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Tips for Buying Long-Term Care Insurance

This post continues my series on the threat of high bills for long-term care, starting with my first post Should You Buy Long-Term Care Insurance? Last week's post discussed the pros and cons of long-term care insurance vs. other strategies.

Let's assume you've done your reading and research, and you've decided to buy long-term care insurance. This is one of the most complex types of insurance you'll ever buy, and you'll need to pay attention to the details. Here are some tips.

  • Make sure the insurance company you choose has a lot of experience with long-term care insurance policies. You should look for a company with at least 10 and preferably 20 years of history with this type of insurance.
  • Check the insurance company's rating by visiting and I prefer companies with one of the four highest ratings, but keep in mind even the ratings agencies will get things wrong now and then.
  • Ask how many rate increases the insurance company has imposed on existing long-term care insurance policyholders for the past five or 10 years. Several recent rate increases can be a red flag.
  • Look carefully at the fine print to determine when benefits are payable or if there are limitations for pre-existing conditions. Health care reform has not erased pre-existing condition exemptions from long term care contracts. The fine print can deny you benefits that you thought were due. I've had family members who were initially denied benefits because they only met five out of six necessary conditions, even though it was clear they were unable to take care of themselves in the way you and I would think necessary. So, you'll need to pay attention to contract details to make sure you're getting what you want before you sign on the dotted line.
  • Make sure the policy covers a range of care, including home health care, adult day care, assisted living facilities, residential care facilities for the elderly, and nursing homes. Some older policies only covered nursing homes without paying for less expensive and potentially more desirable alternatives, such as home health care or adult day care.
  • Don't wait too long; premiums increase substantially as you age. And buy insurance while you're still healthy; if you develop certain medical conditions, you may be denied benefits due to pre-existing condition exclusions, or you might not be able to buy insurance at all.
  • Shop around among a few different insurance companies -- you'll learn a lot in the process. Don't just go with an insurance company because a celebrity endorses the product, or because the agent is nice or persistent.
Also, be sure to read the policy carefully before making a commitment, because premiums and related benefits can vary substantially based on the following policy features:
  • The amount of daily benefit payable. My previous post on the cost of various providers showed that the national average daily cost of a nursing home is $185. You'll want to make sure your policy covers a substantial portion of the cost for nursing homes in your area; Genworth's Cost of Care Survey shows averages for your area.
  • Whether the daily benefit amount is fixed in dollar terms or if inflation protection is provided.
  • The length of time before benefits are payable but after you've met the eligibility requirements. This is known as the waiting period, the elimination period, or the deductible period.
  • How long benefits are payable. Common periods can be for just two years, four years, or for the remainder of your life.
I've met many people who think that they've taken care of long-term care expenses with long-term care insurance. But when I've asked about the above contract provisions, it's clear that they are not home free. The above features can substantially limit the benefits that are payable, and you still might need to spend significant, out-of-pocket amounts for long-term care.

What to do? Some insurance agents will urge you to cover most of your risks with long-term care insurance. This means buying a policy with a generous daily benefit, inflation protection on the daily benefit payable, a short waiting period, and benefits paid for life. This policy would also have the most expensive premiums. As an alternative to buying the most expensive long-term care insurance policies, next week I'll talk about hybrid strategies which combine:

  • lower-cost insurance policies, with accompanying reduced benefits, and
  • paying out-of-pocket for some costs of long-term care -- in essence, self-insuring a portion of the risk, using some of the strategies that I've previously written about.
Addressing the threat of long-term care expenses isn't a "one-size-fits-all" situation, and everybody needs to decide on a strategy that works best for their budget and need for protection.

Here's one more important possibility: Large employers will often offer group long-term care insurance to their employees. These policies can offer significantly better terms and lower premiums compared to individually purchased policies. If your employer offers this option, be sure to check it out.

Long-term care insurance can be an important part of your retirement planning, but you'll need to do your homework. An Internet search will yield good background information on long-term care insurance; one good guide comes from the National Association of Insurance Commissioners. The American Association for Long-Term Care Insurance also has a wealth of good information.

It would be natural to be confused and intimidated about this complex subject. If this describes you, it might make sense to get professional help. Make sure, however, that whoever advises you is unbiased, and that his or her compensation doesn't depend on whether you buy insurance. Also make sure that they aren't representing just one insurance company, and can help you shop around.

We're talking about the quality of life near the end of your life, and the resulting burden that you might place on your loved ones. It's well worth the time and effort!

More on CBS MoneyWatch
Should You Buy Long-Term Care Insurance?
Long-Term Care Insurance vs Other Strategies: Pros and Cons
Strategies for Addressing the Long-Term Care Threat
Long-Term Care Services: Why It Pays to Shop
Long-Term Care: What Are the Real Risks?

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