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The Need for Long Term Care Insurance

One of the recurring questions I am asked is "Should I have long term insurance?" That is not a question I can answer for you. I'll try to give you some ideas but this is an area where we must each make up our own mind based on our own values. Each decision you make on a policy variable will affect the premium.

1. Daily amount paid: Consider what you will need daily from the insurance in order to pay your bills. Get a dollar figure for what nursing home costs are per day, add other daily costs for you and your family, then subtract the daily amount you and your family will receive from pensions, Social Security, investment income, etc. If that calculated amount is covered by insurance, you and your family should get along quite well.
2. Exclusion period: This is the period before the insurance starts to pay. The longer the period, the lower the premium rates generally. If you have enough assets to allow payment of the extra nursing home expenses for a reasonable period, get the longer exclusion time.
3. Length of coverage: This is the length of time the policy will continue to pay once it has begun. If you think you might be applying to Medicaid (ALTCS) for financial support, you might consider a three year coverage. This will cover you during the three year look-back period ALTCS uses for eligibility determinations. With that covered, you can make gifts or other distributions without financial penalty. If you have substantial assets, you might prefer the unlimited coverage that would allow you to stay in the facility of your choice as long as necessary.
4. Escalation clause: This increases the daily amount paid as the years go by, hopefully taking care of inflation. Without it, a fixed payment based on today's dollar may be inadequate when you need it, some years down the road.

As with all insurance policies (and anything else you sign) read and understand all of it. Know what it will and won't pay, what facilities are covered, and to whom payments will be made. Be satisfied that the company will be in business when you need the dollars and that the company has a good record of paying claims. 

The policy holder most likely wants to be able to decide who to pay the money to, and may want to pay family members who provide care. The typical policy does not permit payment to unlicensed persons, including family members. In four recently issued long term care policies the following restrictions on use of the funds for home care were found:

1. No restriction on use of funds - The Assured Care Universal Life insurance Policy, if issued with a rider to pre-pay home health, will permit the policy holder or her agent to decide who to pay - the policy holder has complete discretion in use of the funds.
2. No restriction on use of funds - The UNUM Christian Science Program offered by Insurance Associates, if issued with a total home care rider - the policy holder or her agent has complete discretion in use of the funds.
3. No payment except to agency personnel - The AMEX Life Assurance Company Long Term Care Insurance Policy which pays 80% of the prevailing expenses for home health aid, homemaker and chore services (unless provided by a family member)
4. No payment except to agency personnel - the CNA Long Term Care Insurance Policy which pays 80% of the prevailing expenses for home health and homemaker services (unless provided by an "informal care giver" - defined as the person who has primary responsibility of caring for the insured in the insured's residence without pay).

A recent article on long term care insurance underwriting shows that 12-23% of Americans would not pass medical underwriting guidelines if they applied for LTCI at age 65; about 20-31% would not be underwriteable at age 75. The researchers projected LTCI benefits under a low-option policy (without non-forfeiture or inflation protection) to be about 7 times expected premium collections for cognitively impaired persons; those with 3 ADLs at age 65 would collect about 3 times in benefits what they spent on premiums. However, the more expensive but more generous policies with inflation protection and non-forfeiture would "pay off" only for some patient groups (cognitively impaired, ADL-limited, stroke victims). The article ("Risky Business," is available from AHCPR as reprint #96-R023 you can fax 24 hours a day to (301) 594-2800 to request reprints.

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