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Accessing Benefits, Dealing with Premium Increases: Clearing Up the Confusion Concerning Long-Term Care Insurance

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If you have long-term care insurance, you’re among a relatively small handful of Americans who have made the decision to purchase this important coverage. Long-term care insurance, sometimes abbreviated LTCI, is controversial in some financial circles. The plans are costly and often complicated, and coverage can be difficult to find since there are far fewer companies writing these policies today than there were a few decades ago. Speaking of cost, many policy-holders have been dismayed to find their once-manageable annual premiums going up and up and up.

On the other hand, the actual costs of care in a long-term care facility are going up even faster, as are the costs of in-home care which many newer policies cover. If you are confused about the policy you have and about the benefits you’re paying for, this recent article from Kiplinger could prove helpful. It was written by contributor Thomas West who works in the insurance field and specializes in long-term care coverage.

LTCI Provides Beneficiaries with Options

  According to industry sources, about 7.5 million Americans have some form of long-term care insurance, West states. Long-term care insurance (LTCI) is a type of policy “that helps cover the daily living costs associated with health diagnoses not covered by standard health insurance,” he explains. In West’s view, LTCI coverage is “crucial to people who experience a health crisis that dramatically affects their way of living” – a crisis such as Alzheimer’s disease or age-related conditions that make it impossible to live without assistance.

 West is clear in his view of the plusses of long-term care insurance, but he also acknowledges the potential for confusion. “LTCI policyholders have significantly more options when it comes to housing or in-home health care than people who don’t,” he writes. “If you are lucky enough to have LTCI coverage, you may have questions about your policy.” He goes on to share some of the most common questions he hears from clients.

“What Should I Do When My LTCI Premium Increases Each Year?”

It’s no surprise that his clients’ first concern involves those hefty and often unpredictable premium hikes. Still, West is emphatic: When costs rise, he states, “Keep your policy. Too many people drop their LTCI policies because they are upset by a 20 percent premium increase. After paying LTCI premiums for 20 or even 30 years, it’s hard to swallow increases, but the alternative of self-paying for assisted living or nursing home care can be even more costly.”

 Before you cancel, West recommends you explore cost-saving ways to lower premiums by cutting back on coverage. “Ask your LTCI company to reduce portions of your benefits rather than increase premiums,” he writes. “You can also ask your insurance company to run proposed tradeoff comparisons.”  He lists three hypothetical scenarios to run by your insurer:

  • How much would I need to reduce my daily benefit to keep my premiums steady?
  • What happens to the premium if the total coverage pool is reduced from, say, a five-year, $400,000 coverage cap to a three-year, $250,000 cap?
  • What happens to the premiums with a reduction in inflation benefits from a 5 percent compounding feature to a 3.2 percent compounding rate?

 Because insurance companies want to keep clients, your firm may have other ideas. “Call the customer support phone number provided in the premium increase notification to discuss what options are available beyond what is initially presented,” West advises. “And make a point to know what the deadlines are for you to make a decision. Most of these premium increase notifications have a default election of the increased premium that goes into effect unless you elect differently.”

 In other words, by doing nothing, you may be tacitly accepting the new, higher premium.

“When Can I Start Using My Long-Term Care Insurance Policy?”

You’ve paid your premiums for years – how do you know when coverage can start? “You need to meet certain criteria to activate your policy,” says West, “like cognitive impairment, including Alzheimer’s and other forms of dementia. You can also make an LTCI claim if you cannot perform two or more activities of daily living (ADLs) for at least 90 days. ADLs are bathing, dressing, continence/toileting, eating and transferring.” Your physician will need to verify your impairment with the insurance company.

 But that doesn’t mean payments start immediately. “Your contract may have a waiting or elimination period (typically 90 to 100 days) before benefits are paid,” West writes, “so you will be responsible for all costs from when you first claim LTCI and when the elimination period ends.” This means you’ll need ready cash to cover hefty expenses for a time.

 The good news, West reminds us, is that you will be saving on LTCI premiums once coverage starts. “Note that premium payments stop when you are in a claim period, which means you will not need to make any payments while you are receiving care,” he states.

“Can I Use My Long-Term Care Insurance Policy If I Need Care at Home?”

This is an increasingly important question, and the answer is “maybe.” That’s because policies vary. “Each LTCI policy has slightly different terms for where care can take place,” West writes. “Your policy may pay different amounts depending on the location of the services (i.e., your home, assisted living community, nursing home). You need to read your policy to see if it covers home care aides, home health aides, care in assisted living or only care in nursing homes.”

 But whether you opt for home care or institutional care, the qualification criteria remain in force. “If you choose home health aides or home care aides, you still must first meet the criteria for LTCI policies of cognitive impairment or needing assistance with at least two activities of daily living,” says West.

“Why Do I Need to Worry About Costs of Long-Term Care When I Have LTC Insurance?”

In his Kiplinger article, West writes that some people think their LTCI policies are a panacea that will solve all their care problems. “‘My long-term care costs are fully covered because I have long-term care insurance’ is a statement I hear too frequently,” he writes. “Unfortunately, long-term care insurance covers only a portion of long-term care costs and services.”

  West quotes Genworth cost-of-care data which pegs the national average cost for assisted living at $54,000 annually. Home health aides can cost a bit more ($62,000 annually) while a room in the average nursing home will cost at least $108,000 per year, more in some areas of the country. You can do the math: “If you have an LTCI daily benefit of $200,” West warns, “it will only pay a portion of a $9,000 monthly fee.” You or your family will need to make up the difference.

 “The most frequent advice I give about long-term care insurance policies is: Read your policy,” West urges. “Too often, policyholders do not have a firm grasp of what coverages they have or how the policies work. Sometimes the policies themselves have been lost, and the only connection the policyholders have with the coverage is the annual premium notices.”

 Any time we at AgingOptions or Life Point Law can assist you in reviewing some of the ins and outs of long-term care options, please contact us. We’re here to help!

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(originally reported at www.kiplinger.com)

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