Comparing long-term care insurance (LCTI) policies can be pretty difficult, but here are five points that are a very good start on your road towards picking out a policy. You will probably be able to cross out quite a few policies simply because they do not fulfill your needs and preference when it comes to these five points.
How much care must I need for the policy to kick-in?
When is a person in need of long-term care? Is it enough that grandma is too confused to handle shopping and cooking in a safe manner? If grandpa’s arthritis is making it difficult for him to dress and undress without help, is that sufficient for the insurance company to pay for long-term care? Or must a person have serious physical problems with getting in and out of bed, moving around, tending to personal hygiene, etc to be considered in need of long-term care? It is important to find out what’s required for the insured to receive financial assistance from the insurance company.
How it the coverage limited? It is very unusual to find a LTCI policy that doesn’t limit the coverage in one way or another. Here are a few examples of limits to check out:
- Limit on how may days or years the policy will pay for LTC.
- Limit on how much the policy will pay per day for LTC, e.g. max $150 per day.
- Limit on what kind of long-term care you can chose, e.g. in-home care only or nursing-home care only.
Deductible or waiting period, or both?
Some LTCI policies have a standard deductible, where you must cover the cost of long-term care up to a certain amount, e.g. the initial $800, before the policy kicks in and starts paying out.
Other LTCI policies have a waiting period, where you must cover the cost of long-term care for a certain period of time, e.g. the first 7 days, before the policy kicks in and starts paying out.
There area also LTCI policies that comes with both a standard deductible and a waiting period.
Does this policy come with inflation protection? If so, how does the inflation protection work? Is it based on some predetermined percentage, or will it take actual inflation rates into account?
Not having inflation protection, or having rather poor inflation protection, will typically mean a lower monthly premium. It also means that you risk paying year after year for an insurance cover that can be quickly eroded by inflation. You don’t want to pay a lot of money in your 50s, 60s and 70s for policy that turns out to be quite useless when you’re 80 years old and really needs help with paying for long-term care costs.
Tax is an important aspect to take into account., and your choice of policy may impact how your premiums and benefits are seen from a tax point of view. There are jurisdictions where certain LTCI policies are treated more favorable than others from a tax perspective. It is therefore always a good idea to check applicable tax law.
- Are premiums paid by the insured deductible for the insured?
- Are premiums paid by an employer to keep an employee insured deductible for the employer? What if you’re self-employed?
- Will premiums paid by an employer, to keep the employee insured, be included in the employees taxable income?
- Will benefits paid be excluded from taxable income or not?