Long-term care insurance can save families from financial ruin when an elderly parent requires long-term care in a facility such as assisted living or a nursing home. However, like other insurance, there are many different policies available, some good and some poor. A policy with poor terms and limited coverage can be a waste of money. If you or your parents are going to buy a long-term insurance policy, make sure it has good provisions regarding premiums, types of coverage, inflation protection, eligibility and exclusions. Additionally, there are plenty of persuasive con artists who sell bogus insurance policies that your parents do not need or policies that sound like they provide great coverage but really don't.
What to look for when buying long-term care insurance:
- Daily / Monthly Benefit Amount
This is the amount your policy will cover. Some policies let you choose from $50 a day to as much as $500 a day. This is an important coverage option, assisted living costs average $40,000 per year, and a private room in a nursing home costs nearly $80,000. Make sure your benefit is in line with the fees that senior care facilities charge; otherwise, your out-of-pocket expenses will be high.
- Inflation Protection
As you take into account the amount of coverage you need, keep in mind that the cost of senior care continues to rise, so make sure the amount of insurance you purchase is enough to cover expected costs down the road. Inflation protection ensures your long-term policy keeps pace with the rising cost of health care. Inflation protection accounts for the difference in the cost of health care when you purchase the long-term care policy and how much health care will cost when you actually need to use the policy.
- Type of Coverage
There are two main types of policies available: "comprehensive" or "facility care only." Comprehensive policies cover a wider range of health care settings and services. For example, a comprehensive policy may cover home health care costs in addition to nursing homes and assisted living, and it may include more services than a facility-only policy.
- Elimination Period
This is the period of time you have to wait before you are eligible to start receiving long-term care benefits. An elimination period is similar to a deductible on a health insurance policy. During the waiting period until the policy kicks in, you are responsible for the costs of long-term care. Your waiting period choices can range from 30 to 365 days, depending on the policy.
- Maximum Lifetime Benefit
The maximum benefit refers to the total amount of coverage that a policy will provide during the policy holder's lifetime. Policies typically offer a choice of lifetime dollar amounts – for example $100,000 or $300,000. The dollar amounts may also correspond to a period of time. Some insurers also sell "Lifetime" or "Unlimited" coverage that has no dollar limit. With an unlimited policy, you receive benefits for as long as you continue to need long-term care.
- Pre-Existing Conditions
If there is a pre-existing conditions clause, the policy may exclude certain medical problems. Common pre-existing conditions that might not be covered include drug or alcohol abuse, HIV-related illness and diabetes. Some policies won't cover these conditions for up to a year, and other policies might permanently exclude coverage. That means no benefits will ever be paid. Carefully read the exclusions of any policy you are considering buying.
- Joint Long-Term Care
Couples might be able to purchase long-term care insurance "share-care." These joint policies pool the total amount of coverage between the two people. If one person dies without having used up all his policy benefits, the survivor gets those unused benefits added to the remaining policy.
- Tax Deductible
The payments for some long-term care policies can be used as a deduction for Federal income taxes. These policies are known as "Tax-Qualified" or "TQ policies."