Long-term care expenses are one of the greatest retirement fears.
For many people, the cost and uncertainty of long-term care are two reasons for the anxiety. Yet more anxiety arises from trying to sort through the options to fund potential long-term care expenses.
Comparing the choices baffles even many financially savvy people and advisers.
In the past issues of Retirement Watch, I presented different strategies and tools to finance long-term care (LTC).
Today, I’ll show you how to analyze several choices and pick the one, or the combination, that is best for you.
In addition to personal and family assets, you want to consider traditional stand-alone long-term care insurance (LTCI) policies, long-term care annuities, and life insurance/long-term care combo strategies (referred to as Legacy Life/LTC), and LTC/Life Combo policies.
Be sure to review more than one offering from each category.
The offerings from different insurers vary greatly. You should work with either several brokers and agents, or one who can offer products from all, or most, of the insurers. Most agents and brokers offer products from only a few insurers.
Drill down to compare the key factors of the coverage.
These are the long-term care factors you want to pay attention to:
Coverage triggers: In the early days of long-term care insurance, policy coverage was triggered only in limited circumstances.
If you buy any type of long-term care coverage, you want coverage to kick in after a medical professional determines that the insured is unable to perform two or more of the six activities of daily living, or has cognitive issues.
A hospital stay shouldn’t be required before coverage kicks in.
Covered care: The whole range of long-term care services should be covered, including adult day care, home care, assisted living, and nursing home care.
Many policies now will cover care provided informally, such as by a relative or close friend.
Avoid policies that limit the types of covered care or who can provide that care. Some, for example, will pay only for care provided by people with certain certifications.
Elimination period: This is also known as the deductible. It is the period of time you must pay for long-term care before the insurance coverage kicks in.
The standard elimination period for long-term care insurance is 90 days, but you can often increase or decrease it within limits.
A longer elimination period is attractive to many people, because it reduces the premium or increases long-term care benefits.
But make sure you have other income or assets to fund the care during the elimination period.
Be aware that Medicare might cover most long-term medical expenses for the first 90 days.
Cost: With the long-term care insurance policies, you’ll pay annual premiums.
These can be hard to determine over the long-term, because insurers can raise the premiums after receiving the approval of the state insurance commissioner.
As you’re probably aware, premium increases in recent years have been substantial in many cases.
Many insurers and long-term care insurance experts believe the insurers corrected the errors that led to these huge increases, and future increases are less likely.
With the long-term care combo annuities and life insurance policies, you usually make a lump sum deposit to acquire a policy.
However, some plans allow for long-term care insurance coverage to be acquired with smaller annual deposits.
Type of payout: There are two main ways long-term care products pay benefits.
Under the reimbursement method, you first pay the long-term care provider. Then, you present the proof of payment to the insurer and receive a reimbursement check for the covered amount.
The cash indemnity method is simpler. After the insurer agrees that the coverage has been triggered and you qualify for long-term care benefits, you receive a check each month for the amount stated in the contract.
Under the indemnity method, the amount received from the insurer isn’t related to your long-term care costs, and you are free to spend the money however you wish.
As you can see, we have a lot of ground to cover on the topic of long-term care. In next week’s Retirement Watch Weekly, I’ll show you what to look for regarding the Future Benefit, Coverage Duration, Maximum Potential Benefit, LTC benefits vs. growth, tax treatments, and more.