7 Reasons You Might Be Headed for Financial Trouble and An Introduction to the Long-Term Care Solution   By Reed Downey, Jr. and Nancy Kamp

 

  Part Three - How to Buy Long-Term Care Insurance
Part One $ Part Two

In Parts One and Two of this series, we discussed the real possibility that each of us will require nursing home or other long-term care.  We looked at available resources and focused on the benefits of purchasing our own long-term care policies to protect our future care options and conserve our financial assets. 

 

Choosing a Good Long-Term Care Policy

Once you have decided to seriously investigate the purchase of your own long-term care policy, you have a number of decisions to make.

1.  Choose your insurance company wisely.  Company financial strength is very important.  Costs and claims against long-term policies will sky rocket.  Choose a long-term care insurance company with assets in the billions, not the millions.  Make sure the company has an A- or better rating from A. M. Best, the independent guide that judges the financial soundness of insurance companies.   

2.  Evaluate any existing coverage.  Do not automatically replace an older policy without a complete understanding of what you are giving up versus what you might be getting.    

3.  Make sure you get guaranteed renewability.  This means a policy can never be cancelled.    

4.  Look for waiver of premium.  This signifies that once you have a claim, the payment of premiums is suspended until or unless you are restored to health.     

5.  Consider levels of coverage.  You want all levels of coverage from help with daily activities to highly skilled nursing.    

6.  Mental disorders should be covered.  Alzheimer's Disease and other disorders are excluded from some policies.  

7.  Will new types of care be covered as they are developed?  

8.  Choose the longest period of benefits that you can afford.  Good policies offer coverage lasting at least three years.

9.  A longer waiting period, of up to 100 days, will save premium dollars.  Think of this as a deductible.

10.  Inflation protection is worth considering.  Costs will go up.  Don't forget, you will need the difference between expected retirement income and nursing home costs. 

 

    Cautions

Buy young.  Not everyone qualifies for long-term care insurance.  Health conditions may make you ineligible for coverage.  While policies are generally purchased by those over 40, the longer you wait, the higher the premiums will be.  Like life insurance, long-term care premiums are tied to age.

Home health care:

• Home health care should be purchased as a rider to a long-term care policy.  You are more likely to go to a nursing home, so buy long-term care coverage first.  Then, if you can afford it, buy the home health care rider. 

• If you can't conceive of going to a nursing home, make sure your home health care rider does not require prior admittance to a hospital or nursing home.

• Will the policy pay family or friends to care for you?

Adult day care and assisted living are becoming more available.  Will the policy cover these?

Don't buy a policy that requires hospitalization before benefits kick in.

Premiums might go up.     

A nonforfeiture clause raises premiums.  If you cancel the policy, you get the premiums back as a benefit anyway.  This sounds good, but it is expensive and not cost effective.  Skip it.

As always, run from high-pressure insurance agents.   

The bottom line is your retirement years should be golden.  Unfortunately, only one of every two of us is unprotected.   No financial plan is complete without long-term care insurance protection.  You and your parents deserve peace of mind. 

A wise man said, "Be rich, be poor or be insured."  Make your choices now.

 

For more information, contact Reed Downey, Jr. at reed3@home.com.

 

Part One of this series introduces us to the basic concepts of long-term care insurance and the reasons why it should be necessary part of our financial planning. 

In Part Two of this series, we look at all of our options for financing the care we are statistically likely to need as we age.