As the older adult population grows and life expectancies continue to increase, more and more Americans face the difficult prospect of having to pay for costly long-term care. One of the ways consumers are answering this challenge is by purchasing long-term care insurance in order to help manage the sometimes overwhelming costs of care. However, long-term care insurance can be expensive and like any other insurance plan it has differing levels of coverage and varying premiums. Therefore, long-term care insurance may not be right for you. Even if, after careful research, purchasing long-term care insurance seems like the right thing to do, you will still need to carefully review the plans you are considering and decide if the long-term care insurance provider you have chosen can offer a plan that is adequately catered to your needs. This article is intended to help you make these difficult decisions by providing unbiased information about the pros and cons of long-term care insurance. However, it should be seen as an introduction to the marketplace and not as a substitute for a consultation with an insurance or care expert. Following the article, there is a list of resources consulted for this article, which provide more in-depth information about all of the topics covered.
*What is Long-Term Care?*
Long-Term Care Insurance Policies can either be tax-qualified or non-tax-qualified. Tax-Qualified policies allow you to deduct your premiums as medical expenses; however, before any deductions for premiums can be taken, an individual’s total allowable medical expenses must exceed 7% of his or her adjusted gross income, which is the case for only 4% of filers. There are also maximum deduction limits based on age. Income from benefits paid from a tax-qualified policy is specifically exempt from federal taxation. These policies generally have standardized benefit triggers. Any disability must last for at least a 90 day certification period before payment will begin. Benefits will also be trigged if you are unable to perform two activities of daily living or if you suffer from a cognitive impairment. Non-Tax-Qualified Policies may include more lenient benefit triggers; however, income from these benefits is not specifically exempt from federal taxation. There is as of yet no precedent in tax cases and no specific regulations which address the taxation of these benefits. It is important to realize that in addition to federal deductions many states offer credits or deductions for tax-qualified long term care insurance
Financial Stability of the Company
In order to select a financially sound company, you should consult independent financial ratings of insurance companies. You can review ratings from the following rating services in the reference section of your library, or you can call them for information: A.M. Best Company (1-800-424-BEST); Fitch Investors Service (212-908-0800); Moody’s Investor Service (212-553-0377); Standard & Poor’s (212-488-2000); Weiss Research, Inc. You should also inquire about the claims-paying history of any company you are considering. Finally, you should consider the number of long-term care insurance policies the company has sold. It is important that a company demonstrate a long-term commitment to the long-term care insurance industry. Finally, it is important to keep in mind that larger companies are generally more reliable and may be less likely to increase rates dramatically. You can research the history of rate increases by the major companies currently selling LTC insurance at www.insurance.ca.gov.
Inflation protection can dramatically increase your premiums, but it can help to ensure that your policy accounts for the ever-increasing costs of care; therefore, you must consider your age, current health, gender, family history, and industry statistics in order to determine if it is an appropriate feature to purchase. If you decide to purchase this feature, you will need to look into both compound and simple inflation protection, depending on your age and health. One other option to consider is purchasing a higher daily benefit rate instead of inflation protection.
This feature allows you to receive reduced benefits if you are unable to continue paying premiums after a certain number of years. This benefit can also be considerably expensive. Unless you have some doubt as to whether or not you will eventually need long-term care or unless you feel that you may eventually be unable to cover your premiums, this feature may not be worthwhile to purchase. Less than 1% of all policies sold include this feature because of the enormous expense it incurs.
State Health Insurance Assistance Program (offers counseling and assistance to people with Medicare and their families).
Toll Free: 1-800-633-4227
State Insurance Departments (can offer information on the claims and complaint history of insurance companies).
D.C. Department of Insurance and Securities Regulation
Government of the District of Columbia
810 First Street, NE, Suite 701