Today's long-term care policies can be quite comprehensive. If you bought a policy more than five years ago, it is important to know if it has been (or can be) updated; it may even be worth doing some comparison-shopping. While the premiums for a new policy may be more expensive, you don't want to hold on to a policy that is so restrictive that it may never pay off.
Here are some things you need to consider:
- Level of Care. The policy should cover skilled, intermediate, and custodial care in a nursing home as well as home-based care. This will provide you with the broadest level of coverage. The policy should also cover assisted living facilities and respite care.
- Daily Benefit. Most policies pay you a daily benefit for nursing home care. The higher the daily benefit, the higher the premium. Benefits for home-based care can be equal to or less than the nursing home benefit. To help you determine the daily amount, consider the cost of nursing home care in the area where you plan to reside.
- Benefit Period. Benefit periods can be measured in years or total dollars, e.g., nursing home care at $125 a day for three years, or $136,875. Benefit periods typically range from two to five years; some policies offer a lifetime benefit. Unless there is a family medical history of a long-term debilitating disease, the additional cost to receive a lifetime benefit is usually unnecessary. The benefit periods may be selected separately for nursing home and home-based care. Consider policies that allow you to dip into either benefit if you run out of money in one.
- Waiting Period. This is the number of days you have to receive care in a nursing home or at home before the policy pays benefits. Typical waiting periods (sometimes referred to as an elimination period) range from 20 to 100 days. The longer the waiting period, the lower the premium. Waiting periods may be shorter for home-care benefits. In most cases, we do not recommend a waiting period longer than 100 days (the maximum Medicare payment period for skilled care if you qualify).
- Eligibility. Consider policies that do not require prior hospitalization or skilled care prior to paying benefits. Some older policies may have required this. Better policies will typically require doctor certification of a physical or cognitive impairment (including Alzheimer's), or that you require help with two out of six ADLs. Make sure that the bathing ADL is included in the policy since bathing is usually the first ADL a person is unable to perform.
- Waiver of Premium. You don't want to be paying premiums while you're receiving benefits. Some policies limit waiver of premium only to nursing home care.
- Inflation Riders. There's no doubt the cost of care will increase. Most good policies will offer you a choice of inflation riders, typically simple or compounded. Compounded riders will substantially increase the daily benefit over time. But if money is tight, keep it simple. Simple yearly inflation increases may be built into the policy, while compounded inflation may add substantially to your premium.
- Non forfeiture of Benefits. If you stop paying premiums in 10 or 20 years, will you lose all your benefits? Some companies offer you a reduced paid-up policy that will provide partial benefits; other companies will offer you a return of premium benefit. The latter typically comes in the form of a rider and can add substantially to your premium. If you have no reason to believe you will be unable to pay premiums in the future, consider putting those extra premium dollars into a good long-term investment.
Consider these two key points:
- Make sure you buy from a highly rated life insurance company that does a sizable business in this market. The company should receive an A or better rating from one of the major rating services, such as AM Best, Moody's, or Standard & Poor's.
- Make sure the policy is guaranteed renewable, which means the company cannot cancel your policy as long as you pay the premium. However, your premium can be increased as long as premiums are increased for your age group as a whole.