Don’t Be Snared in These
Long Term Care Insurance Traps

Long term care insurance sounds straightforward. Like life insurance, we want to pay now to cover a later, inevitable event. But care costs many years from now will be higher, inflation will eat into your benefits, and quirky contract language in many policies can limit what you receive.

There are several key things you should watch for and resources you can use to avoid paying more than you have to.

Don’t Count on the New U.S. Plan Just Yet

The federal government will eventually set premiums and rules for a newly effected plan, the Community Living Assistance Services and Support Act (CLASS). Part of the 2010 health care overhaul legislation, everyone will be accepted regardless of age or health, but it may take until 2012 for all the details to be worked out, with benefits available only in 2018 and after.

And the plan will require that you be employed and contribute to it for 5 years before benefits eligibility. Further, the Congressional Budget Office estimates average benefits at $75/day, while current nursing home costs are in the range of $200/day. On the other hand, those living below the poverty line can anticipate premiums of only $5/day.

Unless these conditions fit your circumstances, you should consider long term care insurance from a private insurer.

Beware of Premium Creep

Who You Deal With Matters

First, choose your agent wisely. Independent agents who represent many different companies will offer you more options. Make sure the agent has 10 years or more experience in long term care insurance, and choose from one of the top ten companies in the industry, as they also have experience and will be less likely to increase rates.

To locate a broker, check www.iiaba.net (Independent Insurance Agents’ site) or www.pianet.com (National Association of Professional Insurance Agents). To cross-check the top companies against what the agent recommends, contact your state’s insurance department and its council on aging.

Assess whether your retirement strategy can withstand up to a 50% premium increase over the life of the policy. Premiums are not fixed and have risen sharply in recent years. So make this inevitable rise in costs part of your planning.

Take Out Inflation

Strongly consider adding an inflation protection rider to any long term care insurance policy. They increase benefits to keep pace with the cost of care. So-called “future purchase options” are also available, which add more coverage as costs rise. The problem is that you may not be able to afford these options down the road when the need arises.

Do Your Premiums Ever End?

Traditionally, policies stopped charging premiums when benefits started. It is now more and more common to see premiums still being charged as benefits are paid. Shop to see if you can find a good policy which guarantees that its premiums will stop when benefits are paid.

Cover All the Possibilities

Remember the “long term” part when choosing long term care insurance. Even though you may only need in-home care presently or envision it in the near future, buy a policy that covers nursing home care and assisted living care as well.

Be aware of your family health history and plan for what is logically possible to happen to you. Plan not only for general age-related infirmities but also for specific conditions for which you may be at higher risk.

Healthy habits and preventative measures are great. Wishful thinking and avoidance are very costly and fit very nicely with the old phrase “penny wise and pound foolish.”

Read the Fine Print

Both the Definition of Terms section of a policy and the specific paragraphs covering What is Covered and What is Excluded are prime areas where consumers can find themselves signing a document they wish they had not.

For example, transfer from an assisted living facility to a temporary care center may be covered only for a certain number of days, or even excluded if the temporary center has more that a certain limited number of beds.

You may find that certain services you presently use, such as an informal non-licensed in-home health provider will not count toward your “exclusion period” — the time before you start getting benefits for a preexisting condition.

Consider A Hybrid Policy

If you are concerned that you will expend thousands in long term care insurance premiums for a policy that you may never need, look into hybrid policies blending LTC coverage with an annuity or life insurance. The goal for these products is to ensure that you or your estate receives a benefit regardless of your health care needs.

Consider Using a Care Manager

When evaluating insurance or any other aspect of elder care, it is often helpful to consult an experienced, objective advisor as to how to plan and implement the services your elder requires and deserves.

It is best to entrust your elder's care management only to those with the highest level of training, broad expertise, experience and ethical standards.

A variety of semi-professional organizations and franchises have arisen in response to the greater demands of our aging population. While some may be competent, it is best to carefully assess the reliability and accountability of any provider, as oversight laws are often slow to adapt to rapidly changing industries such as this.

Established professionals are already well regulated through government bodies and professional licensing organizations, providing a measure of comfort and security that you will be well served.

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