What should I know before buying?
Virtually all policies now cover Alzheimer's disease and no longer require a hospital stay before paying nursing home benefits. Different options are available under different policies.
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. Some companies do not sell individual policies to people under age 18 or over age 84. 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 assisted living and home health care coverage.
Generally, there are two ways a company defines 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 only for a total of five years in a policyholder's lifetime.
Other policies offer a maximum benefit period for each "period of disability." 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 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 total 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) or receiving home health care before premiums are waived.
Disclosure
Your medical history is very important because the insurance company uses the information you provide on your application to assess 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, for instance, generally do not require prior hospital stays or certain levels of care before benefits begin. But, if you do switch, preexisting condition exclusions 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.
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.