Top 5 Tips for Buying Long-Term-Care Insurance

BOSTON – Searching for and comparing long-term-care insurance policies requires nothing short of superhuman effort, AARP says in a new report.

Long-term-care insurance is one of the most confusing products out there. Terms and definitions vary widely from one insurer to the next. Prices vary from one insurer to the next. And regulations vary state to state. In some ways, it's the wild, wild West out there and consumers are bearing the burden of the chaos.

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"Comparing one LTC insurance policy with another is a challenge, even for professionals," said Enid Kassner, a senior policy adviser with AARP Public Policy Institute in Washington and author of the report. "Consumers will find very little independent help or guidance to assist them during the decision-making process, and nothing that will help them easily compare one policy with another."

For instance, Kassner says insurers often define the wait period — the period between when a person files for long-term insurance and when it kicks in — quite differently, with some insurers saying the wait (or elimination period or deductible) period starts from the point of diagnosis while other insurers say it begins after a person starts paying for care.

Kassner said AARP is calling for a number of changes in the LTC field, all of which should make it easier for consumer to make sound decisions. Some of the recommendations include:

Standardize policy benefits, features, and provisions. Require all insurers to offer at least the same benefit packages that are offered through the Federal LTC Insurance Program. Require LTC insurance policies that pay benefits for multiple types of care to make the total value of all purchased benefits available to the policyholder in any covered setting (nursing homes, assisted living, care at home, and so forth). Require companies to offer an option for paying family caregivers, with appropriate monitoring. Revise and regularly update regulatory standards so that there will be a more consistent and up-to-date regulatory framework than currently exists.

It may take some time before any one of those recommendations becomes a reality. So in the meanwhile, Kassner says consumers intent on buying LTC insurance policies today should consider these five tips:

The premium. First off, make sure you can afford the premium both now and over the long haul. Kassner says most people purchase LTC insurance while they are in their 60s but don't need it until they are in their 80s. That means a person would pay $2,400 (the cost of what Kassner says would have been be an ideal policy in 2002 dollars) per year for 20 years, or $48,000, for LTC insurance policy.

Kassner suggests that would-be buyers purchase a policy sooner rather than later if they can afford it. By the time a person is in their 70s, the premium will be more expensive. Plus, the chance of not meeting the medical underwriting standard rises. The supplement. Kassner says would-be LTC insurance buyers must determine whether they can afford to supplement either out of income or assets or both the long-term costs of what an LTC insurance plan doesn't cover. To do that, would-be buyers need to do some number crunching. They have to calculate the cost of long-term care in their area. (FYI: MetLife and Genworth both conduct studies that show people the costs of long-term care throughout the U.S.)

For instance, if an assisted living facility costs $200 per day and a person owns a $150 per day policy, he or she would have to cover out of pocket $50 a day. Given an average stay of 2.5 years in a nursing home, would-be buyers need to calculate whether they can afford they can pay the extra $50 per day. Those who can't, might consider not buying an LTC insurance policy, says Kassner.

"A lot of people don't' realize that you need to supplement your policy," she says. The best policy. Kassner says would-be buyers shouldn't skimp when it comes to buying a policy. They should either buy the best policy or none at all. Sure, buyers can adjust certain features. They can lengthen the so-called wait period if they have the resources to do so. They could shorten the duration of the policy from lifetime to four years to three years, if they want to play the odds of how long they might need coverage.

Best case, Kassner says would-be buyers should start with a policy that provides four years of coverage, has a 90-day wait period and has five-year compound and automatic inflation protection. The add-on. While inflation protection adds considerable cost to a policy, it is worth it, says Kassner. A policy without inflation protection might cover only half the dollar value of the daily benefit after inflation.

"Without inflation protection, the policy is virtually useless," says Kassner. Some younger buyers might consider a policy with a periodic offer of inflation protection, but Kassner says those policies tend to become expensive over time, plus there's a higher chance of those policies lapsing.

The terms. Even if a person can afford the premium of the best policy, would-be buyers still need a special dictionary to understand the terms used in a policy. What is the daily benefit? What is the definition of the waiting period? In some cases, a person may need to receive paid care for the wait period before the policy kicks in. Not knowing when the wait period begins could lead to a "critical misunderstanding," says Kassner.

In other cases, how long the coverage lasts is a matter of great interest. One policy might be three years of coverage with a $150 daily benefit and terminate after three years. Another policy with the same features might provide the total value of $150 times 1,095 days or $164,250 worth of coverage regardless of the years of coverage stated on the policy. Yes, most buyers do get an outline of coverage but it's the fine print is worth reading too, even if it's confusing.

Bottom line, Kassner says: "It's hard to compare one policy with another. You have to know the differences exist and sometimes the more expensive policy might be a better value than the cheaper one."

Would-be buyers must take a buyer-beware approach to LTC insurance policies, examining such things as the history of the LTC insurance company's rate increases. Some states do protect LTC insurance buyers from unreasonable rate increases, but not all.

And then there's the issue of regulations. Absent regulatory standards, Kassner says consumers need to figure out which regulations apply to their policy.

"There is no gold standard," says Kassner. "People need greater assurance that the product will deliver."

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