Long-Term Care Insurance

Armed with the right vocabulary, you can make a smart choice.

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  • What triggers the benefit? Long-term care insurance benefits don’t kick in simply because you say you need the funding to pay for care. You have to fit criteria stated in your policy. "It’s critical to know what you have to do in order to get paid," says Lassus. "You want to make sure it won’t be too difficult to be reimbursed for your expenses." Typically, a doctor’s certification that care is needed, or a demonstration that the patient cannot perform certain activities of daily living, are needed. A showing of mental incompetence can also be a qualifying event to trigger long-term care coverage.
  • What’s the elimination period? The elimination period, also called a waiting period, is the amount of time that elapses after you and a physician feel you need care but before the policy kicks in. When you purchase the policy, you can choose a 30-day period, for example, which would mean you’d pay costs for care in the first 30 days, and after that, your policy would pay. A 30-day elimination period is more expensive than a 90-day elimination period because you’d be expected to cover costs for less time before the policy would kick in. Lassus says if you can afford it, a longer elimination period can bring down the cost of your premiums substantially.
  • What’s the daily benefit? The daily benefit is how much the policy will pay per day for care. The most expensive choice, in terms of premiums, would cover 100 percent of your daily care. You can lower your premiums by choosing, say, an 80 percent option. That would mean you’re responsible for 20 percent of the costs of care. If you’ve got the savings to cover such costs, you’ll save in premium costs. You’ll also bear a heavier burden at the time you need care.
  • What’s the benefit period? The benefit period is the length of time the policy will provide benefits, from the time you start receiving care. You can choose a lifetime policy, or one that covers you for a certain number of years. The lifetime policy may make the most sense, despite the higher cost. If the policy only covers you for five years but you need care for longer, you’d be responsible for the full cost of care in the later years. If you’re forced to draw on your assets, it could negate the purpose of buying a policy in the first place.
  • What’s the inflation protection? This is one area in which planners say you should not skimp on a policy. Inflation protection means your benefits will increase each year, with the hopes of keeping up with the rising costs of medical care. "The cost of medical inflation is rising faster than the general inflation rate — between 8 and 11 percent annually," Schoenborn says. She says if you don’t have inflation protection, your policy may not pay enough to cover your costs years into the future. She also notes that, in some states, you can’t buy a policy without an inflation protection rider, but in others, it’s up to you to make sure you’re covered. Also, you don’t get to choose how much inflation protection you want. It’s determined by the policy.

Other Considerations

When deciding which coverages to scale back on and which to boost in a long-term care insurance policy, Schoenborn says you have to assess your tolerance for risk.

"Long-term care insurance is like any other insurance plan, where you’re going to share risk with an insurance company, but don’t cut back in the wrong places," she says. While you may insure your house for its full replacement cost, you might be tempted to insure for less than full coverage on a long-term care policy. But understand that doing so increases the amount you may have to pay for part of your care.

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