How to Choose a Long-Term Care Insurance Company [Part 2]

No doubt about it, life seems to spin faster every day. And since 7 out of 10 people need help caring for themselves in some sort of assisted living by age 85?

We don’t do ourselves any favors putting off questions of how we’ll pay for it.

One option, if we plan early, is Long-Term Care Insurance.

The “Who/What/Where/When/How” (who it covers, what it covers, where we want to spend it, when we should buy it, and how much we need) are all questions we covered in Part 1.

But there’s still a BIG set of questions we need to ask:  

And they’re all about figuring out, What’s the right long-term care insurance company for us?

Company Questions You Need to Ask the Insurance Agent

(Hint: Not All Long-Term Care Insurance Companies Are Created Equal)

1. What Grades Did They Get on Their Report Card?

No, we aren’t talking about high school or college. This is the company itself.

Each insurance company gets rated for stability and strength. Ask the agent for their A.M Best and Fitch Ratings.

What are you looking for? The Valedictorian.

Hopefully nothing less than A+ or A++ (A.M. Best) or AA+ (Fitch Ratings).

Scores can change from year to year, so ask for several reports to get a good picture of the lay of the land.

2. How Often Have They Raised Rates?

With long-term care insurance, premium rates can go up at any time, even after you sign for the policy. (It’s like auto insurance, not like life insurance.) What makes them change? The cost of assisted living care and how much the insurance company has to pay out.

But a strong company has strong actuarial science behind their numbers. They’ve run those numbers recently, so they have a solid idea of what’s happening with assisted living or memory care costs.

Meaning you have fewer surprises.

The Takeaway: If a company has been raising premiums frequently or dramatically, or they have lower grades, you might want to look for a different company.

What Happens When You Need the Benefits?

(Hint: It’s that Fine Print Stuff)

3. Who Decides When the Benefits Kick In?

Let’s say you’ve purchased long-term care insurance, and you reach a point of needing assisted living care. Now what?

This is a two-part answer: the “them part” and the “you part.”

First, THEM: 

Every insurance policy has a gatekeeper—the person who evaluates your situation and decides if it falls under the policy’s policy. Hopefully the insurance company expects a doctor to make that decision (i.e. a medical expert rather than someone who just plugs in numbers.)

But which doctor?

Some companies let your doctor decide. Some require their own insurance company doctor. Which do you feel more comfortable with?

You also need to know how they decide. What will they look for?

For many policies,

• If you need help with at least two of the six activities of daily living (eating, bathing, dressing, toileting, walking around, or moving in and out) for longer than 90 days, you qualify for assisted living.

• Plus, struggling with cognitive tests is often an immediate trigger for benefits and memory care.

You want to know whose hands you’re putting the decision in and what factors they’re supposed to look at.

But Now, the YOU Part:

The doctors and policy will decide when an illness requires “long-term care.” But the policy you choose will determine how quickly it pays out.

This goes back to the deductible, the “elimination period,” that we talked about in Part 1, which could be anywhere from 0-3 months. (The longer the elimination period, the lower the premium.)

Here’s the tricky part. Some companies make you pay that elimination period multiple times. You pay it, get help, recover, and then need help again a year or so later and have to pay it all over again.

Ask if the elimination period is a one-and-done situation or a recurring fee.

4: What Happens to the Premiums When the Assisted Living Benefits Kick In?

If you remember the 10-Pay Policy (where you sign up before you’re 55), you only pay premiums for 10 years. Otherwise you will most likely pay premiums each month until you need living assistance.

Then, as soon as you start receiving assisted living or memory care, most companies stop charging you premiums. (Most. Meaning it’s a question you should clarify with your company.)

Also ask the agent what happens if you improve enough to no longer need assisted living care. (Often you start paying premiums again.)

5: How Will Assisted Living Benefits Pay Out?

The last thing you want is to purchase a long-term care policy, pay all those premiums, and then miss out on getting long-term care bills paid.

So ask now: How do you receive benefits?

• A reimbursement program where you turn in expenses up to the monthly maximum and they pay them? Or…
• An indemnity program (cash benefit) where they give you a percentage of the policy each month to use however you need for long-term care needs.

If it’s the reimbursement program, you often need to send bills within 30-60 days, and the company might require written medical records every 30-90 days.

There might be other forms and files needed, too, like a “proof-of-loss” form from the insurance company.

The Takeaway: Ask, ask, ask. Each company has its own procedures, and you need to understand them BEFORE you sign on—and definitely before you need the assisted living or memory care.

What Else Do They Offer?

(Hint: á la cart items)

Each of these items might cost a bit more up-front but could save you money down the road for assisted living care.

A. Return of Premium: The don’t-use-it-and-still-don’t-lose-it plan.

Say you passed away before you needed much long-term care. Meaning you paid more premiums than you used in benefits.

The insurance company would pay your estate a lump-sum of the difference. (A nice idea, but, note, it can cost you 30% more in premiums.)

B. Shared Care / Spousal Benefit Program: The eat-off-your-spouse’s-plate plan

• If you and your spouse buy identical plans (say three years each), but you need long-term assisted living care for longer, (say four years), you can use a year from your spouse’s plan. Or vice versa.

• If you use up all your spouse’s plan? Some companies will let your spouse buy two more years. (Some limits apply. Check that fine print again.)

• Some companies let you both quit paying premiums if even one of you receives benefits. (Called a “joint waiver of premium benefits.”)

• And sometimes there are just straight premium discounts for having you both sign up. Something you’ll definitely want to ask about.

C. Nonforfeiture: The you-say-hello-I-say-goodbye plan

So you start your policy, and four, five, ten years later, you decide you want out.

With this nonforfeiture rider, you can walk away, paying no more premiums, and the policy will hold reduced assisted living benefits for you for when you need them. (Usually there’s a minimum number of years for the contract before you can take off. Another question to ask.)

D. 10-Pay Policy: The early-bird-gets-the-cheapest-worm deal

Sign on before 55, and you only pay premiums for ten years. Short and sweet.

E. State Partnership Program: Governments’ “thank-you-for-purchasing-long-term-care-insurance” deal.

And this one actually works in every state but Utah and Mississippi at the moment…

You’ll want to run the numbers with your insurance agent, but the short and long of it has to do with Medicaid.

If perchance you use up all your insurance benefits and have to start paying long-term care from your IRA, the government would allow you to receive Medicaid without blowing through your entire savings.

Want the short-story-long version?

Let’s say you have $350,000 in an IRA.

• Without long-term care insurance, in Wisconsin, you need to spend all those assets down to $2000 (minus car and home) and have an income less than $2313/month to receive state help (i.e. Medicaid) for long-term care.

• However, if you have a $288,000 benefits policy and spend all of it for your care, the government would do the math: ($350,000 – $288,000 = $72,000) and only require you to spend that $72,000 of your IRA before letting you use Medicaid.

Is your head spinning yet? It’s okay. Just know this one’s a benefit that costs you nothing extra on your premiums.

The Takeaway: There are a lot of add-ons. We haven’t even listed them all here. Each one has its benefits. But each one (except for the State Partnership Program) also increases your premiums. You probably don’t need them all.

Don’t Put It Off, But Don’t Rush Either

(Hint: Sleep on It)

Long-term care insurance is a big decision—with lots of numbers and options.

So maybe don’t try to decide everything the first time you sit down with the insurance agent.

• Talk it over with your family,
• Discuss it with friends who’ve had a loved one in long-term care or an assisted living or memory care facility,
• Check out several insurance companies’ grades and plans,
• Speak with your 401k advisor,
• And Consider what’s really important for YOU.

Then make your decision.

Whatever you decide, you’ll have a better handle on how you can pay for long-term assisted living or memory care if you or your spouse are one of those 7 out of 10 who need it.

Again, a huge thank you to Scott P. Herrmann, FIC (Certified Kingdom Advisor with Thrivent Financial in Wisconsin), d Kingdom Advisor with Thrivent Financial in Wisconsin), and John Weber, CFP, CFA (Jacobian Wealth Advisory in Illinois) for their expertise in all the long-term care insurance nitty-gritty.

Any mistakes written here are entirely my own. I know they’d be happy to sit down with you and discuss any financial needs you have.

And, remember, an important part of planning long-term care insurance is touring assisted living facilities. Frontida has several great choices. Call us today!

Thank you to Brandon Hoogenboom on Unsplash for the featured image

Elizabeth Daghfal is a writer, teacher, speaker, and community volunteer. When she isn't teaching or writing-- Who are we kidding? Her husband and five kids say she's ALWAYS teaching and writing. She has a passion to help people who are struggling and is happy to say her shoulders are drip-dry. Born and raised in the South, she now lives in Wisconsin and loves it--except for the fifteen months of winter. Read more about her at elizabethdaghfal.com.