5 Tips for Buying Long Term Care Insurance

Chances are, you’ve encountered the “long-term care” scenario somewhere in your circle of family and friends. With the cost of nursing homes and home health care hovering at around $8,000 per month in the United States, our aging population is at great risk of developing disabilities that will wipe out their hard-earned nest eggs and leave their families with nothing when they’re gone.

Long-term care insurance is a great way to protect your family from the devastating expenses of care, but it can be a little overwhelming when you’re confronted with all of the different policy options. Below are some tips and suggestions on how best to purchase coverage and what options to choose.

1. Do It While You’re Young

Studies have shown that the purchase of long-term care insurance is not effective before the age of 45 or so. If purchased any younger than that, the longer period of paying premiums becomes cost-prohibitive. However, securing coverage at 45 or 50 is definitely to your advantage. Firstly, you’re much more likely to qualify for a good policy at a younger and healthier age. Secondly, your premiums will be significantly lower at 45 or 50 than they would be at 65 or 70. Even taking into account the longer period of payments, the overall premium cost to you will be much lower if you purchase coverage at a younger age!

2. Choose a Reasonable Daily Benefit

Daily long-term care expenses–whether provided in a facility or by a trained professional who comes to the home–can easily be in the area of $300. Keep in mind, though: once you’re incapacitated, you’re likely to have other sources of income–such as Social Security or other retirement plans–that will mitigate those expenses. Consequently, there’s probably no reason to pay through the nose for a “Cadillac” plan that will cover a full $300/day of services. A daily benefit of $200 should be more than sufficient and will come at a much more reasonable cost.

3. How Long Should Your Policy Last?

Long-term care policies most commonly have durations of 3 years, 5 years, 7 years or–in some cases–your lifetime. Your best bet, however, is to choose a benefit period of 5 years. The reason for this is that Medicaid–the federal program that covers long-term care costs for the indigent–has a 5-year “lookback” period for eligibility. Essentially, this means that you can’t simply give your assets to your family, claim poverty and immediately qualify for Medicaid. In that scenario, you would have to wait 5 years. However, if your long-term care insurance plan covers you for a 5 year period, you can visit an attorney at the onset of your disability and transfer your assets to a special type of trust that will allow you to still receive income on those assets. Then, your long-term care policy will pay for your care for 5 years, and when it expires, you will have technically been without assets for 5 years and will qualify for Medicaid. Medicaid will then cover the costs of your care and your assets will be safe in your trust without having to be spent down.

4. Elimination Period

Benefits under long-term care insurance policies are typically triggered by the inability of the insured to perform any two of the six activities of daily living (“ADLs”) which are: eating, bathing, dressing, toileting, getting in and out of a chair, and maintaining continence. Additionally, a cognitive disability (such as dementia) will trigger benefits even if an insured does not evidence any difficulty with the ADLs. Once the insured is eligible for benefits, though, they still have to wait for their policy’s “elimination period” to elapse before the policy will begin to pay. Elimination periods are usually either 30 days, 60 days, 90 days, or 180 days. When applying for your policy, you should choose the 90-day elimination period. The greatest likelihood is that you will be at an age where you’re receiving Medicare when you become disabled, and Medicare (when paired with a qualified Medicare supplement policy) will cover long-term care costs for the first 100 days of a disability. There’s no reason to pay more out of your own pocket for an elimination period shorter than 90 days when Medicare will foot the bill.

5. Rising Costs

Of course, the costs of long-term care–like the costs of everything else–are only going to rise over time. For that reason, you need to select an “inflation protection” rider to keep your policy relevant as the years pass. Many agents will suggest purchasing a 5% compound interest rider to the policy’s daily benefit, but be aware that doing so is costly. You’re probably better-served (particularly if you purchased your policy while young and have many years for your inflation protection benefit to build) to choose a 3% compound interest rider. This will be more affordable and should be sufficient to keep your daily benefit at a competitive level.

Follow these guidelines to secure a good policy at a reasonable rate that will provide for you while also ensuring that your life savings passes on to your children and grandchildren rather than being gobbled up by exorbitant nursing home expenses. Your family will thank you for it!