency).
So the key is for you to be aware of the types of benefits that you would want and additionally to compare long term care policies to make sure that whichever policy you eventually choose has the appropriate benefit that you are seeking.
Why they just don’t call this the deductible is beyond me. But that’s what it is…the deductible. It is the number of days that you have to pay for care on your own before your policy benefits kick in and start making the payments for you (or reimbursing you for out-of-pocket costs, depending upon how your policy works).
And that is the biggest difference between the elimination period and the deductibles that we are familiar with…it is measured in days as opposed to a dollar amount (as in car insurance).
As with all policies there could be some variance in how this elimination period is calculated. And also the shorter the elimination period the larger the monthly premium you will have to pay for the policy, all other things being equal.
So as you compare different long term care policies, these are some of the most important policy terms and conditions that need to be evaluated so that you can make an intelligent decision as to which is the best for you. And as always, if you have any questions about your own individual financial situation you should seek out the advice of a competent elder law attorney or financial planner to assist you in these decisions.
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