Many factors are involved in selecting a suitable LTCI policy. The best policy for you depends on your family arrangement, your financial situation, your preferences regarding long-term care choices, and the level of risk you are willing to accept. There is no one best company or one best policy for everyone. You should select a policy that meets your needs. But before analyzing different policies, you should complete the following steps:
- Obtain sample policies and outlines of coverage from each carrier you are considering. The outline of coverage summarizes the policy’s benefits and highlights the important features.
- Review the company’s rating and financial strength (discussed later).
- Determine the current cost of long-term care in the area in which you live (or the area in which you intend to move). You can do that by contacting nursing homes, home health care agencies, adult day cares, and state elder affairs offices.
Next, you need to read the actual policies carefully, making sure you understand each provision. After you’ve made sure that each policy contains the provisions you desire, you’ll want to compare prices. Finally, you might wish to consult with an agent, financial planner, or other professional to ensure that you’ve selected the policy that will best suit your needs.
Cost of long-term care insurance (LTCI)
Because LTCI premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive the annual premium will be. The premiums for most policies stay level each year as you age (unless your state’s insurance commission approves a rate increase for all persons within a given class). Therefore, if you buy at age 55 a policy that costs $800 per year, it is likely that you will continue to pay the same premium. However, if you wait until you are 65 to buy a policy, the same policy might cost you $1,700 per year.
In general, premiums for LTCI begin to accelerate each year around age 65. Rates increase dramatically for those buying coverage in their 70s and 80s. Nevertheless, it probably makes little sense to buy a policy before age 50. This is because you’ll probably end up paying premiums for many years unnecessarily, considering that most people don’t enter nursing homes in their 50s. Bear in mind that an inexpensive policy is not necessarily the best policy. Furthermore, it’s difficult to compare premium costs between two plans, since the cost for care fluctuates between insurers, issue ages, and benefit levels. It’s important, therefore, to review the provisions of each policy to make any price differential more meaningful. For instance, it may be that the policy with the higher premium allows you the flexibility to receive care in virtually any setting, whereas the policy with the lower premium limits care to a skilled nursing home.
You’ll want to determine that certain necessary provisions are included in the policy while keeping in mind that the more features or benefits the policy has, the more expensive it will be. Questions that should be addressed when evaluating an LTCI policy include the following:
- What long-term care services are covered? Does the policy cover skilled nursing, intermediate care, custodial care, home health care, and adult day care?
- Is the policy renewable regardless of the insured’s age or physical or mental condition?
- How do you qualify for benefits?
- When do benefits begin? Is there a waiting or elimination period?
- How long will the policy pay benefits?
- How much does the policy pay? What is the minimum and maximum daily benefit amount that you can purchase?
- Will benefits increase with inflation?
- Is the policy tax qualified?
- Can the policy be upgraded if the insurance company offers an improved policy?
- What conditions are specifically excluded from coverage?
- Does the policy limit benefits because of pre-existing conditions?