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Under a tax-qualified plan, benefits are payable when a licensed health care practitioner certifies that you are unable to perform at least two activities of daily living without substantial assistance for a period expected to last at least 90 days.
You are also eligible for benefits if you require substantial supervision to protect yourself due to a severe cognitive impairment such as Alzheimer’s disease.
Long Term Care Insurance 101
What is Long Term Care Insurance?
Long term care insurance is an insurance product which pays for long term care services in many settings, such as at home, a nursing home, assisted living facility, and adult day care facility. Many people elect to buy long term care insurance so they will not need to deplete their savings should they need long term care services. Long term care insurance can help ensure that financial resources and support are in place when you need them.How Does Long Term Care Insurance Work?
First, you must apply for coverage. If you are approved for coverage, pay your premiums, and you meet the insurance carrier’s criteria for benefit payment, you will be reimbursed for covered long term care services up to the amount of daily benefit after you satisfy the Waiting Period. Does Long Term Care Insurance Only Cover Care in a Nursing Home? No. While some plans only pay for care in a nursing home or assisted living facility, other plans also cover long term care you receive in your own home or other settings. Most people receive long term care in settings outside of a nursing home. If you want to remain in your own home or have family members or friends who will be able to assist you in a caregiving role, you should consider a Comprehensive Optionthat can provide benefits for care in the home and other settings outside of a nursing home. If lower premiums are more important to you than receiving care at home, consider a Facilities-Only Option.Why Should I Buy Long Term Care Insurance?
Long term care insurance helps cover expenses for services for which most health plans and Medicare provide only limited (if any) coverage. Health plans (including the FEHB Program, TRICARE,and TRICARE for Life) typically do not cover ongoing chronic care such as an extended stay in an assisted living facility or nursing home, or a continuing need for a home health aide to help you in and out of bed. Medicare pays limited amounts for skilled care following a hospital stay; Medicare does not cover most long term care services which assist people with the activities of daily living over a long period of time.Is Long Term Care Insurance Right for Me?
Long term care insurance is a smart choice for many people, but is not for everyone. You should consider long term care insurance if you have assets of at least $30,000 (excluding your home) and/or you have income you want to protect.8 You may also want to consider long term care insurance if you want to choose where to receive long term care and/or you don’t want to burden your family with caring for you. You should not consider long term care insurance if you can’t afford the premiums. If you will be paying premiums with money received only from your own income, a rule of thumb is that you may not be able to afford this (type of) policy if the premiums will be more than 7% of your income.8 If your sole income is from Social Security or Supplemental Security Income (SSI) or if you’re struggling to meet your basic monthly living expenses, this coverage may not make sense for you. If you are buying this (type of) policy to protect your assets and your assets are less than 30,000, you may wish to consider other options for financing your long term care.When Should I Apply for Long Term Care Insurance?
You can purchase long term care insurance at any time as long as you are able to pass medical underwriting. Since the cost for this insurance is generally based on your age at the time of application, your premiums will be lower the younger you are when you apply. You’ll need to weigh the availability of your resources and your own personal financial needs to help you decide when it’s best to apply for long term care insurance. Here are a few words of caution as you make your decision. It is important that you apply for long term care insurance when you’re in good health. That’s because most long term care insurance plans list certain medical conditions, or combinations of conditions, that will prevent some people from being approved for coverage.Comparing Long Term Care Insurance Policies
Purchasing long term care insurance can be a difficult and an overwhelming process. It is important that you compare policies and insurance companies carefully to determine which long term care insurance offering best meets your needs. We encourage you to shop around. However, we caution you that it is challenging to know when you are accurately comparing like benefits and options. We have developed a Benefits and Features Comparison Worksheet to make comparing policies a bit easier. How Much Long Term Care Insurance Coverage Do I Need? There are several factors that should drive your decision. First, consider the geographic area where you will most likely be receiving long term care services. The cost for services is generally higher in metropolitan areas. Find the Cost of Care in Your Area. Second, think about whether or not you’ll need a Comprehensive Option that will provide benefits in a variety of settings or if a Facilities-Only Option is better for your needs. Third, consider how much money you can contribute from your savings to help cover the cost of care and how much you are able to afford in long term care insurance premiums. You may be able to pay a portion of the cost of care in return for a lower coverage amount and lower premium. Calculate how much you might be able to self-fund. Finally, take into consideration the rising cost of medical expenses by carefully selecting an inflation protection option.Do Long Term Care Insurance Rates Ever Increase?
Partly due to the way some companies have priced their products, rate increases have been made on some policies. Consumers should examine the history of rate increases made by companies they are interested in. John Hancock and MetLife have never increased rates on their employer-sponsored group long term care insurance policies. It is also noteworthy that the Office of Personnel Management (OPM) required John Hancock and MetLife to use the National Association of Insurance Commissioners (NAIC) model guidelines designed to ensure premium stability. The purpose of the NAIC guidelines is to avoid or limit the need for future rate increases. Once enrolled, your premium under the Federal Program will not change because you get older or your health changes or for any other reason related solely to you. Your premiums may only increase if you are among a group of enrollees whose premium is determined to be inadequate. It is also important to keep in mind that no rate increase may be implemented without OPM’s approval. Of course, if you elect an increase in your benefits (such as with the Future Purchase Option), your premium would increase.What to Look for in a Long Term Care Insurance Policy
Since there are so many different long term care insurance plans and insurance carriers who offer them, it’s important to make sure the plan you select will meet your foreseeable needs. Some plans cover facilities-only care, while others cover facilities care and home care. When you are shopping for long term care insurance, ask these important questions:- What is the financial rating of the insurance carrier?
- Does the carrier have a history of filing for rate increases with state insurance departments?
- What inflation protection options are offered?
- Is the policy priced according to the most recent National Association of Insurance Commissioners (NAIC) guidelines? (This helps ensure the plan's premium stability.)
What Does It Mean to be "Tax-Qualified"?
Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in 1996 to ensure that long term care insurance policies that meet certain standards receive favorable tax benefits. For these tax-qualified long term care insurance plans, benefits you receive are generally not considered taxable income and you can also deduct long term care insurance premiums as medical expenses to the extent that you itemize your deductions and your total qualified medical expenses exceed 7.5% of your annual adjusted gross income. (The amount of the deduction is subject to other IRS limits by age.) The following table provides 2006 Figures for Federal Tax Deductibility:| Your Age | Maximum Amount That You Can Claim |
|---|---|
| 40 years old or younger | $280 |
| More than 40 but not more than 50 | $530 |
| More than 50 but not more than 60 | $1060 |
| More than 60 but not more than 70 | $2830 |
| More than 70 | $3530 |
How Can Long Term Care Insurance Keep Up With Inflation?
If you buy your coverage 20, 10 or even 5 years before you use it, the benefit amount you choose will almost certainly be too low to cover the increased costs of care. That’s why most plans offer inflation protection.Automatic Inflation Option
An Automatic Inflation Option means that the value of your insurance will increase each year by a set rate (e.g., 5% annually). While the initial premium is higher with this option, you will not have to think about future inflation increases, as they are automatic, with no commensurate increase in premium. Be sure you know the set rate and if the increase is simple or compound. A compound increase provides the most protection.Future Purchase Option
A Future Purchase Option allows you to choose to increase your benefits periodically, such as every second or third year. Each time you buy additional coverage, your premium will go up. If you accept the option regularly and haven’t become eligible for benefits, you don’t have to show proof of good health. However, if you decline the option a certain number of times — even once with some plans — you may have to provide medical information satisfactory to the insurance company to have access to the inflation increases again. Most plans increase your benefits and premiums only if you accept the offer when it’s presented.What is a Plan of Care?
A plan of care is the list of long term care services and care you need, developed by your Care Coordinator or other licensed health care practitioner in conjunction with you and/or your family. Many insurance plans will monitor and reassess your plan of care on a regular basis to ensure it continues to meet your needs and will make changes as necessary. A plan of care can also address the wide range of additional services available in the community to help you meet your long term care needs. Community-based services include friendly visitor programs, home-delivered meals, chore services, and adult day care centers. These additional services may be reimbursed by long term care insurance.Do I Continue to Pay Premiums While Receiving Benefits?
A waiver of premium feature allows you to stop paying your premiums once you are eligible for benefits and have satisfied the Waiting Period. Some plans waive premiums for nursing home care but not for home care; others waive premiums in both instances. You will normally resume paying your premiums if you recover and benefits stop.What Happens if I Stop Paying Premiums?
As with most other types of insurance coverage, if you stop paying your long term care insurance premiums, your policy will most likely be canceled. However, there are some plans that offer a Non-forfeiture Benefit. A Non-forfeiture Benefit provides protection if you cancel your coverage. Non-forfeiture provides limited benefits, typically based on the amount of time you’ve had the coverage and the amount of premium payments you’ve paid. Other plans offer a Contingent Non-forfeiture Benefit. This benefit provides protection if you are no longer able to pay premiums due to a premium increase to a certain level.Will I Always Be Able to Keep My Coverage?
Tax-qualified long term care insurance plans are required to be guaranteed renewable. That means your coverage can’t be canceled as long as you pay your premiums.Source: The Federal Long Term Insurance Program
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