Long-Term Care Insurance Is It Right for You?

By Bendix, Jeffrey | Medical Economics, November 5, 2010 | Go to article overview

Long-Term Care Insurance Is It Right for You?


Bendix, Jeffrey, Medical Economics


DESPITE ITS COST, THIS TYPE OF POLICY IS GROWING MORE POPULAR; HERE'S WHAT TO LOOK FOR WHEN CHOOSING ONE

Joseph Smith, MD, FAAFP, is a self-described believer in the importance of insurance. A partner in a 4-physican family practice in Hillsborough, New Jersey, Smith has about $1.5 million in life insurance policies between his practice and his family, as well as a disability policy.

Late in 2009, he added another one, when he and his wife, Fern, decided to buy a long-term care insurance policy. "We'd been thinking about it for a while, in terms of what we want to do and how we want our finances to be when I retire," he says. "We also saw it would be less expensive now than if we waited until later." (Both are in their mid-50s.)

In so doing, the Smiths joined the growing number of Americans who have been purchasing long-term care insurance. According to the American Association for Long-Term Care Insurance (AALTCI), the number of individuals covered by long-term care policies grew from 2.9 million in 1998 to 7.1 million in 2009.

Like all insurance, long-term care is a form of protection-in this case, against the potential of a financial disaster resulting from an injury, or from a long, debilitating illness. The insurance pays for care, either at home by a licensed caregiver, or in a facility such as a nursing home. If it is at home, the care consists of help with activities of daily living, such as meal preparation, bathing, and doing laundry.

MOST POLICIES SOLD THROUGH BROKERS

About two-thirds of policies are sold through individual insurance brokers, with the rest sold through employers, professional associations, and other organizations. The American Academy of Family Physicians (AAFP), the American College of Physicians, and the American Medical Association (AMA) offer policies to their members through insurance companies.

Matthew Grace, a financial adviser with Park Avenue Securities in Bethesda, Maryland, explains that there are several variables to a typical policy. First is the length of waiting period between the time of the first claim and when benefits actually begin, usually 30, 60, or 90 days. Second is the amount of the daily benefit, generally determined by the cost of nursing home or in-home care in a particular region.

Finally, there is the duration of the policy. Whereas insurance companies used to routinely write policies with lifetime benefits, the increasing number of claims in recent years has caused most companies to sell policies with limits on the number of years for which they will pay claims. In 2009, nearly half the policies sold were for either 3 or 4 years after the first claim is filed.

OPTIONS ABOUND

Within those broad categories of variables are many additional options. For example, some policies use an indemnity form of payment, in which the policyholder receives the daily dollar amount specified in the coverage if he or she qualifies medically for it, regardless of the amount of service provided. Others use a reimbursement form, in which the caregiver bills the patient, who then submits the bill to the insurance company for reimbursement.

The advantage of the indemnity form, according to Grace, is the flexibility it provides. "Most plans will only pay the full amount of coverage for a licensed professional. But if you have a relative or friend who is not licensed but wants to help with care, you could have the professional come for part of the day to do the more complicated tasks, then use what's left of your daily indemnity to compensate the nonprofessional," he says.

Another option to consider is an inflation rider, so that reimbursement keeps up with increases in the cost of care. "We know that the cost of healthcare has been going up faster than the consumer price index," says Justin Fulton, JD, CFP, a financial planner with Signature, a financial management firm in Norfolk, Virginia. "We just don't know what the costs will be in the future, so you want to make sure you have as much inflation protection as possible, because you may not need that coverage for another 20 years. …

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