|
|
|
|
|
Introduction |
|
|
Introduction
Purchasing insurance can be a very frightening experience. This page is intended to make the purchasing process easier. We will walk you through some of the most important features which we have extracted from the consumer law page* and paraphrased below. We urge anyone who is interested in LTC insurance to go to this site and read the information it presents carefully. If you still are confused after you have read this page, then please contact us and a licensed representative will assist you with your questions. The choice of an insurance company should be the upper-most consideration. The financial strength of an insurance company is very important. It is a good indicator of a company's ability to pay its claims. There are several firms that rate insurance companies. These firms base their ratings on the insurance companies financial reserves and other financial factors. A few of these rating firms are: Fitch; Standard and Poors; A. M. Best; and Weiss Research. Daily Benefit Benefits are usually described in terms of the amount the carrier will pay per day for care in a nursing home and vary from $75 up to $250 a day. Of course the greater the daily benefit the higher the premium. Gain familiarity with the general charges for care facilities in your area before you buy a policy. Keep in mind that prices will increase by the time you will need care, so all you are obtaining is a reference level to familiarize yourself with the market. Once you know prices in your area you can calculate the range of future charges by following the Rule of 72. This simple formula allows you to determine the length of time it will take for a price to double at a given rate of interest. Assuming a nursing home near you charges $100 per day and that LTC charges will increase at an annual rate of 6% per year. How long will it take the price to reach the $200 level? The answer is calculated by dividing the number 72 by the interest rate. Seventy-two divided by six gives a quotient of 12. Assuming a six percent rate of inflation, the $100 a day charge will double in 12 years. So if you are 60 years of age and purchasing a policy with the expectation that you may need LTC in your early seventies, you should be looking for a policy that will be paying benefits of at least $200 per day twelve years from now. Elimination Period Choosing a longer elimination period is an easy way to lower the premiums of a policy. Most policies do not pay benefits until after a waiting period, commonly called an elimination or a deductible period. That means benefits begin 20, 30, 60, 90 or 100 days after you are admitted to an LTC facility. Some policies have no elimination period and they naturally cost more. During any waiting or elimination period, you are responsible for paying for your care, but there are significant trade-offs. Having a reasonable waiting period during which you are personally responsible for your care means the insurance company can expect to pay out fewer benefits and accordingly underwriters can establish lower prices for these contracts. Inflation Protection Long-term care policies for seniors living in major metropolitan areas with high labor costs can expect to pay $167 per day for nursing home care. This translates into $61,000 per year. If a consumer purchases a policy that pays a fixed $100 per day, with an inflation rate of six percent per year, $100 per day will pay less than one-third of the daily cost in 12 years, and 14% of the cost in 24 years. The math is easy. At six percent inflation the cost of nursing care will double every 12 years and the daily charge will become $354. In twenty-four years the same nursing charge will have grown to $708 daily. So a consumer who purchases today at age 56 a long-term care with a fixed benefit of $100 per day who requires nursing-home care at age 80 will have to pay more than 85% of the costs out of his or her own pocket. The answer is to purchase compounded inflation protection that increases the benefit the policy will pay each year. Since health-care costs predictably will continue to inflate, the U.S. House Select Committee on Aging concluded that "without inflation protection, long-term care insurance policies are not a wise purchase." Benefit Periods Benefit periods range from one year to life. Remember that most LTC stays are three months or less and many people have illnesses that last for years. Obviously policies with long benefit periods cost more. How do you decide? If you own your home or have a minimum mortgage and will be depending upon Social Security and a company pension for retirement income, you will want to protect your equity in your home in order to preserve a place for your spouse to live. Assume that you will need up to 19 months in an LTC facility at current rates and compute that cost. Compare that to your available assets and you can begin making some intelligent choices. Who Determines If You Are Entitled To Benefits? All policies have "gatekeepers" who have the power to decide if you are eligible for benefits. Every policy contains terms usually referred to as "eligibility for benefits," "qualifying for benefits," or "benefit conditions." Gatekeepers are a critical feature of every long-term care policy and one you should carefully study before you buy because there is a big difference between companies when it comes to who decides if the company will pay out money. For some companies this issue is so important that the policies provides for more than one gatekeeper. Under the best policies, you can qualify for benefits if your doctor orders specific care. Other policies will require that care be "medically necessary for sickness and injury." You already know who will make that determination. If you are in need of nursing-home services, but are not sick or injured, you would not qualify. The insurance company would determine whether you were sick or injured. A third type of rule limiting your right to benefits requires that you be unable to perform a certain number of "activities of daily living," commonly referred to as ADLs. These normally include bathing, dressing, walking, moving from bed to chair, toilet, maintaining continence, and eating. Some policies evaluate mental functions to determine the qualifications for benefits. This gatekeeper standard is important in cases of Alzheimer's disease. Even though insurance regulators require policies to cover Alzheimer's disease, a policyholder who has the disease can be denied benefits if he or she is physically able to perform the activities of daily living specified in the policy, unless there is a mental functioning criteria. If the policy uses an ADL gatekeeper, an insured with Alzheimer's disease may not qualify even though they are at risk for forgetting to take medications and may forget to come home after they walk to the corner store for a loaf of bread. With a mental functioning standard, a policyholder with the disease is more likely to receive benefits. ADL criteria are not the same from one company to another. Most insurers define what is meant by an inability to perform a particular activity such as failure to feed or bathe oneself. A definition that requires someone to physically assist in performing the activity is more restrictive than one that calls for someone to supervise the activity. It is the difference between being able to climb into a bath by yourself, needing someone to lend a hand or needing someone to actually make the transfer for you. The more specifically a company describes its requirements, the opportunities for disagreements and disputes will be lessened. A few policies require customers to have a prior hospital admission of at least three days before qualifying to receive benefits. This requirement severely limits a disabled person's ability to receive benefits. Medicare uses this requirement to determine eligibility for skilled nursing benefits. Eligibility To Buy Coverage
Insurance companies do not sell policies without first determining what the probability will be that they
will have to make good on the bet. This is called "underwriting" and it means the company evaluates your
health before it will sell you a policy. Some companies follow "short-form" underwriting. On the application
for coverage, you will be asked to answer a few questions about your health. Have you been in a hospital
during the last 12 months or are you confined to a wheelchair? If you answer "no" to all of the questions,
the company believes you are a good bet to be a customer who will pay money in and not force them to pay out.
The insurance sales person is authorized to issue coverage as soon as you write a check. *Consumer law page. |
| [ home | quote | need | simple | contact | privacy | insurance links ] |
| design by Tovey |
