Choosing a Long-Term Care (LTC) Policy: The Basics

The goal of a LTC policy is to help pay for your care when you’re too old or too sick to take care of yourself. Choosing and purchasing a LTC policy must be done while you’re still healthy. It’s usually too late after you become disabled either by age or an illness. Choosing the LTC insurance right for you is critical to protecting your estate and reducing the burden placed on your family.

Common Factors:

  • “Qualified” Long Term Care Policy: Premiums for qualified Long Term Care policies are considered medical care and therefore qualify as medical deductions. The federal government determines if the LTC meets certain criteria and if it qualifies. Federal law limits how many qualified LTC premiums may be deducted each year.
  • Benefit amount: Policies typically specify the maximum benefit paid. Surveying of local nursing homes can help determine how much you’ll need.
  • How benefits are paid: LTC benefits are typically paid under one of the following methods:
  • Reimbursement: Pays the lesser of the actual expenses incurred or the limit specified in the policy.
  • Indemnity: Pays the entire daily benefits as long as the insured requires and receives Long Term Care services, regardless of the amount spent.
  • Disability: Pays the full daily benefit-once the eligibility criteria are met-even if LTC services are no longer being provided.
  • Inflation protection: Health care costs inevitably go up and Long Term Care policies should have provisions for inflation. An additional charge may be required for this protection.
  • Guaranteed renewability: Almost all LTC policies are guaranteed renewable. Policies can’t be canceled as long as the premiums are paid on time and as long as the status of your health is reported accurately on the application. Guaranteed renewable doesn’t mean premiums stay the same. Insurers reserve the right to raise premiums. Some older policies are not guaranteed renewable.
  • Waiver premium: Some polices waive future premiums after you have been in a nursing for a specified number of days.
  • Prior hospitalization: Before benefits will be paid under the policy, this provision requires hospitalization prior to entering a nursing home. This feature is no longer allowed in all states, but older policies may still include this provision. Today, policies no longer include hospitalization clauses.

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