What triggers a claim
Policies do not pay because you are old or because a doctor names a diagnosis. Nearly all of them pay when a licensed professional certifies that you need substantial help with at least two of the six activities of daily living, which are bathing, dressing, eating, toileting, continence and transferring in and out of a bed or chair, or that you have a severe cognitive impairment such as dementia.
The parts of a policy
Four numbers define what you are buying.
- The benefit amount is the most the policy pays per day or per month of care.
- The benefit period is how long it pays, commonly two to five years, and the two together make a total pool of money.
- The elimination period is a waiting period, usually ninety days, during which you pay for care yourself before benefits begin.
- Inflation protection raises the benefit each year, often by three percent compounded, and it matters a great deal on a policy you may not use for thirty years.
When people buy
Most buyers apply in their mid-fifties to early sixties. Premiums rise with age, and so does the chance of being declined outright for health reasons, which happens to a large share of applicants in their seventies. For a reader in their twenties or thirties, the practical use of this knowledge is for your parents: a policy they bought years ago may be sitting in a file, and a lapse from one missed premium can forfeit decades of payments. Ask whether they have one, and ask to be named as the third party who is notified before a lapse.
The known problems
Traditional policies do not have guaranteed premiums. Insurers badly underestimated how many people would claim, and many long-time policyholders have faced large rate increases approved by state regulators. Hybrid policies, which join life insurance or an annuity to a long-term care benefit, fix the premium and pay something to heirs if care is never needed, in exchange for a much larger cost up front. The alternatives are paying from savings, relying on family, or spending down to Medicaid eligibility. Many states also run partnership programs that let buyers of qualifying policies shield an equal amount of assets from Medicaid's limits, and your state insurance department lists the approved policies.
Tip Get quotes from an independent broker who represents several insurers and not from a single company's agent. Pricing and health underwriting for the same applicant vary widely from one carrier to the next.
