General Recommendations for Long-term Care Policies:
- Once you buy a policy, don’t stop paying the premium. If financial circumstances require that you do so, Texas law requires companies to offer you the option to receive a percentage of the benefits you purchased.
- You can lower your premium by choosing a longer elimination period. Just be sure you consider how long you can afford to pay all your expenses before you choose the length of your elimination period.
- Some policies have only one elimination period, while others require an elimination period for each new “period of care”. Check how the elimination period works before you buy a policy.
- Look for a policy with level premiums. This means that the company can’t lure you in with a low rate then hike it dramatically after you’ve signed on. It can still raise its premium if costs go up, but not because of your age. If you buy a policy when you’re 55, for instance, you’ll always pay the premiums that a current 55 year old would pay, even when you’re actually 75.
- Make sure the policy is guaranteed renewable for life. Otherwise, the insurer could cancel when it looks like you may actually use the benefits.
- Insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb. They have certainly risen in the past 20 years, and there’s every reason to think they’ll continue to climb over the next decade or two.
- Ask for a provision waiving premiums once you’re in a home. If you’re a patient in a nursing home, the last thing you need to worry about is premiums.
- Look for a policy that provides for home health care. Older people prefer to remain in their own homes, if possible.
- Try to get “protection from lapse”. This may provide for third-party notification in case of a missed premium payment, or reinstatement if there is proof that the lapse was due to a cognitive impairment.
- The policy should cover cognitive impairments such as Alzheimers, when a patient may be otherwise physically healthy, but still need long-term care.
- Look for a financial rating of A or A+, or the equivalent, from the rating agencies that monitor the financial stability of insurance companies.
- Buy coverage for three to five years with a daily payment of at least $150, pegged to the national average cost of nursing-home care. The average nursing-home stay is less than three years, and lifetime benefits are much more expensive.
- If the rates can be increased, ask your agent how many rate increases the company has made on this policy, when the last increase occurred, how much it was, and what is the total amount of all increases for the policy since it has been offered.
Two alternatives for funding long-term care expenses are through an accelerated death benefit or a viatical settlement on a life insurance policy.
An accelerated death benefit is a payment of all or part of a life insurance policy’s death benefit before you die. If your life insurance policy contains this type of benefit, you can receive an early benefit payment based on your need for long term care services. The accelerated death benefit can be part of the policy or attached as a rider.
An accelerated death benefit may be either tax-qualified or non-qualified. To be tax-qualified, benefits must be paid for a terminal illness when your life expectancy is two years or less or for a “qualified long-term care illness”.
If you have a life-threatening or terminal illness, you can sell your policy for a cash payment that is a percentage of the policy’s death benefit. The buyer collects the policy’s benefit upon your death. This is called a viatical settlement. The viatical settlement company must be registered in Texas.