Long-Term Care from A to Z – Part 10
First, get educated. The best way to learn about the carriers offering coverage, the plans being offered and the options from which to select the features that are most attractive to you, is to have a conversation with an insurance broker who specializes in LTC. There are quite a few variables in these policies and toughing it out alone, without a knowledgeable guide, may lead to frustration and misunderstanding.
There will be a choice of waiting period, often referred to as an elimination period, before the benefits start. In essence, you’re self-insuring and paying out-of-pocket during this time. The typical waiting period today is 90 days. Some plans will offer the option to have no waiting period for home care, and thus the carrier begins paying claims on day one of needing care at home. This is a nice option to consider.
Select a daily or monthly benefit that is comfortable considering cost of care in your area. I generally recommend a monthly rather than a daily limit, so as to have maximum flexibility in case of varying levels of need within the month.
Next, decide the “benefit multiplier”. This is usually expressed as a number of months or years of coverage. In fact, it is not a time limit on the benefits. It is just a way to determine the total pot of money you have to use. For example, if you select $7500 per month for 48 months, you will have a total benefit maximum of $360,000. If you use less than$7500 each month, the pot will last longer. While lifetime benefits were common years ago, such is no longer the case.
Another item to consider is the inflation factor. Most carriers will offer a choice. Typically 5% compound (which has become a fairly expensive option), 3% compound, 5% simple, 3% simple, etc. It is important to have an inflation factor so that when you need care in 15-20 years or so, the value of your policy benefits will have kept pace, at least to some extent, with inflation. For what it may be worth in your planning process, spending on health care is projected to grow by 5.8 percent per year through 2020. Historically, health care costs have gone up an average of 6.9 percent since 1960 while the general level of inflation for other items has gone up about 3 percent. Clearly a 5 percent inflation rider on a LTC policy will be better, but it’s a question of affordability.
If you are married or have a partner, some carriers offer an option called “shared care”. This is worthwhile considering. Although the specific detail may vary depending on the carrier, the gist of this option is that if one spouse uses up all of their individual benefits, the spouse needing care can start using the well spouse’s benefits. Lest you think that means the well spouse could be left high and dry, the carriers don’t let that happen. There may be a minimum level of benefits that must remain, or the carrier may replace a specified amount of benefits, in the well spouse’s pool.
There is another benefit by both spouses (or partners) getting policies at the same time: a marital or partner discount. It varies by carrier, but is a worthwhile savings, and both spouses or partners should be covered anyway.
There are also a number of additional options to consider that may vary depending on the carrier. The insurance professional and carrier literature are your best resources for understanding and deciding which you want to include.
Once the policy design has been determined, an application must be completed and signed. The application will ask, among other things, about medical history and medications, current and recent past. This is submitted to the carrier for underwriting. The underwriter will determine if they want reports (copies of records) from doctors you have seen. Depending on the carrier, there will also be a paramedical exam. More carriers are requiring it. If no exam is required, there will at least be a telephone interview. One aspect of underwriting that is a focus for all carriers is to determine that the applicant does not have any cognitive impairment. There are also a number of physical conditions that will preclude issuance of a policy. Each carrier determines their own list, but among the many common exclusions are: Parkinson’s, Cystic Fibrosis, Diabetes treated with insulin, MS, Muscular Dystrophy, and use of a walker or wheelchair.
There are significant disadvantages to waiting to seek LTC insurance. By delaying your application, you may not be able to get it, no matter how badly you want it, at any price. And because price is based on age of the applicant, the younger you are the lower the premium. You will never be younger than you are today.
Get the information, make a decision. You’ll be happy you did!