How Long Term Care Insurance Works
Typically, long-term care policies pay up to a specific dollar amount for covered services per day, reimbursing policy owners for expenses incurred. Annual premiums for long-term care insurance policies can range from a few hundred dollars to a few thousand dollars depending on age, waiting periods, and the duration and amount of benefits.
Long-term care insurance usually pays for skilled, intermediate, or custodial care in a nursing home. It should also cover “at-home” health care. This type of insurance can help pay for a variety of home and community-based care services, including: physical, speech, and occupational therapists; home health care aides, visiting nurses, respite care, adult day care, and hospice care.
Generally, skilled care refers to treatment by a nurse under a doctor's supervision. Intermediate care refers to occasional nursing and rehabilitative care under the supervision of skilled medial personnel. Custodial care primarily meets personal care needs in activities of daily living such as help in eating or bathing.
Most long-term care insurance policies pay benefits when long-term care is prescribed by your physician when someone can no longer take care of basic needs. For example, a person who is disoriented or is unable to get dressed and eat without help on a consistent basis might qualify for long-term care insurance benefits. Usually, policies cover all levels of care in state-licensed facilities and newer policies also cover assisted living facilities, as well as home health care.
Home health care services typically covered by long-term care insurance include nursing care, therapy, personal care, custodial care and homemaker services. Generally, home health care agencies and providers must be state-licensed, however, the newer options allow for a family member such as a spouse to be your care-giver as well. And ‘cash benefit’ options take out the concerns over reimbursement by providing cash to be used as you want, when you want and what you want.
Most policies contain a waiting period, during which no benefits are paid. After you have satisfied the waiting period, your policy pays up to a maximum dollar amount for each day you receive approved care in a facility or at home. For example, you may choose a policy that pays $150 a day in a nursing home. If the total cost of a day in the nursing home is $205, you would have to pay the difference. A policy may not cover all expenses. For many folks, this form of ‘self-insuring’ a portion of the risk makes a lot of sense by helping to keep the premiums low.
Most policies now offer an inflation adjustment feature that increases your per-day benefit to cover higher costs. For example, the daily benefit amount might increase each year at a compounded or simple rate of 5%.
Premiums for long-term care insurance can range widely, depending upon your age and the level of benefits you buy. Policies that cover a substantial portion of the daily cost of a nursing home or a policy with an inflation adjustment feature will tend to be more expensive. For example, using data from the June 2004 AHIP LTC Insurance Market Surveys, the average premiums for top long term care insurance sellers in 2002 ranged from a base premium of $422 a year for a 40-year-old to $1,337 a year for a 65-year-old. If you consider coverage that also includes compounded inflation protection (in this case 5%), the premium was $890 a year for the 40-year-old and $2,346 a year for the 65-year-old. Remember, the younger and healthier you are when you apply, the lower your premiums will be. So if you plan to buy long term care insurance, it makes sense to buy it sooner than later. The key is to develop a long term care insurance plan that fits your budget and your needs.
In general, premiums remain fixed each year, unless they are increased for a class of policyholders at once which is why it is important to get coverage from a company that has a solid track record in long term care insurance, keeping premiums level and at least a rating of A or better. Look for a Comdex rating above 90. For example, John Hancock has a Comdex rating of 98, Metlife’s is 95 and Prudential has a rating of 92 (2006 Comdex Rating Guide) while Genworth’s is only 89 and Banker’s Life has a rating of 58.
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