If you’re shopping for long-term care insurance, be prepared to pay more for less coverage than you would have just ten years ago.
There’s no secret that some insurers and left the market altogether. Others have hiked premiums, made it harder to qualify for coverage, and most all have done away with generous options like unlimited lifetime benefits. There are still ways to create a valuable plan for your family.
Here are 5 great ways to get the most from your extended care funding strategy.
- Don’t delay purchasing long-term care insurance.
Apply for long-term care insurance while you’re still young enough to qualify for the best rates.
The longer you wait the greater the chances that you develop a health problem, which could make qualifying for coverage difficult. That’s especially true going forward as insurers tighten up their underwriting standards.
Most people purchase coverage sometime between ages 55 and 62. My advice is that by age 55 you should be looking at long-term care insurance seriously.
- Know how Medicare and Medicaid work with long-term care insurance.
Even though there are fewer big players left in the long-term care insurance market don’t let that deter you from taking action. It’s important to know that the market is evolving rather than disappearing.
I have seen insurance companies go in and out of markets for many years. Because it’s still a relatively “young” type of coverage and claims are just beginning to appear on policies sold that were purchased 20 to 30 years ago, long-term care is a risk all the carriers are trying to figure out.
All of us should be trying to understand the consequences of needing or giving care over an extended period of time and how we would pay for that care. As you decide whether to self-fund your own care, purchase a form of long-term care insurance, or look to other available programs for funds, keep in mind that health insurance, including Medicare, generally doesn’t cover long-term care, and you have to spend most of your assets before Medicaid will pay for a nursing home stay.
- Buying long-term care insurance on a budget? Go for “short and fat.”
When selecting traditional long-term care insurance you get to choose how many years the benefits last and how much the policy will pay each day. A “short and fat” policy means the benefits last for a shorter amount of time, but the daily amount is larger than a “long and thin” policy.
For example, if your budget is limited, choose a high daily benefit payable over a shorter period of time. Stated another way, design your policy with a $200-a-day benefit for three years as opposed to a policy with a $100-a-day benefit for six years.
The total amount of the benefit pool is $219,000 in either policy, but with a short-and-fat policy you have greater buying power in the early years than with a long-and-thin policy. In the latter, you might not have enough daily benefit to get the care you need even in the beginning.
The last thing you want to do is reduce the daily benefit when you are trying to keep premiums down.
Keep in mind that typically a long-term care insurance policy features a 90-day elimination period, which means it doesn’t pay out benefits until you’ve used long-term care services for 90 days.
- Take inflation into account when choosing a policy.
Inflation protection riders raise the daily benefit limit by a certain percentage each year to prevent rising health care costs from eroding your benefits. It is critical to have an inflation protection rider if you are under age 70.
- Work with a knowledgeable and trustworthy adviser.
Long-term care insurance is a complicated product, so find an agent you trust who sells policies from multiple companies and ask a lot of questions to be sure you’ve got all information you need to make a decision for your particular situation.
