What to Look For In A Long-Term Care Policy

Not all long-term care plans are alike. When purchasing long-term care insurance, be sure to read the policy thoroughly. According to an article published by the TIAA-CREF Institute, here are some of the things you should be looking for when shopping for a long-term care policy:

• Financial strength of the carrier. One of your most important considerations should be your choice of carriers. The financial strength of an insurance company is a strong indicator of a company’s ability to pay claims and meet ongoing obligations to its policyholders.

• Daily Benefit Amount. The daily benefit of a long-term care insurance policy is the benefit amount that the insurer will pay to a nursing home, to another care facility or for home health care. The usual range is between $100 and $300 per day ($3,000 to $9,000 per month). The benefit amount should be directly related to the cost for nursing home care in one’s geographical area, or the area in which the individual intends to retire. Many experts recommend insuring for 80 percent of daily benefit and self-insuring for the rest.

• Benefit Determination. One major difference in long-term care policies is the way in which the insurer determines when benefits begin. Most insurers use what is known as an Activities of Daily Living (ADL) system. Every insurance company may have a different set of ADLs. Generally, however, all tax-qualified plans have the same five ADLs (feeding, dressing, transferring, taking medications and toileting), plus many also include bathing as a sixth. Each policy states that the covered individual must require assistance with a specific number of ADLs prior to qualifying for benefits. In choosing a long-term care policy, choose one that provides coverage when aid is needed with only two ADLs. If incapacity with more than two ADLs is required before payments begin, the insured may not receive necessary treatment. All tax-qualified policies allow benefits to begin if a cognitive impairment, such as Alzheimer’s disease, exists.

• Elimination Period. The elimination period of a long-term care policy is the length of time the individual must pay for covered services before the insurance company will begin to make payments. It is essentially used as a form of a deductible. It is also commonly referred to as a waiting period. A normal waiting period is anywhere from 0 to 90 days. Choosing a longer elimination period may be a way to lower the premiums of a policy, but will cause your out-of-pocket costs to increase at the time of service.

• Benefit Period. The benefit period is the length of time an individual will receive benefits from the insurer once there is an established need for long-term care. The range can be from one year to a lifetime. Most plans have a pool of money from which to draw. If one does not have expenses equaling the daily benefit, the unused portion remains in the pool and can result in paying for more days of care than initially set in the benefit period.

• Inflation Protection. This policy option provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services. Individuals purchasing long-term care insurance must consider that the benefit amounts they select are at the current costs of services, which are likely to increase substantially over time. The usual inflation factor is five percent per year. Some policies figure this as simple interest and others figure it as compound interest. The inflation protector increases the benefit from the first day of the policy, not from the first day that benefits are received. While this adds to the cost of the policy, most experts agree that inflation protection should be included in one’s plan.