Long-term care is not something you likely think about much, but you should. Fortunately there are ways to ensure that you’re cared for, and that won’t break your bank account.
When buying a long-term-care insurance policy, most people focus on the policy’s basic features, such as the benefit dollar amount, what circumstances trigger the benefits and length of coverage. New LTC policies offer features and options that you may overlook, but that can be very beneficial.
Survivorship benefits. This is an attractive feature for couples who buy individual policies from the same insurer. When one spouse dies, the company waives the remaining premiums on the surviving spouse’s policy. For this to apply, the insurer usually requires that both policies have been active for several years (often seven to 10 years.) Some policies require that no benefits have been paid to either spouse during that period.
Shared benefits. A couple who buys policies with benefits for a limited number of years versus lifetime benefits, might find this feature attractive. It comes in three forms. One allows a person who exhausts his or her benefits to dip into the partner’s benefits. Another version creates a third pool of benefits that either partner can tap. A third option is to have a single pool of benefits that both partners can use.
The risk is that with two of the options, you could drain the other partner’s benefits. Most advisors recommend that both spouses buy lifetime benefits if affordable.
Alternative plan of care. One reason that consumers are reluctant to buy an LTC policy when they are young is the concern that the policy will become obsolete and won’t cover new forms of care. For example, adult-day-care centers weren’t always available, and some old policies still in force won’t cover them.
With the alternate-plan-of-care feature, the insured, his or her doctor and the insurance company will ideally agree on a plan of care not specified under the policy, but which the company will pay for.
Accelerated payments. In this case, you pay the policy in full within a certain period versus over the rest of your life by making accelerated premium payments. Not all states allow accelerated payments, and they can run two to three times more than lifetime premiums.
This feature eliminates the challenge of making payments when you’re living on a limited retirement income. It also can provide a tax advantage for some business owners (especially C corporation owners.) On the other hand, should you need the policy earlier in your lifetime, you’ve “overpaid” your premiums. Disciplined savers could bank the extra premium money, letting it earn interest and drawing on it once retired.
Enhanced elimination period. LTC policies offer a choice of elimination periods, which is the number of days you must pay for long-term care out of your pocket before the policy starts paying. The elimination period may range from zero to 180 days (sometimes even a year.) The longer the elimination period, the smaller the premium you’ll pay.
With this option, you can start or accelerate the elimination period “clock” with just a few home-health-care visits. This can save you out-of-pocket expenses during the elimination period.
Respite care. It’s common for family members or friends to provide care at home to someone who otherwise would have qualified for their policy benefits. When this occurs, some policies will pay for temporary care while the caregiver takes a “break,” even though the insured person has not met the elimination period. Policies typically do limit the number of respite days.
These are a few of the less obvious long-term care features. Others include bed-reservation benefits, non-forfeiture benefits, geriatric-care coverage, international care, return of premium upon death, restoration of benefits and caregiver training. Some are standard; others cost extra. Review all options with a financial planner and a long-term-care insurance agent to see which ones make sense for you.
This column is provided by Financial Planning Associates, and is provided by R. Hutton Cobb, a Wachovia Securities financial advisor in Greenville, N.C.