How to Purchase Long-Term Care Insurance

With the increasing costs of long-term care services and the growing need for such support in later years, long-term care insurance (LTCI) has become an essential component of a comprehensive retirement plan. Unlike traditional health insurance, which often covers short-term medical needs, long-term care insurance is designed to cover services that help individuals with daily activities—like bathing, dressing, and eating—whether at home, in assisted living facilities, or in nursing homes.

This blog will walk you through how to purchase long-term care insurance, covering essential steps, considerations, types of policies, and tips for ensuring you select a policy that fits your unique needs.

Step 1: Assess Your Need for Long-Term Care Insurance

Before diving into the purchase process, it’s important to evaluate whether you need long-term care insurance. Not everyone may benefit from this type of policy, and some people may find that they have sufficient savings or other resources to cover potential care costs without needing additional insurance.

Consider Your Health: If you have a family history of health issues that may increase your need for long-term care, such as Alzheimer’s, arthritis, or mobility issues, LTCI might be especially valuable.

Evaluate Your Financial Situation: If you have significant assets that you want to preserve for heirs, LTCI can prevent you from having to deplete your savings for care costs. Conversely, if you have limited resources, you may qualify for Medicaid, which covers long-term care in certain situations.

Think About Family Support: Do you have family members who can help provide care, or will you need outside support? LTCI can be a financial relief for families unable to provide full-time care themselves.

Step 2: Understand Long-Term Care Insurance Policy Options

Long-term care insurance policies have evolved over the years to accommodate various needs and preferences. Today, buyers have several types of LTCI options:

Traditional Long-Term Care Insurance: Traditional LTCI policies pay for a variety of long-term care services, including home care, assisted living, and nursing homes. These policies typically operate on a “use it or lose it” basis—if you never need long-term care, you don’t receive a benefit.

Hybrid Policies: Hybrid long-term care policies combine life insurance or annuities with long-term care coverage. If you don’t need long-term care, your beneficiaries receive a death benefit or annuity payout. These policies are popular with people who want flexibility, ensuring some benefit if long-term care isn’t needed.

Short-Term Care Insurance: Short-term care policies offer benefits for a limited period, typically up to one year. These can be a more affordable option and are helpful for covering temporary care needs.

Employer-Sponsored and Group Policies: Some employers offer long-term care insurance as part of their benefits package. These policies may have more lenient underwriting, which can be advantageous if you have health issues that could otherwise increase premiums.

Step 3: Decide When to Purchase Long-Term Care Insurance

When purchasing LTCI, timing is critical. If you wait too long, you may face higher premiums, and you could be denied coverage due to health issues. Here’s a general guideline on when to consider buying LTCI:

In Your 50s or Early 60s: Many people start shopping for LTCI in their 50s or early 60s. At this stage, premiums are generally more affordable, and you’re less likely to have health issues that could increase costs or lead to a denial.

Before Health Concerns Arise: LTCI policies often require medical underwriting. If you wait until you have a health issue, your premium will likely be higher, or you may be declined for coverage.

While LTCI premiums may be lower if purchased earlier, starting too young (e.g., in your 40s) could mean paying premiums for decades before potentially needing the coverage. Carefully balance affordability with the likelihood of needing long-term care.

Step 4: Determine the Right Amount of Coverage

Calculating how much long-term care coverage you need involves considering several factors, such as daily benefit amounts, benefit period, and inflation protection.

Daily Benefit Amount: The daily benefit amount is the maximum your policy will pay per day for your care. Research the average daily costs of long-term care services in your area. Common daily benefit amounts range from $100 to $500, but it’s essential to choose a figure that aligns with your local costs and care preferences.

Benefit Period: This is the length of time your policy will pay for long-term care services. Options generally range from 2 to 5 years or can even be lifetime in some cases. A shorter benefit period might reduce your premiums, but it’s also a risk if you end up needing extended care.

Inflation Protection: Inflation protection is crucial because long-term care costs are likely to rise over time. Most policies offer a percentage increase in benefits each year to keep pace with inflation, typically around 3% to 5%. While it does increase the premium, inflation protection is highly recommended.

Elimination Period: The elimination period is the “waiting period” before benefits kick in, similar to a deductible. Common elimination periods are 30, 60, or 90 days. Choosing a longer elimination period can reduce your premium, but you’ll need to pay for care costs out-of-pocket during that period.

Step 5: Research Insurance Providers and Compare Policies

Not all LTCI policies are created equal, and prices and coverage can vary significantly across providers. Some key factors to consider while researching insurers include:

Financial Stability: Long-term care insurance is a long-term commitment, and you’ll want to select a provider that’s financially stable and likely to be around for decades. Look up the insurer’s financial ratings from agencies like A.M. Best or Standard & Poor’s.

Customer Service and Claim Payment Reputation: Evaluate the provider’s track record for paying claims and handling customer inquiries. Reviews from current policyholders and customer satisfaction ratings can offer insight into an insurer’s reliability.

Cost Comparisons: Premiums can vary widely for similar policies, so request quotes from multiple insurers to get the best deal. Make sure to compare policies with similar coverage levels, benefit periods, and inflation protection.

Step 6: Review Policy Exclusions and Limitations

Long-term care insurance policies often come with exclusions or limitations. Common exclusions may include:

Pre-Existing Conditions: Some policies won’t cover pre-existing conditions for a certain period after the policy starts.

Mental Health Exclusions: Policies sometimes limit or exclude coverage for certain mental health conditions, aside from Alzheimer’s or other dementia-related conditions.

Family Care Limitations: Some policies may limit or exclude care provided by family members, which is important to consider if you plan to rely on family for care.

Be sure to read the policy carefully to understand what’s covered and what’s not, and clarify any doubts with an insurance agent.

Step 7: Consult with a Financial Planner or Long-Term Care Specialist

A long-term care insurance specialist or financial planner can be instrumental in helping you select the best policy for your needs. They can help you evaluate policy features, understand tax implications, and ensure that the policy you choose aligns with your broader financial and retirement goals.

A financial planner can also help you determine whether LTCI is the best solution for you or if other options, such as self-funding through investments, might be more appropriate.

Step 8: Make the Purchase and Keep the Policy in Good Standing

Once you’ve chosen a policy, make the purchase, and ensure you understand the premium payment structure. Many LTCI policies require ongoing premium payments, but hybrid policies or some annuities may allow a single, upfront payment.

Tips for Maintaining Your LTCI Policy:

• Pay premiums on time to avoid losing coverage.

• Re-evaluate your coverage periodically to ensure it meets your needs, especially if your health or family situation changes.

• Understand when and how to file a claim if you need long-term care. Familiarize yourself with the benefits triggers, such as the inability to perform two out of six activities of daily living (ADLs).