Long Term Care Insurance: When & Why Should You Buy It?

1. Are you married?

2. Do you have assets you want to protect for your family?

3. Do you have a family business, farm or heirloom property?

4. Do you have more than $100,000 in assets and less than $3 million?

If you answered yes to any of these questions, you should consider purchasing Long Term Care Insurance (“LTCI”).  The next considerations are affordability and eligibility.  If you have little income or if you have significant health problems, you may not be able to purchase LTCI.  You may apply to find out cost and eligibility.

SHOPPING FOR LTCI – GUIDELINES

A.  Daily Rate:  Minimum coverage of $200 per day is advised.  Average cost of skilled nursing care now exceeds $288 per day in Pennsylvania, and so the daily benefit should be in this range.  Inflation protection is advised, preferably compounding inflation coverage, although it will add to the  premium cost.

B.  Guaranteed Renewability:  The policy should provide that it cannot be cancelled or lapsed by reason of failure of payment of premium during a time that the insured suffers from mental disability.  The insured should have the right to pay the arrears to keep coverage in effect.  The insurance company should be obligated to notify a third person in case of nonpayment.  The policy should also provide for “restoration of benefits” so that claims may be made in more than one instance such as an initial claim, a period of wellness and then a new claim.

C.  Triggering Payment of Benefits:  Carefully review the events that must happen to trigger payment of the coverage.  Typical events include an inability to perform two or more “activities of daily living,” which may include:  dressing, eating, bathing, mobility and toileting.  Waiting periods also known as “elimination periods” vary widely in each policy; longer waiting periods may be less expensive.  Payment is not automatic just because nursing care has begun.

D.  Home Care Benefits:  Some policies will provide limited benefits for at-home care.  Caution is needed, as some policies only cover limited days at home, equal to the period of hospitalization immediately preceding the home care.  Seventy-three percent of policy claims arise from home care.  (Genworth Insurance statistic)  Home care is more desired and less often covered.  Beware also of whether benefits will pay for informal as well as licensed professional care providers.  Most carriers will not pay child or other relatives for care.

E.  Investigate the Insurance Companies Before Buying.  Contact the state insurance department and talk to others about experiences in claiming benefits.

Having LTCI coverage will allow the well spouse to maintain his or her lifestyle; in the absence of LTCI, considerable assets will be spent on the care of the ill spouse, and the well spouse will suffer a reduced income and loss of assets.  Pennsylvania has now entered into a “partnership” program where it allows Medicaid coverage sooner to an applicant and allows assets to be retained equal to the amount of LTCI benefits spent on nursing care.  This means owners of LTCI policies can preserve family business or farm assets, the heirloom family homestead properties, etc.

Decision to purchase LTCI must also include analysis of affordability.  If the cost of LTCI will cause a drastic reduction in lifestyle currently, then it may not be a good option.  Other planning tools are available for protecting assets, even in the absence of LTCI.  Linked insurance products should also be examined, where life coverage, income protection/disability and LTCI can be combined at a somewhat reduced cost.  Careful investigation of options and companies is necessary to be sure the best possible options, price and coverage are purchased.

By Lisa Pepicelli Youngs, Esq.

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