Q: Is 52 too young to buy long-term care insurance? Is age 68 too old? What is the right age to buy insurance for long-term care? And how do we know which policy to buy?
A: Nobody, of course, ever wants to go into a skilled-nursing facility (SNF), or nursing home. Few people ever truly want to send a parent to one. Yet for a variety of reasons sometimes there is no alternative. You are wise to consider your parents' options even if both of them are now healthy.
Projections by the Agency for Health Care Policy and Research show that four out of every ten older people will stay in a nursing home at least once, and nearly one in ten will stay for five or more years. And with annual SNF stays averaging $41,000--twice that in some areas--it's never too early to plan for the future.
Long-term care insurance, then, is worth considering for anyone with assets that he or she wishes to pass along to the family, not the nursing home. First, consider the alternatives--where you might expect to get help. Medicare? Don't expect it; except for limited situations, neither Medicare nor related Medigap policies cover long-term care. And while Medicare will cover a portion of care in the home, its focus is on acute-care diagnosis and treatment. Most people requiring long-term care, in or out of the home, do not need it for treatment so much as "maintenance": assistance with what are called activities of daily living (ADLs), such as bathing, eating and dressing. Patients suffering from Alzheimer's or Parkinson's Disease are prime examples of patients who may need help with these routine activities.
Another assumed option is Medicaid, but you may already know that this means "spending down" one's financial assets. Qualification differs by state, and federally-imposed limits protect the spouses of SNF patients from losing all jointly owned assets. But while Medicaid will fund long-term care, it remains a program for the impoverished.
Now for the specifics of your question. Yes, everyone with significant assets and uncertainty regarding who can provide any necessary long-term care should consider such insurance--the sooner the better, as your premium locks in lower the younger you begin. But not any policy will do. To avoid paying years for a plan that may not be there should you need it, keep these points in mind:
- Look for a rating of A- or better from A.M. Best, an industry rating service based in Oldwick, NJ. A.M. Best and other services base ratings on an insurer's financial condition, operating performance, and claims-paying ability.
- While name recognition is important, don't assume a company whose name you recognize will offer a competitive policy. A well-known company, for instance, may coast on a reputation made in markets unrelated to insurance. Look for a company with a track record of at least five years, and read policies with the proverbial fine-tooth comb. Ambiguities in wording, after all, are nothing less than escape hatches for insurers. Compare such criteria as how soon benefits start, how pre-existing conditions are handled, and whether there are any caps (maximum payable amounts) on benefits.
- As mentioned, long-term care may take place in the home as well as the SNF. It can also be provided in an assisted-living facility (ALF), something of a mix between an apartment building and a SNF that permits varying degrees of independent living. The long-term care policy you or your parents choose should clearly state that it pays full benefits for any type of long-term care facility. Otherwise, the covered person may be forced to foot the care bill entirely until sick enough to need an SNF.
- The IRS has not fully clarified its intentions toward long-term care insurance, but for now, be sure a policy is federally "qualified." It may eventually mean the difference between paying or not paying taxes on the plan's benefits. A qualified policy should also be sure to include bathing--the first activity an elderly person would likely need help with--among the list of ADLs triggering the payment of benefits.
- While you're watching the wording, demand specifics on the word "substantial," as when the plan states that it pays benefits when the insured needs "substantial" assistance with two or more ADLs. If this word is interpreted as "hands-on," say when the patient needs to be fed, benefits will kick in much later than when "substantial" means "directional"--meaning that the patient merely needs to be told when to take a bite but can handle a spoon and fork. For the insured, the more liberal the policy, the better.
Lastly, look for a plan that can be switched in either direction between qualified and non-qualified. Depending on which way the IRS goes, the benefits from a "non-qualified" plan (with more liberal wording than a "qualified") may someday become tax-free. In the meantime, more and more states with income taxes are also looking to offer tax breaks on long-term care insurance.