Bewildering Options

Find out if long-term-care coverage is right for you.

Long-term insurance is notoriously confusing. Most policies are "tax qualified," which means they meet the standards outlined by the Health Insurance Portability and Accountability Act of 1996. The law offers some policy standardization, most notably that the inability to accomplish two activities of daily living for at least 90 days (as determined by a doctor, nurse or licensed social worker) will trigger benefits. It also mandates that the premiums can be tax deductible if the policyholder's total annual medical expenses exceed 7.5% of his adjusted gross income.

Beyond these basic similarities, policies can vary significantly from provider to provider, or even within the same insurance company. A company's list of policy options can be longer than the wine list at a posh restaurant. Some plans cover the cost of having someone come to your home to run errands or do chores; others will pay only for a licensed aide or nurse. There are even options for how to pay for the policy: In some cases, you pay the tab in full over a set period of time, perhaps over the 10 years before your retirement, and your policy will then remain in force for life or until benefits are used up. With others, you pay indefinitely.

"It's the most complicated product I've ever considered buying," says 58-year-old Linda Carol Davis, a real estate broker from Chapel Hill, N.C. Davis has spoken with two agents and a broker representing a total of eight companies, but still isn't sure a policy is right for her. "I need to have a lot of questions answered before I (commit)," she says.

Consider the following example, courtesy of StrateCision, an independent company that sells price-comparison software to the insurance industry. A 50-year-old man in Delaware looking for a three-year, $150 daily benefit with compound inflation adjustments and a 30-day gap before benefits kick in -- an ostensibly well-defined policy -- could pay premiums ranging from $1,067 per year to $2,555. The disparity is due in part to the bewildering number of policy variables, all of which affect the premium you ultimately pay.

One big positive for long-term-care insurance: Once a policy is purchased, the premiums can't be raised based on changes in the holder's health. But rates can be raised for entire groups of policyholders -- say, everyone who purchased a particular policy over a certain time period.

When Should You Buy?
The average age of people buying individual long-term-care insurance is 60, according to 2002 figures (the most recent available) from America's Health Insurance Plans. Many experts say that buying in your 50s can make sense, since you're more likely to be eligible for coverage than if you wait, and premiums will be easier to handle out of pocket.

The average annual premium for someone age 50 with a $150 daily benefit for four years (with a 5% compound inflation adjustment) and a 90-day elimination period was $1,134 in 2002, according to AHIP. For someone age 65, it was $2,346, and at 79, it was $7,572. Keep in mind, however, that while the annual premium is lower if you take out a policy while still in your 50s, you'll likely be paying it for a much longer time.

All of which makes for a complex calculation. Start young and you'll be paying for years before the likelihood of actually needing the coverage is significant. But if you wait too long, you may fail to qualify or be priced out of the market. What's right for you depends on your risk tolerance, your family health history, your personal health history and your finances.