What features should you look for in a Long-Term Care insurance policy?

You have finally decided to bite the bullet and check around for a long-term care policy for yourself or a loved one. But where do you begin? What features should be included in a plan?

You do not have to re-invent the wheel when seeking a LTC policy. The folks at the National Association of Insurance Commissioners (NAIC, found online at NAIC.org) have kindly provided a mini checklist for your benefit. The list includes:

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  At least one year of nursing home or custodial care, and should also include intermediate care.
  You probably want home health care included, too. Home health should not be limited to skilled care (meaning a registered nurse). You will probably need to call in unskilled help to assist with household chores, to help bathe and feed your loved one, or any of the myriad things that need to be done.
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  Coverage for Alzheimer's disease, if the policyholder develops the illness after the policy is issued.
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  Inflation protection option. No one knows just how expensive it will be ten years from now to keep someone in a decent nursing home; prices have risen sharply over the past ten years for all health care. It will cost you more to have this rider or option.
  The insurance carrier is obligated to provide you with a free copy of the “long-term care insurance shopper's guide”. They prefer to hand this out after you have signed on the dotted line for an application, but you are NOT obligated to buy or express an interest in buying, in order to get this booklet.
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  A guarantee that the policy cannot be canceled, nonrenewed, or otherwise terminated because you get older or develop a chronic illness/serious disease.
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  You have the right to a 30-day period – known as a 'free look' – in which to examine the policy and return it if it does not seem to be what you wanted. The insurer will return your check. This is a standard provision, not a gift from each insurer, but do mention it anyway.
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  There should not be any requirement such as the following: that the policyholder first be hospitalized before admission to a nursing home in order to be covered; that the policyholder first receive skilled nursing home care before entering an intermediate or custodial nursing home; or that the policyholder first receive nursing home care before receiving benefits for home health care. Why are these important? Because most people prefer to keep a loved one at home for as long as possible before finally transferring him or her into a nursing home. These provisions we have listed all are intended to keep someone in a healthcare facility of some kind rather than at home.
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  In addition, you might see a 'waiver of premium' rider. This allows you to stop paying premiums during the time you are receiving benefits. Read closely to find what restrictions there are on this rider. Commonly, you will have to be in a nursing home for 90 days before the waiver goes into effect.
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  Pre-existing conditions. Insurers usually say in the policy that pre-existing conditions are excluded for 6 months or a year. However, often they will simply not write a policy for someone with certain diagnoses. For example, I once tried to get a long-term care policy for a lady who was 72, in great shape – but underwriting turned her down because she had diabetes. Even though her condition was controlled and her weight was in the normal range, they felt her disease was progressing enough so that they did not want the risk. Also, some diseases may be quite common in your state and some insurers will not cover it. In Minnesota, multiple sclerosis is quite common (statistically speaking) and so it is excluded from dread disease policies. (In other words, if you have a family history of this disease, move to another state if you want to buy a dread disease policy.)
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  What exclusions are in the policy? It is common that injuries or illnesses that result from self-inflicted causes are excluded. But you may be surprised that those who have a history of drug or alcohol abuse will also be excluded from coverage if their condition is deemed related to that history. (Example: liver disease, brain damage from a drug overdose, etc.)
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  Possible return of premium. Some policies allow you to get a healthy refund of premiums paid if you do not use the insurance provisions or decide to cancel. You will not get 100 percent of your premiums back. You will however pay more for this rider. Why would you want this rider? If at some point you can no longer afford the premiums, or some other option opens up for you that will replace the coverages of this policy, you could decide to cash it in, so to speak, and use the cash to buy into another coverage.

People generally buy far too much long-term care insurance. From the statistics that I have seen, most people only spend one, two, or three years in a nursing home. And yet people are terrified of the possible expenses of spending twenty years in such a facility.

Although I personally know of a classmate's father, an Alzheimer's patient, spending six years in a nice facility, he was not the norm. He was a big, strong guy before he came down with the disease, and he died as result of complications of pneumonia.

On the other hand, my own grandmother only spent about six months in a skilled care facility before she died. But you have to play the odds here, the reasonable odds. And most likely, three years of nursing home care is all that one can reasonably be expected to afford premiums for.

My other recommendation, as a past professional in the area of senior products, is that IF you cannot get a long-term care policy due to health history or whatever, then increase your life insurance coverage to the most you can reasonably afford. Most life insurance policies are 1) cheaper than LTC policies, 2) easier to get than a LTC policy, and 3) have acceleration of benefit provisions so that if you are diagnosed with a terminal illness or have to go into a nursing home, you can draw upon the policy limits. At the very least, you can put up the life insurance policy as a form of collateral on the final bill from the nursing home.

SEE ALSO:
America's Health Insurance Plans (AHIP) – online at AHIP.org; they have an office in Washington, DC.
American Health Care Assn. -- 1201 I (as in Illinois) Street NW, Washington, DC 20005, 202-842-4444, or online at ahca.org.
National Assn. Of Insurance Commissioners (NAIC) – 2301 McGee Street, Suite 800, Kansas City, MO 64108, 816-842-3600, or online at NAIC.org.
National Council on the Aging – 300 D Street SW, Suite 801, Washington, DC 20024, 202-479-1200, or online at NCOA.org.
Area Agency on Aging – 1-800-677-1116 to find a local office.

NOW FOR THE ELEVEN OPTIONAL PROVISIONS:

13) Change of Occupation - If the insured changes to a more hazardous occupation, benefits may be reduced to reflect the higher premiums you would have been assessed. If the insured changes to a less hazardous occupation, premiums may be reduced OR you will be given a refund.

14) Misstatement of Age - If the misstatement resulted in an overpayment of premium, the excess will be refunded. If the misstatement resulted in an underpayment, the missing premiums will be subtracted from benefits.

15) Other insurance with same insurer - If you inadvertently buy two of the same policy with the same insurer, one policy will be cancelled and the premium returned to you. Benefits may only be paid out on the policy remaining.

16) Medical Expense Policies - If the insured has two policies with different companies, the two insurers will co-ordinate benefits just like you find with group health policies. (There are some exceptions. With Aflac for example, no coordination of benefits is done, even with multiple Aflac policies. I mention them as only one example of an insurer with this business model.)

17) Disability income policy benefits - Your disability income benefit will be divided on a pro rata basis (similar to co-ordination of benefits) if you have multiple policies.

18) Earnings to Insurance - This provision states that your total disability benefit may not exceed your pre-disability income. Insurers are so petrified that legions of insureds will sit on their haunches and just collect their checks -- Never mind that your medical expenses eat up most of what you are collecting. They will co-ordinate their benefits to you, and refund overpaid premiums.

19) Unpaid Premiums - If you are behind on premiums at the time of loss, the unpaid premium is deducted from the benefit amount before the check is issued.

20) Cancellation - Five days written notice is required, and the insurer will refund you a pro-rata amount of the unearned premium.

21) Conformity with Statutes - Any health insurance policy that does not conform to state law will automatically include any state mandated provision. This is so that the insurer does not have to print all new policies with every change in state insurance laws.

22) Illegal Occupation - If you are engaged in something illegal at the time of loss - buying street drugs, making meth, robbing a bank - the insurer does not have to pay your medical claim or your death benefit.

23) Narcotics - No benefits are payable if the insured is injured while under the influence of a narcotic UNLESS the narcotic was administered under a physician’s care. So if you get in a car accident while sleep driving under the influence of your prescription sleeping pill, your bills should still get paid.