FAQ about Long-Term Care Insurance

Why has my agent not told me about this type of insurance? Some agents who sell term life insurance, auto or homeowners insurance are not comfortable selling long term care insurance. It is a complicated product with a lot of variations and optional features, and it can be confusing, even to an agent! If you have a longtime agent that you trust, ask him or her about insurance for long-term care. If the agent seems hesitant, ask for a recommendation of a colleague who sells long-term care insurance.
Do I need it? According to the U.S. Department of Health and Human Services, about 70% of people over age 65 need long-term care at some point in their lives. More women than men will need long-term care, and they will need it for a longer period of time. As the average life span increases, the need for long-term care will likely increase as well. With costs averaging $219 per day for a private room in a nursing home, annual costs can easily exceed $80,000. Without coverage, you or your loved ones will pay this cost out of your pocket until your assets are exhausted.
Isn't this type of coverage expensive? Like any insurance coverage, long-term care insurance is expensive until you need it, and then it is a bargain. The average long-term care policy purchased in 2007, according to the U.S. Department of Health and Human Services, cost $2,207 per year. The average cost of nursing home care is just under $80,000 per year. Even if you paid for a policy for 30 years, you still would not have paid the equivalent of one year of nursing home care.
How does it work? A long-term care policy pays a daily benefit if you need skilled nursing care in a nursing home. Many policies also pay for home care or assisted living. If you cannot perform two or more activities of daily living (bathing, dressing, eating, toileting, continence and transferring from bed to chair) or if you have a significant cognitive impairment (i.e., Alzheimer’s disease or dementia) you will be considered to be in need of care. A long-term care policy will pay the actual cost of your care, up to the daily benefit amount, for the duration of the policy (the benefit period).

How do I qualify? To determine your eligibility, your insurance agent will take an application that will include some medical questions, including family history. The agent will also ask you to sign a form allowing the insurance company to get your medical history from your doctor. The underwriters at the insurance company will analyze this information to determine if you qualify and what your rate will be.

How do I determine how much coverage I need? Your insurance agent should be able to tell you what the average rate is for skilled nursing care in your area. Then you need to determine if you are able to pay part of that cost from your own assets, and, if so, how much. This will determine your daily benefit amount (the number of dollars per day your policy will pay if you need care). Be careful not to pay for more insurance than you need.

What is the minimum amount required? Most companies will write a minimum policy with a $130 daily benefit and a two-year benefit period. Minimum requirements vary by insurance company, so ask your agent what the minimum policy is that he can write.

Does long-term care insurance have to be with the same company as my other insurance? No. Insurance companies typically do not offer a discount for these types of policies that are combined with other insurance coverage, as some do with homeowners’ and auto insurance. Although you may feel more comfortable having all of your insurance policies with a single company, you are not required to do so.

What questions will my agent ask me when I call? Your agent will complete an application with you. He or she will ask basic questions about you (and your spouse if you are applying for a joint policy). Your agent will also ask about your medical history, including any illnesses, diseases or surgeries you have had. The agent will ask what medications you are taking, in what dosage and for how long. The agent will also ask about your family medical history.

What does the rating system mean, and how can I find out my insurance company’s ratings? There are several ratings agencies that rate insurance companies. They include A.M. Best, Standard & Poor’s, and Moody’s. You can find out the ratings for your insurance company by consulting the insurance company’s web site, or by visiting each of the ratings web sites. Be sure to look for the guide that tells you what each rating means, because each agency uses a slightly different scale.