Although most long-term care is provided on an informal basis by family or other loved ones, you may someday find yourself in need of more specialized long-term care services.  Services such as professional home health aides, adult day health care or skilled nursing facility care may become necessary.  These services are typically not covered by health insurance policies or Medicare.  The cost of this type of care can be staggering:  in California, the average cost of a nursing home is approximately $200 per day, or nearly $72,000 annually.

One way to pay for your care is a long-term care (LTC) insurance policy, which only pays for long-term care.  While the need for this type of care may be a long way off, you are usually encouraged to buy LTC insurance well before you’ll need to use it, because by doing so, premiums are generally less expensive and you are less likely to be turned down due to health conditions that may develop as you age.

Types of Policies

Several types of policies are available. The most common are “indemnity” or “expense incurred” policies. An indemnity or “per diem” policy pays up to a fixed benefit amount regardless of what you spend.  Under an expense-incurred policy, you select your benefit amount when you purchase the policy and are reimbursed for actual expenses for services received up to a fixed dollar amount per day, week, or month.

Some companies also offer “integrated” or “pooled benefits” policies.  This type of policy provides a total dollar amount that may be used for different types of long-term care services such as home health care or nursing home care. There is usually a daily, weekly, or monthly dollar limit for your covered long-term care expenses.

How Premiums are Determined

Your age at the time you purchase is a major factor in determining premiums—the younger you are when you first buy a policy, the lower your premium will be.  Before you can even purchase a policy, however, insurers will perform a health screening or “medical underwriting.”  People who already need long-term care are not insurable.  You will be required to sign a medical records release, and answer health questions on the policy application.  It is very important to disclose your information completely and accurately.  If you don’t, the insurance company may have a right to deny coverage when you file a claim.

Other factors that can determine the amount of your initial premium:

1. The type of policy you select.
2. The dollar amount of the daily benefit to be paid.  You may save money by selecting a lower daily benefit amount and paying the difference yourself.
3. Your benefit period.  Policies usually have a maximum number of years or maximum dollar amount they will pay.  The longer the benefit period, the more expensive your policy will be.
4. The number of days you wait before the insurer begins paying benefits after you qualify for them.  Known as the “elimination” or deductible period, you select the number of days you will pay for your own care before your policy begins paying benefits.  Common choices are 0, 30, 60 or 90-day elimination periods.  Keep in mind that care costs rise each year with inflation.  Be sure you can afford care for the duration of your deductible period now and in the future.
5. Inflation protection.  Inflation protection will either automatically increase the amount of your daily benefit, or allow you to periodically increase your benefit levels (for a higher premium) without providing evidence of insurability.
6. Nonforfeiture benefits.  This option allows you to retain some benefits if you decide to drop the policy at some point in the future.  The most common types of nonforfeiture benefits are either a “return of premium” benefit, which provides a cash benefit that is usually a percentage of premiums paid, or a “shortened benefit period” in which case coverage continues but the benefit period or amount is reduced.  These types of benefits can add anywhere from 20 to 100 percent to the premium cost.

Other Considerations

In addition to cost and benefit considerations, you should also carefully evaluate the company providing the policy.  Financial solvency ratings are available from several sources.  Try to choose a company that is likely to be around 15 or 20 years from now, when you’re likely to need your benefits.  Consider what your own financial situation may be that many years from now.  Although insurers must get permission from the state insurance commissioner to raise premiums for entire classes of policyholders, rates can and do increase, sometimes sharply.  Ask the insurance agent to provide you with the company’s rate increase history.

Above all, don’t be afraid to ask your insurance agent to thoroughly explain anything that isn’t clear.  You should also plan to review at least two or more policies to make a side-by-side comparison of your costs and options.  Lastly, be aware that even after you have purchased a policy, you generally have 30 days to return it and get a full refund of any premiums paid if you find it doesn’t meet your needs.

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