Long-Term Care Insurance: Should You Buy Your Employer's Plan?

Last Updated Aug 26, 2010 4:22 PM EDT

In my recent post, Tips for Buying Long-Term Care Insurance, I suggested that you might get better terms from long-term care insurance plans offered by large employers than you would by buying an individual policy. Then I received a few dissenting emails from some long-term care insurance specialists, and their arguments were instructive.

According to these specialists, the reason that employer-sponsored plans might have lower premiums compared to individually purchased plans is that the employer-sponsored plans often provide less than adequate protection. For instance, the employer-sponsored plans might have inadequate daily benefits, they might not have inflation protection, the benefit payment period might be too short, or the waiting period might be too long.

On the other hand, I've also heard from specialists in group long-term care insurance plans. They claim that employer-sponsored plans might have easier underwriting terms and no exclusions for pre-existing conditions, and possibly more favorable terms if you discontinue paying premiums down the road, compared to individually purchased policies.

So whom should you believe? That's the wrong question. My response: Do careful comparison shopping! If your employer offers a long-term care insurance plan, compare it to a few individually purchased policies. And make sure the following items are the same between your employer's plan and the individually purchased plans you find:
  • The amount of the daily benefit
  • Whether there's inflation protection on the daily benefit
  • How long benefits are paid, whether for a few years or for life
  • How long the waiting period is before benefits are paid
All these policy features have a significant impact on the amount of the premiums you'll pay. Make an apples-to-apples comparison -- be sure all these items are identical. Then you can make an informed decision regarding which plan offers the better value.

One last thing to consider: If you find that your employer-sponsored plan offers less protection than an individually purchased plan, you have a critical decision to make. Either pay more in premiums for better protection, or buy your employer's plan but make sure you've planned for the possibility of paying significant out-of-pocket amounts for long-term care services. I've written about this latter possibility in my recent post, Can't Afford Long-Term Care Insurance? Consider These Creative Strategies.
No matter what aspect of your retirement you're dealing with, be sure to make conscious retirement planning decisions -- that's a consistent theme in my writing. It may take some time and effort to do the comparison shopping that I advocate here, but given the stakes, it's well worth your time and effort.

More on CBS MoneyWatch
Tips for Buying Long-Term Care Insurance
Can't Afford Long-Term Care Insurance? Consider These Creative Strategies
Should You Buy Long-Term Care Insurance?
Long-Term Care Insurance vs. Other Strategies: Pros and Cons
Long-Term Care Services: Why It Pays to Shop
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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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