The Center For Debt Management
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Guide To
Long-Term Care (LTC) Insurance

... Continued From Previous Page

What Else Should Know Before I Buy?

Virtually all policies now cover Alzheimer's disease and no longer require a hospital stay before paying nursing home benefits. Despite some move to uniformity, there are different options available under different policies. These are some of the things to consider:


If you are in reasonably good health and can take care of yourself, and if you are between the ages of 18 and 84, you can probably buy long-term care insurance. Most companies do not sell individual policies to people under age 18 or over age 84.

Note that these age limitations apply only to your age at the time of purchase, not at the time you use the benefits.

Duration or dollar limitations of benefits

Long-term care policies generally limit benefits to a maximum dollar amount or a maximum number of days and may have separate benefit limits for nursing home, assisted living facility, and home health care within the same policy. For example, a policy may offer $100 per day up to five years of nursing home coverage (many policies now offer lifetime nursing home coverage) and only up to $80 per day up to five years of home assisted living and health care coverage.

Generally, there are two ways in which companies define a policy's maximum benefit period. Under one definition, a policy may offer a one-time maximum benefit period. A policy with five years of nursing home coverage, issued by a company using this definition, would pay just up to five years in a policyholder's lifetime. Other policies offer a maximum benefit period for each "period of disability." Under this second definition, a policy with a five-year maximum benefit period would cover more than one nursing home stay lasting up to five years each if the periods of disability were separated by six months or more.


Virtually all long-term care policies sold to individuals are guaranteed renewable; they cannot be canceled as long as you pay your premiums on time and as long as you have told the truth about your health on the application. Premiums can be increased, however, if they are increased for an entire group of policyholders.

The renewability provision, normally found on the first page of the policy, specifies under what conditions the policy can be canceled and when premiums may increase.

Nonforfeiture benefits

This benefit returns to policyholders some of their benefits if they drop their coverage. Most companies now offer this benefit as an option. The most common types of nonforfeiture benefits offered today are "return of premium or a shortened benefit period." With a "return of premium" benefit, the policyholder receives cash, usually a percent of the sum of premiums paid to date after lapse or death. With a "shortened benefit period," the long-term care coverage continues but the benefit period or duration amount is reduced as specified in the policy. A nonforfeiture benefit can add from 20 to 100 percent to a policy's cost.

Some policies may offer "contingent nonforfeiture benefits upon lapse," a feature that gives policyholders additional options in the face of a significant increase in policy premiums. If you do not purchase the optional nonforfeiture benefit, then a contingent nonforfeiture benefit is triggered if policy premiums rise by a specified percentage. For example, if, at age 70, your premium rises to 40 percent above the original premium, you have the option of either decreasing the amount your policy pays per day of care or of converting to a policy with a shorter duration of benefits.

Waiver of premium

This provision allows you to stop paying premiums during the time you are receiving benefits. Read the policy carefully to see if there are any restrictions on this provision, such as a requirement to be in a nursing home for any length of time (90 days is a typical requirement) before premiums are waived.


Your medical history is very important because the information you provide on your application is used by the insurance company in assessing your eligibility for coverage. The application must be accurate and complete. If it is not, the insurance company may be within its rights to deny coverage when you file a claim. In fact, many companies now waive the preexisting condition requirement if you fully disclose your medical history and are issued a policy.

What About Switching Policies?

New long-term care insurance policies may have more favorable provisions than older policies. Newer policies, as noted above, generally do not have requirements for prior hospital stays or for prior levels of care. But, if you do switch, provisions excluding preexisting conditions for specified periods of time will have to begin again. In addition, your new premiums may be higher because they will be based on your current age. So you should never switch policies before making sure the new policy is better than the one you already have. And you should never drop an old policy before making sure the new one is in force.

A Summary of Features

The National Association of Insurance Commissioners has developed standards that protect consumers. Look for a policy including:

At least one year of nursing home or home health care coverage, including intermediate and custodial care. Nursing home or home health care benefits should not be limited primarily to skilled care.

Coverage for Alzheimer's disease, should the policyholder develop it after purchasing the policy.

An inflation protection option. The policy should offer a choice among:

  • automatically increasing the initial benefit level on
    an annual basis,

  • a guaranteed right to increase benefit levels periodically without providing evidence of insurability,

  • or covering a specific

An "outline of coverage" that systematically describes the policy's benefits, limitations, and exclusions, and also allows you to compare it with others. A long-term care insurance shopper's guide that helps you decide whether long-term care insurance is appropriate for you.

A guarantee that the policy cannot be canceled, nonrenewed, or otherwise terminated because you get older or suffer deterioration in physical or mental health.

The right to return the policy within 30 days after you have purchased the policy (if for any reason you do not want it) and to receive a premium refund.

No requirement that policyholders:

  • first be hospitalized in order to receive nursing home benefits or home health care benefits,

  • first receive skilled nursing home care before receiving intermediate or custodial nursing home care,

  • first receive nursing

Before You Buy

Insurance policies are legal contracts. Read and compare the policies you are considering before you buy one, and make sure you understand all of the provisions. Marketing or sales literature is no substitute for the actual policy. Read the policy itself before you buy. Discuss the policies you are considering with people whose opinions you respect-perhaps your doctor, financial advisor, your children, or an informed friend or relative.

Ask for the insurance company's financial rating and for a summary of each policy's benefits or an outline of coverage. (Ratings result from analyses of a company's financial records.) Good agents and good insurance companies want you to know what you are buying.

And bear in mind: Even after you buy a policy, if you find that it does not meet your needs you generally have 30 days to return the policy and get your money back. This is called the "free look."

Do not give in to high-pressure sales tactics. Do not be afraid to ask your insurance agent to explain anything that is unclear. If you are not satisfied with an agent's answers, ask for someone to contact in the company itself. Call your state insurance department if you are not satisfied with the answers you get from the agent or from company representatives.

Long-Term Care Policy Checklist

The following checklist will help you compare policies you may be considering:

1. What services are covered?

  • Nursing home care
  • Home health care
  • Assisted living facility
  • Adult daycare
  • Alternate care
  • Respite care
  • Other

2. How much does the policy pay per day for nursing home care? For home health care? For an assisted living facility? For adult daycare? For alternate care? For respite care? Other?

3. How long will benefits last in a nursing home? At home? In an assisted living facility? Other?

4. Does the policy have a maximum lifetime benefit? If so, what is it for nursing home care? For home health care? For an assisted living facility? Other?

5. Does the policy have a maximum length of coverage for each period of confinement? If so, what is it for nursing home care? For home health care? For an assisted living facility?

6. How long must I wait before preexisting conditions are covered?

7. How many days must I wait before benefits begin for nursing home care? For home health care? For an assisted living facility? Other?

8. Are Alzheimer's disease and other organic mental and nervous disorders covered?

9. Does this policy require: An assessment of activities of daily living? An assessment of cognitive impairment? Physician certification of need? A prior hospital stay for nursing home care? Home health care? A prior nursing home stay for home health care coverage? Other?

10. Is the policy guaranteed renewable?

11. What is the age range for enrollment?

12. Is there a waiver-of-premium provision for nursing home care? For home health care?

13. How long must I be confined before premiums are waived?

14. Does the policy have a nonforfeiture benefit?

15. Does the policy offer an inflation adjustment feature? If so, what is the rate of increase? How often is it applied? For how long? Is there an additional cost?

16. What does the policy cost?

  • Per year?
    • With inflation feature
    • Without inflation feature
    • With nonforfeiture feature
    • Without nonforfeiture feature

  • Per month?
    • With inflation feature
    • Without inflation feature
    • With nonforfeiture feature
    • Without nonforfeiture feature

17. Is there a 30-day free look?

HIPAA's Impact on
Long-Term Care Insurance

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), affects long-term care insurance. The following are answers to commonly asked questions about the law's tax clarification provisions and consumer protection standards.

Tax Clarification

Q. What is tax clarification for private long-term care insurance, and why is it necessary?

A. The tax clarification provisions for long-term care insurance are contained in HIPAA. The clarifications assure that the tax treatment for qualified long-term care insurance is the same as for major medical coverage.

Q. Will benefits received by consumers under a long-term care policy be taxed?

A. With the clarifications, benefits from qualified long-term care coverage, generally, are not taxable. Without the clarifications, benefits from long-term care insurance might be considered taxable income.

Q.Will consumers be able to take a tax deduction for the cost of tax-qualified long-term care insurance? Can consumers deduct from their taxes costs associated with receiving long-term care?

A. The answer to both questions is "yes." Since qualified long-term care insurance will now receive the same tax treatment as accident and health insurance, premiums for long-term care insurance, as well as consumers' out-of-pocket expenses for longterm care, can be applied toward meeting the 7.5 percent floor for medical expense deductions contained in the federal tax code. However, there are limits, based upon one's age, for the total amount of premiums paid for long-term care insurance that can be applied toward the 7.5 percent floor. (Check with your accountant to see if you are eligible to take this deduction.)

Q.Will employers be able to deduct anything for the cost of providing or paying for qualified long-term care insurance for their employees?

A. Generally, employers will be able to deduct, as a business expense, both the cost of setting up a long-term care insurance plan for their employees, and the contributions that they may make toward paying for the cost of premiums.

Q. Will employer contributions be excluded from the taxable income of employees?

A. Yes.

Q. Can Individual Retirement Accounts (IRAs) and 401k funds be used to purchase private long-term care insurance?

A. No. However, under a demonstration project, tax-free funds deposited in Medical Savings Accounts can be used to pay long-term care insurance premiums.

Consumer Protection Standards

Q. Is there a connection between the long-term care consumer protection standards in HIPAA and the tax clarification of long-term care?

A. Yes. To qualify for favorable tax treatment, a longterm care policy sold after 1996 must contain the consumer protection standards in HIPAA. Also, insurance companies must follow certain administrative and marketing practices or face significant fines. Generally speaking, policies sold prior to January 1, 1997, automatically will be eligible for favorable tax treatment. Lastly, nothing in the new law prevents states from imposing more stringent consumer protection standards.

Q. What kinds of procedures must insurance companies comply with to protect consumers?

A. There are several. Here are some of the more important ones. Consumers must receive a "Shopper's Guide" and a description of the policy's benefits and limitations (i.e., Outline of Coverage) early in the sales process. The Outline of Coverage allows consumers to compare policies from different companies. Companies must report annually the number of claims denied and information on policy replacement sales and policy terminations. Sales practices such as "twisting" - knowingly making misleading or incomplete comparisons of policies-are prohibited, as are high-pressure sales tactics.

Q. How do the HIPAA standards address limitations on benefits and exclusions from coverage?

A. No policy can be sold as a long-term care insurance policy if it limits or excludes coverage by type of treatment, medical condition, or accident. However, several exceptions to this rule exist. For example, policies may limit or exclude coverage for preexisting conditions or diseases, mental or nervous disorders (but not Alzheimer's), or alcoholism or drug addiction. A policy cannot, however, exclude coverage for preexisting conditions for more than six months after the effective date of coverage.

Q. What will prevent a company from canceling my policy when I need it?

A. The law prohibits a company from canceling a policy except for nonpayment of premiums. Policies cannot be canceled because of age or deterioration of mental or physical health. In fact, if a policyholder is late paying a premium, the policy can be reinstated up to five months later if the reason for nonpayment is shown to be cognitive impairment.

Q. Will these standards help people who, for whatever reason, lose their group coverage?

A. They will. People covered by a group policy will be allowed to continue their coverage when they leave their employer, so long as they pay their premiums in a timely fashion. Further, an individual who has been covered under a group plan for at least six months may convert to an individual policy if and when the group plan is discontinued. The individual may do so without providing evidence of insurability.

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