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:
Eligibility
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.
Renewability
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.
Disclosure
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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