Long-Term Care Insurance: What to Ask Before You Buy

Planning for your future care or that of a loved one has emotional and financial implications. According to the California Society of CPAs (www.calcpa.org), there are a number of important questions you should ask before selecting a long-term care policy. Here are some of them.

WHEN DO I BECOME ELIGIBLE FOR BENEFITS AND DO I HAVE TO BE HOSPITALIZED FIRST?

Most insurance companies decide when you're eligible for long-term care benefits based on your inability to perform a certain number (generally two or three) of activities of daily living (ADLs). These typically include bathing, dressing, eating, using the toilet, and getting in and out of bed. CPAs generally agree that what triggers benefits is the most crucial factor when choosing a long-term care policy.

WHAT TYPE OF CARE DOES THE POLICY COVER?

There are long-term care policies that cover home care, assisted living care, and skilled nursing home care. Since you can’t predict the level of care you’ll need, the best alternative is a policy that covers a wide spectrum of care.

HOW MUCH DOES THE POLICY PAY PER DAY FOR EACH TYPE OF CARE?

Most policies pay a maximum daily amount for your care, but you don’t necessarily have to insure for the full cost. Should you decide that you will be able to fund a portion of the daily cost from your savings, you can save on premiums by selecting a lower daily benefit.

HOW LONG WILL THE POLICY CONTINUE TO PAY FOR MY CARE?

The more years the policy covers, the higher the premium. According to the Health Insurance Association of America (HIAA), the average length of stay in a nursing home is 2½ years. Based on that information, many people choose a two- or three-year benefit period.

IS THERE A WAITING PERIOD BEFORE BENEFITS ARE PAID?

The waiting period is the number of days you must receive long-term care before the policy pays benefits. The standard waiting period is between 20 and 100 days, but a policy with a longer waiting period will come with a lower premium. What is best for you depends on your assets and how much you can afford to pay in premiums.

ARE ALZHEIMER’S DISEASE AND OTHER MENTAL AND NERVOUS DISORDERS COVERED?

Be sure that the policy specifically includes coverage for mental or cognitive impairment.

DOES THE POLICY COME WITH A PREMIUM WAIVER?

This provision allows you to stop paying premiums during the time you are receiving benefits. Read your policy carefully; some policies require you to be receiving benefits for a period of time -- 60 to 90 days is common -- before premiums are waived.

DOES THE POLICY OFFER PROTECTION FROM INFLATION?

With the cost of home health and nursing home care increasing sharply, it’s important to select a policy that will increase the level of your benefits with inflation to ensure that you have adequate coverage for the future.

IS THE POLICY TAX-QUALIFIED?

Most long-term care policies sold today are tax-qualified, which means your premiums for long-term care insurance can be applied toward meeting the 7.5 percent threshold for the medical expense deduction and that the benefits you receive are generally not considered taxable income.

HOW LONG HAS THE COMPANY BEEN IN BUSINESS?

In many cases, long-term care policyholders do not receive benefits for 10 to 20 years after the policy is issued, so you want to be sure to select a company that is going to be around when you need the benefits.