A Buyer’s Guide To Long-Term Care Insurance
benefits would only make a small dent in long-term care costs. The minimum should be:
· 0 per day for nursing facility care
· per day for home care
Amounts nearer to 0 per day for nursing home care and 0 per day for home care are more comfortable figures, but this benefit level means higher premiums. Those who can afford the higher premiums choose 0 per day for nursing home care and 0 a day for home care. At that level, benefits would cover 0,00 a year for nursing home costs and ,000 for home care, which is close to the full cost of care currently available in many areas of the country (and significantly higher than average costs in others).
Inflation protection. Whatever level of benefits your parents wind up buying, make certain that the policy contains inflation protection. Without it, the policy your parents buy today may be next to worthless when they’re ready to collect on it.
The benefits of inflation protection
Inflation protection is a highly recommended feature. Why? Let’s say that at age 65, your parents buy a long-term care insurance policy with a flat benefit of 0 per day for nursing facility care and 0 per day for home care (and we’ll assume that these numbers reflect the cost of care in the area where they live). The problem is that the cost of care won’t be anywhere near those amounts 15 or 20 years later, when your parents are likely to collect on the policy. Every year, the cost of healthcare goes up faster than the general cost of living. So, while a 0 daily benefit might cover nearly the full cost of a nursing facility now, in 20 years it might pay only 10 percent.
That’s where inflation protection comes in. This important provision increases the amount of your parents’ benefit over the years they keep the policy. In fact, many policies now include inflation protection as a standard policy term. With other policies, you have to pay a higher premium for it. Either way, make sure the policy includes it.
Most policies place a time limit on inflation protection, usually 10 to 25 years from the date the policy was first purchased. Other policies stop the benefit increases when your parents reach a certain age, usually 80 or 85. Look for the longest period of inflation protection, especially if your parents are relatively young when first buying a policy.
Best types of inflation protection
Inflation protection comes in several forms:
Compounding automatic increase. This is the best kind of inflation protection. It automatically increases benefits each year, by a percentage set in the policy. Also, it has a compounding effect, using each year’s increased benefit amount as the base for calculating the next year’s increase.
Simple automatic increase. This type of inflation protection automatically increases the benefit amount each year by a set percentage but it uses the policy’s original benefit amount to calculate this increase. Over the life of the policy, this increases benefits far less than a compounding increase would.
Added coverage purchase. This is a very poor cousin to automatic increases. It allows you to increase the benefits every few years — by paying more. Unless there’s a guarantee about what this added coverage would cost, it might not be affordable. This is a gamble to avoid, if possible.
How long a benefit period your parents should buy
Once you’ve decided how much in daily benefits your parents will need and can afford, the question becomes how long the benefit period should last: One year? Three years? Five? The longer the period of coverage, of course, the higher the premium.
Limiting benefits to a year probably isn’t worth the cost of the policy. Buying coverage for more than six years of nursing home care is generally unnecessary and usually unaffordable. Three to five years of nursing home care is what most people choose and, statistically, what’s most appropriate. Whether you choose three, four, or five years depends on what you think is affordable now and in the future.
Flexible payout versus payout only for specific types of care
Because you can’t be sure whether your parents will need care at home or in a nursing home — or some combination of the two — it’s best to find a policy with a flexible payout. This combines the policy’s maximum total benefits for home and nursing facility care into a single coverage pool of money. Your parents can then use this benefits pool in whatever combination of home care and nursing home care is needed.
Buying a joint long-term care insurance policy for both parents
Most long-term care insurance companies offer “share-care” policies for couples. With these policies, the total amount of coverage is pooled between the two. If one parent dies without having used up all his policy benefits, the survivor gets those unused benefits added to the remaining