Long-term Care Insurance: Understanding the Fine Print

Many people think about buying long-term care insurance. Far fewer actually do it. Most are scared off by the complexities of long-term care policies. Over the years, policies have improved, but you need to shop carefully. Asking the following questions, supplied by the Michigan Association of Certified Public Accountants, will help you evaluate the terms of a policy and select the one that’s best for you.

What conditions must I meet to be eligible for benefits?
Most long-term care policies base benefits on a person's ability to perform the so-called activities of daily living. These activities include eating, using the toilet, bathing, dressing, and moving about. Most policies provide coverage upon certification by a doctor that you are unable to perform two or three activities associated with daily living.

What specific services are covered under the policy? Generally, the more comprehensive and flexible the coverage, the better it is. The best policies cover a continuum of care including home health care, personal care, community-based adult day care, assisted living facilities, and skilled care in a nursing home.

What daily benefit amount should I select? You should base your daily benefit amount on the going rate in your area for nursing home care. If you prefer, you can lower your premium by purchasing a benefit amount slightly lower than the daily cost of nursing home care and paying the difference out of pocket. For example, if the going rate in your area is $150 a day, you might consider insuring yourself for up to $125 a day and paying the rest on your own.

What is the elimination period?
The elimination period refers to the length of time between when your long-term care needs begin and when your long-term care benefits become payable. The elimination period can be anywhere from 0 days to a year. The longer you wait and pay for care out-of-pocket, the lower the premium. Some policies apply the elimination period to each admission; with others you need to satisfy it once.

Do I have to be hospitalized before benefits begin? In some cases, yes. However, it's best to avoid policies that require prior hospitalization in order to receive benefits.

How long will benefits be paid?
Benefit periods typically range from one year to life, with lifetime coverage being very costly. Since research shows that the average nursing home stay is between two and three years, you can save money by limiting the benefit period your policy covers.

Does the policy include an inflation clause? Given the rising cost of health care, a benefit amount that seems reasonable today could quickly become inadequate. An inflation protection provision is the only way to ensure that the benefits payable under the policy will rise each year to keep pace with inflation.

Does the policy have a waiver of premium provision?
This provision means that you do not have to continue to pay the premiums once you begin collecting benefits. Some policies waive premiums starting on the first day benefits become payable; others require that benefits be paid for a certain number of days before premiums are waived.

Can the company cancel this policy?
Look for a policy that is guaranteed renewable. This means the company cannot cancel your policy as you get older and/or your health deteriorates. However, your premiums can go up. While you cannot be singled out for a rate increase, subject to approval from the State Insurance Department, insurance companies can raise premiums for a class of policyholders.

How long has the company been selling long-term care insurance? Be sure to examine the financial strength and stability of the insurer. After all, you want the company to be around if you need coverage 15-20 years from now. A quick trip to the library or a search on the Internet can provide you with the company's rating by agencies such as Standard & Poor’s or A.M. Best.

May I have a sample copy of the exact policy I would be purchasing from your company? Before you sign up for long-term care insurance, get copies of contracts from several insurance companies and read the fine print in advance of selecting the policy that best fits your needs.

Under current law, a portion of the premium on your long-term care policy may be deductible as a medical expense on your tax return. A CPA can help you select a policy that qualifies for the deduction.

You seek the expertise of CPAs at tax and audit time, of course. But CPAs also promote personal and professional financial security year round. Visit the CPA Referral Service on the MACPA website to search for a CPA in your geographical area or specific area of expertise.

This article was submitted by the Michigan Association of CPAs.

What Why How Where Home