10 Jul The guts of a long-term care policy

 Q. What should I look for in a long-term care insurance policy? I’m 60 and in good health, and my wife is 55 and also in good health.

A. Long-term care insurance is an important addition to any financial plan. It can preserve assets, and remove some of the stress of paying for care should you ever need it.

The long-term care insurance arena, though, can be very confusing.

First, like any insurance, you want to make sure the policy pays off if you or your family make a claim, said Brian Power, a certified financial planner with Gateway Advisory in Westfield. That means the financial strength of the insurance company is very important.

You should also investigate the insurance company’s history of paying the claims on time and how frequently have they increased premiums on the type of insurance you’re buying.

“Many insurance companies dove head first into the long-term care insurance arena and miss-priced their policies to the point they had to get out of the business entirely or had to increase premiums on their policy holders by 50 to 75 percent,” Power said.

He said once you’re comfortable with the insurance company and its ability to pay your claims, the next thing is to combine policy benefits to make it fit into your plan.

The main components of any long-term care policy consists of the actual daily benefit purchased, the optional inflation rider and the type of care covered, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.

You have to choose how much of a daily benefit you want.

“You have the option to buy any daily benefit you choose usually in $25 increments,” Gallo said.
“In the NY/NJ metro area, the average daily cost for an assisted living center is $250. Obviously the annual cost of the policy is directly tied to the amount of benefit you decide to buy.”

Next, you should always seriously consider buying an inflation rider.

The rider is an option and is available in different variations depending on the company offering the policy, Gallo said. These riders offer an increasing daily benefit each year, normally at a rate of 3 percent, however the major factor here is whether the increase is simple or compounded.

For illustration purposes, Gallo offered this example: Let’s assume you purchase a $300 daily benefit with a simple 3 percent inflation rider. Each year your benefit would increase $9 per day (3 percent of $300). If you chose a compound inflation rider, the daily benefit would increase $9 per day after year one, $9.27 per day after year two (3 percent of $309) and so on.

“This rider is the most expensive component of any long-term policy,” Gallo said. “The fact that you and your wife are so young, this rider becomes more important. By the time you will most likely need some type of care, the daily costs will be far greater then what they are today so this rider will give you a chance to keep up with the rising costs.”

It’s also important that you make sure that you understand what the proposed policy covers, Gallo said. You should make sure that the policy will cover care in assisted care facility as well as in home care should you or your wife decide that to be a better option, he said.

In addition, you want to know if the policy is a reimbursement policy, which means you must submit proof of costs paid for care to the company and wait for them to approve and reimburse these expenses.

“Preferable to this is an indemnity policy, which means you simply have to prove that you qualify for benefit and once that is done, the insurance company will simply send you the daily benefit on a monthly basis,” he said.

Before you buy a plan, you need to see how it fits in with your financial situation because that could change the benefit amount you purchase.

“You might have income sources or assets that can help pay for some of these costs so you may not need the maximum amount,” Power said. “Also, the average length of a stay in a long-term care facility is approximately 2.5 years, so you may not want to have a benefit period that goes out too far.”

Plus, Power said, there is typically a significant discount if a husband and wife get policies together. So if you both qualify healthwise, it would make sense for both spouses to get a policy.

Make sure to work with someone you trust when you consider what different policies offer so you can be sure you’re buying what you need.

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This story was first posted in July 2015.