A Buyer’s Guide To Long-Term Care Insurance
policies offer slightly lower initial premiums, the result of the group’s buying power. But they also harbor potential disadvantages. Over the years, the group will negotiate with the insurance company regarding premiums. The group might favor younger workers over retirees, negotiating lower premiums for new policyholders and steep premium hikes for existing policyholders. Or the group might one day cancel the arrangement altogether, transforming the group policy to an individual one with much higher premiums.
How to check on an insurance company’s reliability
Your parents aren’t likely to collect on their policy for 10, 20, or 30 years, and if the company that issued the policy goes belly-up in the meantime, your parents will be left holding a very expensive but worthless piece of paper. There’s no way to guarantee that an insurance company will still be in business when your parents are ready to collect policy benefits years from now. But you can at least make sure that a company is in good financial shape for the foreseeable future by checking its financial ratings with Moody’s Investors Service or Standard & Poor’s insurance rating services.
You also want the policy to come from a company that has a track record of honoring long-term care benefit claims. Check on the company’s record of complaints with your state government’s department of insurance. You can find contact information for your state’s insurance department by going to the home page of your state government and searching on Department of Insurance or Insurance Commission. If a company has a steady pattern of complaints, you should look for a different company.
Special advantages to look for in a long-term care insurance policy
Some broad categories of policies offer certain advantages beyond their coverage and benefits.
Qualified Long Term Care Insurance (QLTCI): One type of long-term care insurance offers the advantage of a double tax break. Premiums paid for these QLTCI policies can, under certain conditions, be deducted from federal income as an itemized medical expense. The deductible amount depends on the insured’s age. The other part of the tax break is that benefits paid under a QLTCI policy are not taxed as income. Since a policy might pay upwards of ,000 per year in benefits, this could be a big savings.
State partnership policies: State partnership long term care insurance policies are available in eight states: California, Connecticut, Florida, Idaho, Indiana, Kansas, Nebraska, and New York. They are connected to Medicaid, which can pay the full cost of a long-term nursing facility or home care. Medicaid allows a beneficiary only very limited income and assets, however. With a state partnership policy, your parents could keep considerably more assets and still qualify for Medicaid coverage of long-term care costs that insurance doesn’t pay.
How initial premium amounts are set
In general, a long-term care insurance policy’s premium amount depends on several factors, which are determined by the insurance company’s own formula. But your parents can control some of these factors by the choices they make. Factors include:
Age. The older your parents are, the higher the premium.
Health. Prior or existing health conditions can raise premiums; these conditions are revealed during underwriting, which may include both an examination of your parents’ medical records and a physical exam by an insurance company doctor.
Coverage. The more types of care the policy covers, the higher the premium.
Benefit amount and duration. The higher or longer the benefit, the higher the premium.
Inflation protection. Benefits that increase with inflation are a crucial part of a good policy but may add to its cost.
Waiting period before benefits begin. The shorter the waiting period, the higher the premiums.
Miscellaneous provisions. Provisions that allow premium reduction or cashing-out of the policy may affect initial premiums.
Shop around. Remember that for virtually the exact same policy, different companies might charge your parents widely different premiums.
Locking in long-term care insurance premiums over time
Except for “attained age” policies (see below), an individual’s premiums won’t go up just because he gets older. But while individuals aren’t singled out for premium increases, an insurance company can and will raise premiums across the board for everyone who holds a similar policy.
How much premiums go up over time may determine whether the policy will still be affordable for your parents 15 to 30 years from now. That’s why it’s important to understand how companies set up premium raises and, if possible, to pick a policy with favorable terms.
Level premiums are the best type of premium increase provision. The insurance company will only increase premiums by the same percentage for everyone