Long-Term Care Insurance is a very complex product. Use the checklist. Choose wisely.
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Long-term care insurance is a very complex product. By the time you finish the checklist (and the accompanying notes) you’ll be able to hold your own when talking to any salesperson. This is vital if you don’t want to over-spend by over-insuring.
The checklist below enables you to evaluate the relative strengths and weaknesses of long-term care policies. It prompts you to ask critical questions and get concrete answers on just how good a policy is (or isn’t).
A good salesperson will present you with two or three policies. Policies differ on a wide array of traits. The questions below pinpoint these differences. They make sure you’re comparing apples to apples.
Don’t be afraid to look dumb. In fact, it’s best if you do. No kidding.”
Force the salesperson to explain the minutia of these policies. It’s the minutia that determines how good the policy is.
Print out multiple copies of this checklist and use it to evaluate each separate policy you’re presented.
Then, away from the salesperson, review the checklist. See where policies differ, where they’re the same, and make your decision.
Shop wisely, Boomer.
(And review the bonus notes at the end. They can save you thousands.)
The 12 Essential Checklist Questions You Must Ask
1. What kind of policy is this?
- Traditional policy or
- Hybrid policy
Traditional” policies require you to make payments each year. Your heirs get nothing back if you don’t ever need long-term care.
Hybrid policies typically require a one-time (low six-figure) payment and you’re done. If you don’t use the policy, a portion of your payment often reverts to your heirs.
- If the policy is a hybrid, is it linked to:
- Life Insurance?
- An annuity?
2. Is any money refunded if I never need long-term care?
- No
- Yes, describe _____________________________________
3. What is the duration of the policy?
- Lifetime
- 3 years
- 5 years
- Other ________
4. What is the annual cost of the policy? $_____
5. What is the maximum dollar amounts paid by the policy?
- Per day $_______
- Per month $_______
- Per year $_______
- Policy lifetime $_______
6. What inflation factor does the policy use to protect me against rising prices?
-
- 3%
- 5%
- Other ____
7. Which method is used to calculate inflation?
-
- Simple interest; or
-
- Compound interest (preferable)
As long-term care prices skyrocket, compound interest helps protect you from buying a policy that barely covers your future costs. See Note 2 below on the coverage difference between simple and compound interest.
8. What types of care are covered? (Check all that apply)
-
- Nursing home care
- Services in adult day care centers
- Respite Care
- Hospice Care
- Assisted living care*
- Home Health Care**
*States vary by how they define assisted living. If you plan to live part-time in two different states, or plan to move to another state, make sure the policy covers assisted living in both states.
**Most claims paid by insurers are for home health care. If the policy doesn’t include home health care, don’t buy it! (Or think long and hard before you do.)
9. For home health care, who can provide the care?
- Relative or friend, even if they’re unlicensed?
- Only licensed home health agencies?
- Only licensed care providers; like
- licensed practical nurses
- licensed home health care aides
- licensed occupational therapists
- speech therapists
- physical therapists
10. What are the “benefit triggers” that a) affirm I need long-term-care and b) activate my policy?
Benefit triggers are those occurrences that signal you need long-term care. Know precisely what these occurrences are. Below are the three of the most common.
- Is cognitive impairment a benefit trigger? (Require this.)
- Is a doctor’s Certification of Medical Necessity a benefit trigger?
- Is the benefit trigger an inability to perform a select number of “activities of daily living? (Activities of daily living are the following, done without assistance: bathing, maintaining continence, dressing, eating, using the toilet, and transferring (e.g., getting from the bed to a chair, a chair to a walker, etc.)
Be sure to understand how “inability to perform” an activity of daily living is defined?
- Does it mean “hands-on-assistance“, i.e., someone to help you do the activity of daily living? or
- Does it mean “stand-by assistance,” where someone must be nearby to assist you if you need help with an activity of daily living?
11. How long is the elimination period? (The elimination period is the number of days you have to pay for care before the policy kicks in.)
- 30 days____
- 60 days____
- 90 days____
- 180 days____
- Other _____
Carefully weigh the elimination period you choose. The longer the elimination period the cheaper the insurance.
However, don’t wait so long that you’ll have paid most the charges yourself by the time your insurance kicks in.
See Note 1 below for a table showing how the elimination period affects your rates.
12. How is the elimination period calculated?
-
- Is it calculated from my first day needing care? (Called the once in a lifetime or consecutive method).*
or
-
- Is it calculated on the basis of each “episode of care” I require? (This method is sometimes called “the non-consecutive elimination period”).**
*With the “consecutive method,” the elimination period is triggered from the first day you need care, even if you need care off and on. (However, care must span a limited window of time, like 30, 90, or 180 days.)
**With the “episode of care method” the elimination period is calculated for only the days you actually receive care. If you spent 10 days in a nursing home in March, got better and left, but then had to return in May for 10 more days, it would count 20 days toward your elimination period.
If you opt for this latter “episode of care method,” understand it could a long time before you satisfy the elimination period. Use caution.
Discuss the minutia of calculating the elimination period with your agent.. Details of the policy may vary from what’s written here.
***
These questions should give you sufficient information to compare several policies at once. Print out the questions and call different insurance agents.
Read the notes!
Boomer, scroll down and look at Note 1. It shows you a real life example of how your insurance rates decrease the longer you can pay the claims yourself while you wait for the insurer to start paying.
This wait time is called the “elimination period.” (Go ahead, scroll down and look at it. I’ll wait right here….) 🙂
Next, have a look at Note 2. On average, your premiums will grow at a compounded rate of inflation. If you only insure for “simple” interest rather than “compound” interest, the cost of your care may out-pace your coverage.
In short, your out-of-pocket-costs could be substantial. A coverage difference of only $52 a day, results an additional $18,980 annually in your out-of-pocket costs. Now seriously, scroll down to Note 2 and have a peek.
(Don’t lose money on my watch, Boomer!)
Now for you ultra overachievers, here’s some recommended reading: A Shopper’s Guide to Long-Term Care Insurance. The check list above draws from this 181 page tome! Read it when you can’t sleep.
BONUS NOTES.
Note 1.
Carefully evaluate the policy elimination period. “
Here’s a real-life example of a 64-year-old female and male. It shows how their policies were affected by the length of the elimination period. An elimination period of 180 days was 23% cheaper for the female and 30% cheaper for the male than an elimination period of 30 days. The longer you wait, the cheaper the insurance.
Annual Long-Term Care Premiums: the Longer You Wait the Cheaper the Insurance
| Elimination (Waiting) Period | Premium – Female | Premium – Male |
| 30 Days | $10,854 | $7,056 |
| 90 Days | $9,504 | $5,934 |
| 180 Days | $8,340 | $4,962 |
Keep this in mind while contemplating rates: the National Association of Insurance Commissioners states that your premiums should be no more than 7% of your income (p.58). Also, over the life of a traditional long-term care policy, your rates may dramatically increase, as we discussed here.
NOTE 2.
Think long and hard before you select a policy with only simple interest.”
Nationwide, nursing home costs are increasing 3.5% a year, according to a survey by Genworth Financial. Essentially, this means that every 20 years the cost of nursing home care is doubling. If you buy a policy in your 60s, by the time you’re in your 80s, the cost of care will have doubled. You want a policy that will keep up with these costs.
Here’s a “cost of care” example in the table below. Say you anticipate needing long-term care in 20 years. A policy that covers you for $250 a day at 3% compound interest in 2018, will pay $452 a day in 2038–when you actually need the policy. The same policy with 3% simple interest would only cover you for $400 in 2038. Listen hard:
That’s a difference of $18,980 a year coming out of your pocket.”
Compound interest is best!
Compound Interest Protects You Against Rising Costs Better than Simple Interest
| 2018 | 2023 | 2028 | 2033 | 2038 | |
| Compound Interest | |||||
| 3% | $250 | $290 | $336 | $389 | $452 |
| 5% | $250 | $319 | $407 | $520 | $663 |
| Simple Interest | |||||
| 3% | $250 | $288 | $325 | $363 | $400 |
| 5% | $250 | $313 | $375 | $438 | $500 |
See you next time.
Boomer, you’re now ready to hold your own with an extraordinarily complex product.
You got this!
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