What Is Long-Term Care?
It is assistance for months or years with basic activities of daily living like bathing, dressing, or getting in and out of a bed. Unlike medical care, which is designed to get you back to the way you were before you became sick or injured, purpose of long-term care is custodial - that is, to keep you as safe and comfortable for your period of incapacity.
Who pays for Long-Term Care?
Either you pay, the government pays, or an insurance company pays. Most long-term care is delivered by families for each other at home, perhaps with some paid help depending on family financial resources. When the family becomes emotionally and physically exhausted, it places the loved one in a nursing home. There it continues to pay until it becomes financially exhausted, at which time the government begins to pay, but not with Medicare, a form of health insurance; rather it pays with a welfare program called Medicaid. Private health insurance does not pay for long-term care either, because the purpose of the care is not to cure or restore, but to provide custodial care. Long-Term Care insurance is designed to pay for custodial care. Yes, Long-Term Care insurance will pay for facility care, but it is more commonly used to pay for professional caregivers at home. That helps the family to keep a loved one at home for a longer period of time and with less stress.
Does my health affect my ability to get Long-Term Care?
Definitely. There is an old saying in life and health insurance: "your premiums pay for the policy, but only your good health can buy the policy." About half of applicants below age 50 get good health discounts, while less than 20% of applicants above age 69 get such discounts. Worse yet, about 43% of applicants above age 69 do not qualify for a policy. Only 7% of applicants under age 50 fail to qualify for a policy.
Once I am insured, can the insurance carrier raise my rates?
With today's guaranteed renewable policies, the carrier cannot raise your rates, because you became older or sicker. If the carrier finds that it has mispriced policies like yours for everyone in the state, it can ask the insurance department to raise the rate on all owners of similar policies proportionally. After investigating the request, the insurance department may grant the carrier's request, approve it partially, or reject it.
Are premiums fixed once I enroll, or do they increase each year?
The premiums are fixed at the time of purchase. The premium is based on the age and health status of the applicant. However, once issued, the premiums remain the same (unless rates are raised for an entire class of policyholders as mentioned above)
even though the benefits of the policy may increase every policy anniversary.
If I go on claim, will I still need to pay my premiums?
No. Most policies today are issued with a provision called "waiver of premium" that cancels the requirement to make further premium payments while the insured receives benefits or has received care for a certain number of days. If the claimant recovers, then he must resume paying premiums, but no back premiums are levied.
If I die without ever going on claim,
what happens to all those premiums I have paid? Can they be refunded?
If you are lucky enough to live a long life and never go on claim, then your premium dollars (plus the interest they have earned) will go towards paying the claim of the other insured(s) who were not as lucky as you. If such a result annoys you, then you can purchase an extra cost rider called Return of Premium at death rider. It returns the premiums you paid into the policy minus any claims that were paid. The Federal law that governs tax qualified Long-Term Care policies prohibits interest being added to the amount returned at death.
How do I apply and what is involved in the underwriting process?
You will fill out a paper application with your financial advisor that contains a brief medical history and lists the names of your doctors and their office contact information. Your advisor may also collect a partial premium and submit it together with the application to the insurance carrier. What happens next depends on the carrier and the information on the application. But the general outline is as follows: First, the good news. There will be no blood draws, urine samples, or stress tests. The next part depends on your age and the carrier selected. If you are age 70 or older, the carrier will send a nurse to your home to conduct a face to face interview about your health history and to conduct a brief series of mental status tests. If you are under 70 years old, the carrier will have the nurse conduct a telephone interview with you. The mental status queries will still be a part of the interview. In most cases, the carrier will also get medical records from your primary care physician and may also request records from specialists and surgeons that you have recently consulted in the past few years.
Is it possible to deduct my premiums on either my Federal or State returns?
Yes. The premiums for tax qualified (TQ) Long-Term Care policies are treated much like the premiums for health insurance when it comes to Federal income tax. Individuals who itemize their deductions can deduct some or all of their TQ Long-Term Care premiums subject to the 7.5% medical expense threshold. Self employed individuals, which include for Federal income tax purposes Sub S owner operators, general partners, most LLC members and professional corporation owner-operators, can make an above the line adjustment to their gross income. Also many states offer tax deductions or credits for TQ premium payments, too. You should consult your tax adviser about the applicability of available deductions and credits to your circumstances.