All About Long Term Care Presents:
A Shoppers Guide To Long-Term Care Insurance

About the NAIC ...

The National Association of Insurance Commissioners (NAIC) is the oldest association of state government officials. Its members consist of the chief insurance regulators in all 50 states, the District of Columbia and four U.S. territories. The primary responsibility of the state regulators is to protect the interests of insurance consumers, and the NAIC helps regulators fulfill that obligation in a number of different ways. This guide is one example of work done by the NAIC to assist states in educating and protecting consumers.

Another way the NAIC lends support to state regulators is by providing a forum for the development of uniform public policy when uniformity is appropriate. It does this through a series of model laws, regulations and guidelines, developed for the states' use. States that choose to do so may adopt the models intact or modify them to meet the needs of their marketplace and consumers. As you read though this guide, you will find several references to such NAIC model laws or regulations related to long-term care insurance. You may check with your state insurance department or find out if these NAIC models have been enacted in your state.

I. About This Shopper's Guide

This guide has been developed by the National Association of Insurance Commissioners (NAIC) in an effort to aid your understanding of long-term care and the insurance options available to help you pay the cost of long-term care services. The decision to purchase long-term care insurance is a very important financial decision that should not be rushed. State law requires insurance companies to give you this guide to help you better understand long-term care insurance and decide which, if any, policy you should buy.

Read the guide carefully. Take your time. Determine whether purchasing a policy might be a good option for you. If you decide to shop for a policy, begin by gathering information about the long-term care services and facilities you might use and how much they charge. Record this information as you shop for coverage. Gather and record information that will allow you to compare policies and buy the one that best meets your needs.

If you have additional questions, call your state insurance department or division or the insurance counseling program in your state. You can find the telephone numbers in this guide.

II. What Is Long Term Care?

Long-term care involves a wide variety of services for people with a prolonged physical illness, disability or cognitive disorder (such as Alzheimer's disease). Long-term care is not one service, but many different services aimed at helping people with chronic conditions compensate for limitations in their ability to function independently. Long-term care differs from traditional medical care as it is designed to assist a person to maintain his or her level of functioning, as opposed to care or services that are designed to rehabilitate or correct certain medical problems. Long-term care services may include, but are not limited to, help with daily activities at home, such as bathing and dressing, respite care, home health care, adult day care, and care in a nursing home.

Persons with physical illnesses or disabilities often need hands-on assistance with activities of daily living. Persons with cognitive impairments generally need supervision, protection or verbal reminders to accomplish everyday activities.

The delivery mechanisms for long-term care services are changing very rapidly; however, skilled care and personal care remain the most common terms used to describe long-term care and the level of care a person may need.

Skilled care is generally needed for medical conditions that require care by skilled medical personnel, such as registered nurses or professional therapists. This care is usually provided 24 hours a day, is ordered by a physician, and involves a treatment plan. Skilled care is generally provided in a nursing home, but may also be provided in other settings such as the patient's home with help from visiting nurses or therapists.

Note: Medicare and Medicaid have their own definitions of skilled care. Please refer to The Guide to Health Insurance for People with Medicare or The Medicare Handbook to find out how Medicare defines skilled care. For copies of these publications, contact your state insurance department or state insurance counseling program, listed on page 18. Contact your local social services office for questions regarding the Medicaid definition of skilled care.

Personal care (also known as custodial care) helps a person perform activities of daily living, which include assistance with bathing, eating, dressing, toileting, continence and transferring. It is less intensive or complicated than skilled care and can be provided in many settings, including nursing homes, adult day care centers or at home.

There are different types of providers of long-term care and places where you can receive this care. State laws governing the providers of long-term care vary widely as do terms used to describe these providers. As you begin your evaluation of the need for long-term care insurance, you will hear about nursing homes, adult day care centers, assisted living facilities and home care agencies as some of the many types of long-term care providers.

III. How Much Does Long-Term Care Cost?

Long term care can be expensive, depending upon the amount and type of care needed and the setting in which it is provided. Currently, the cost of a year in a nursing home averages about $38,000.¹ This cost is only an average and varies widely across the country. If you receive skilled nursing care in your home and are visited by a nurse three times a week for two hours per visit for the entire year, the bill would come to about $12,300. If you receive personal care in your home from a home health aide three times a week for a year, with each visit lasting two hours, the bill would amount to about $8,400.

IV. Who Pays for Long-Term Care?

Nationally, one-third of all nursing home expenses are paid out-of-pocket by individuals and their families, and abut half are paid by state Medicaid programs. Long-term care expenses are generally not paid for by Medicare, Medicare supplement insurance, or the major medical health insurance provided by most employers. Medicare will cover the cost of some skilled care in approved nursing homes or in your home, but only in certain situations. Further, Medicare's skilled nursing facility (SNF) benefit does not cover general "nursing home" care. The SNF benefit is a "post-hospital" benefit, which only covers a relatively intensive level of skilled care furnished during a brief convalescent period after an acute care stay in a hospital. Medicare does not cover homemaker services.

Medicare does not pay for custodial care provided by home health aides unless the individual is also receiving skilled care such as nursing or therapy and the custodial care is related to the treatment of the illness or injury. However, there are limits on the number of days and hours of care an individual can receive in any week.

Medicare supplement insurance is private insurance designed to help pay for some of the gaps in Medicare coverage, such as hospital deductibles and excess physicians' charges. These policies do not cover long-term care expenses. However, of the standardized Medicare supplement policies, Plans D, G, I and J do contain an at-home recovery benefit that may pay up to $1,600 per year for short-term, at-home assistance with activities of daily living for those recovering from an illness, injury or surgery.

Medicaid pays for nearly half of all nursing home care. Medicaid may also pay for some community-based services. To receive Medicaid assistance, you must meet federal poverty guidelines for income and assets and may have to "spend down" or use up most of your assets on health care. (Some assets, such as your home, may not be counted when determining Medicaid eligibility.) When you have spent down your assets, you then will be eligible for Medicaid. Many people begin paying for nursing home care out of their own pockets and spend down their financial resources until they become eligible for Medicaid. They then turn to Medicaid to pay part or all of their nursing home expenses.

State laws differ about how much money and assets you are allowed to keep once you become eligible for Medicaid. Contact your state Medicaid office, office on aging, state department of social services or local Social Security office to learn about the rules in your state. In most states, the health insurance counseling and assistance program also may provide some Medicaid information. please see the list of counseling programs and telephone numbers.

This guide will help you decide if you need a long-term care insurance policy, and if you do, how you can choose one.

V. Should You Buy Long-Term Care Insurance?

Not everyone should buy a long-term care insurance policy. For some, a long-term care policy is an affordable and attractive form of insurance. For others, the cost is too great, or the benefits they can afford are insufficient. You should not buy a long-term care policy if it will cause a financial hardship and make you forego other more pressing financial needs. Each person should carefully examine his or her needs and resources to decide whether long-term care insurance is appropriate. It is also a good idea to discuss such a purchase with your family.

The need for long-term care can arise gradually as a person needs more and more assistance with activities of daily living, such as bathing and dressing, or the need can surface suddenly following a major illness, such as a stroke or a heart attack.

Some people who have acute illnesses may need nursing home or home health care for only short periods of time. Others may need these services for many months or years.

It is difficult to predict who will need long-term care, but there are studies that help shed some light on the likelihood of needing such care. For example, one national study² projects that 43% of those people who turned age 65 in 1990 will enter a nursing home at some time during their life. The same study reported that among all persons who live to age 65, only 1 in 3 will spend three months or more in a nursing home; about 1 in 4 will spend one year or more in a nursing home; and only about 1 in 11 will spend five years or more in a nursing home. In other words, 2 out of 3 people who turned 65 in 1990 will either never spend any time in a nursing home or will spend less than three months in one.

The risk of needing nursing home care is greater for women than men; 13% of the women in this study, compared to 4% of the men, are projected to spent five or more years in a nursing home. The risk of needing nursing home care also increases with age.

The chances of needing home health care are substantially greater than needing nursing home care.

Once you've assessed your odds of needing coverage, you should take a hard look at the reasons you want a policy and your ability to pay for it.

Whether you should buy a policy will depend on your age, health status, overall retirement objectives and income. For instance, if your only source of income is a Social Security benefit or Supplemental Security Income (SSI), you should probably not purchase long-term care insurance. Also, if you have trouble stretching your income to meet other financial obligations, such as paying for utilities, food or medicine, you should probably not purchase a long-term care insurance policy.

On the other hand, people with significant assets may wish to buy a long-term care policy if they want to save these assets. Many people buy a long-term care insurance policy because they want to pay for their own care and not burden their children with nursing home bills. However, you should not buy a policy if you can't afford the premiums or cannot reasonably predict that you will be able to pay the premium for the rest of your life.

If you have existing health problems that are likely to result in the need for long-term care (for example, Alzheimer's disease or Parkinson's disease), you will probably not be able to buy a policy. Insurance companies have medical underwriting standards in place to keep the cost of long-term care insurance affordable. In the absence of such provisions, most people would not buy coverage until they needed long-term care services.

VI. Who Sells Long-Term Care Insurance?

Private insurance companies sell long-term care insurance policies. They may sell them to individuals through agents or sometimes through the mail without using agents. Some companies sell coverage through senior citizen organizations, fraternal societies, and other groups or associations. Many employers now make long-term care insurance policies available to their employees, their employees parents and their retirees. Insurance companies must be licensed in your state to sell long-term care insurance. Be certain that you are dealing with a company that you know. If you decide to purchase long-term care insurance, be sure that the company and the agent, if one is involved, is licensed in your state. If you are not sure, contact your state insurance department.

You also may be able to purchase a long-term care insurance policy through a continuing care retirement community (CCRC). A CCRC is a retirement complex that provides a broad range of services. If you are a resident or on the waiting list of a CCRC, you may be offered the opportunity to enroll in a group long-term care insurance policy. The coverage provided by the long-term care insurance policy is similar to other group or individual policies and is usually designed to complement the fee structure of the continuing care retirement community. Individual medical screening, or underwriting, is often required when a resident applies for this type of long-term care insurance coverage.

VII. What Kind of Policies Can You Buy?

Today, long-term care insurance policies are not standardized like Medicare supplement insurance. There are several companies selling policies with multiple combinations of benefits and coverage. There are also several ways to acquire a policy. You may do so individually, through your employer or your spouse's employers (and in some cases, your children's employers), through membership in an association, and even through a life insurance policy.

• Individual Policies

  Most of the policies sold today are sold to individuals. Many of these policies are sold through insurance agents, but some are also sold through mail solicitations or direct telemarketing. Individual policies offer a wide variety of coverage; however, not all companies offer the same coverage. You may have to shop among companies and agents to get the coverage that best fits your needs.





• Policies from Your Employer

  Your employer may provide you with an opportunity to enroll in a group long-term care insurance plan. The coverage provided by these employer-group policies is similar to what you could buy in an individual policy from an agent or through direct mail solicitation. Insurers may allow you to keep your coverage after you leave your employer. They do this by offering continuation of coverage or conversion options. Many employers also allow retirees, spouses, parents and parents-in-law to buy coverage. Typically, employees' spouses, parents and parents-in-law must pass the company's medical screening to qualify for coverage. Employees may not have to pass any medical requirements. If an employer offers such coverage, be sure to consider it carefully. An employer group policy may offer options you won't find if you try to buy a policy on your own.





• Association Policies

  Many associations allow insurance companies and agents to offer long-term care insurance to their members. These policies are quite similar to other types of long-term care insurance policies. Like policies that employers offer, association policies usually give their members a choice of benefit periods, maximum payments and elimination periods. Association policies may offer nonforfeiture benefits and inflation protection. In mot states, association policies must allow members to keep their coverage after they leave the association. You should be cautious about joining an association for the sole purpose of purchasing any insurance coverage, especially long-term care coverage.





• Life Insurance Policies

  Some life insurance companies offer access to the life insurance death benefit and cash value under certain specified conditions prior to death, such as terminal illness, permanent confinement in a nursing home, or for long-term care. This is often referred to as an "accelerated benefit" provision. Long-term care benefits can be offered as a feature of an individual or group life insurance policy. Under these arrangements, a portion of the policy's death benefit is paid on a periodic basis when the insured needs long-term care services. Policies may pay up to 100% of the death benefit for long-term care, and some companies offer the option to purchase addition long-term care coverage beyond the death benefit amount.

  It is important to remember that the amounts used under this type of coverage reduce the amount of death benefit the beneficiary will receive, as well as the cash value of the life policy. For example, if you purchase a policy with a $100,000 death benefit and use $60,000 for long-term care, the death benefit of your policy will be reduced to $40,000. If you purchase life insurance to provide a benefit upon your death for a specific need, and you use this option for long-term care needs, the benefit upon your death may not cover this original need. If you never use the long-term care benefit, the full death benefit stated in the life insurance policy will be paid to your beneficiary.





• Partnership Programs

  Some states have programs designed to assist persons with the financial consequences of spending down to Medicaid eligibility standards. These programs, generally called "partnerships," allow persons to purchase certain qualified long-term care insurance policies from insurance companies and receive full or partial protection against the normal Medicaid spend-down of assets. Check with your state insurance department or counseling program to see if this type of "partnership" is available in your state. Please keep in mind that "partnership" programs are specific to that particular state, and that you must be a resident of that state once the policy benefits are exhausted and you are ready to apply for Medicaid assistance.

A. What Is Covered?

If you buy a long-term care policy, it is critical that you understand the coverage for the variety of long-term care services available. Some policies cover only stays in nursing homes. Others cover only are in your home. Still others cover both nursing home and home care. In addition, many policies also cover services provided in adult day care centers or other community facilities.

Many long-term care policies will only pay for care provided in licensed nursing facilities. Most policies on the market today do not distinguish among the types of nursing home care or level of care that is provided. They will pay for any care you need, provided, of course, you need long-term care and meet other eligibility requirements contained in the policy, which are explained later in this guide.

Home care coverage varies. Some policies pay home care benefits only for home care performed in your home by registered nurses; licensed practical nurses; and occupational, speech or physical therapists. Many policies offer a broader range of home care benefits coverage. For instance, the services of home health aides employed by licensed home care agencies may be covered. These aides have less training than nurses who perform skilled care, and they generally help patients with personal care. You may find a policy that pays for homemaker or chore worker services. This type of policy, though rare, would pay for someone to come to your home to cook meals and run errands. Generally speaking, adding home care benefits to the policy will raise the cost.

Note: Most policies don't pay benefits to family members who may perform home care services.

B. How Are Benefits Paid

Insurance companies generally pay benefits in two different methods: the expense incurred method and the indemnity method.

In the expense incurred method, once you have been determined to be eligible for benefits and you submit claims, the insurance company either pays you or the provider up to the limits contained in the policy. Your policy or certificate will pay benefits only when eligible services are received.

The second type of benefit payment is the indemnity method. Under this method, once you have been determined to be eligible for benefits, the insurance company will pay benefits to you directly in the amount specified in the policy, without regard to the specific services received.

It is important to read the literature that accompanies your policy or certificate. Most of the policies purchased currently pay benefits by the expense method incurred method. The difference between the two types of policies lie in the way benefits are paid. Expense incurred policies pay benefits either to you or to the provider, while indemnity policies normally pay benefits directly to you only. (Expense incurred policies tend to be less expensive, but also tend to provide benefits for a longer period of time).

C. Where Is Service Covered

With a long-term care policy, it is not enough to know what services are covered. You also need to know where services are covered. If you are not in the right type of facility, the insurance company can refuse to pay. Some policies provide for care in any state licensed facility. Others may limit the kinds of facilities where you can receive care. For example, many will not cover personal care unless it's provided in a licensed nursing facility. Others list by name the kinds of facilities where you will not be covered. These often include homes for the aged, rest homes, personal care homes and assisted living facilities, although many states license these facilities to provide personal care. Some policies may explicitly define the kinds of facilities they will cover. Some may say the facility must care for a certain number of patients or require a certain kind of nursing supervision. It is important to check these requirements very carefully and pay particular attention to the types of facilities that provide services in your area. It is important that you contact your insurance company before entering the health care facility to determine if the stay will be covered.

D. What Is Not Covered (Exclusions and Limitations)

Insurance companies generally do not pay benefits if services are needed for a person who has:

• a mental or nervous disorder or disease, other than Alzheimer's disease
• an alcohol or drug addition
• an illness or injury caused by an act of war
• had treatment already paid for by the government
• attempted suicide or intentionally self-inflicted injuries

Note: Insurance carriers cannot exclude coverage for Alzheimer's disease in states that have adopted the NAIC's Long-Term Care Insurance Model Regulation. Contact your state insurance department to find out if this applies in your state. Virtually all policies specifically say they will cover Alzheimer's disease. You also should be aware of the connection between Alzheimer's disease and eligibility for benefits discussed below.

E. How Much Coverage Will You Have

The amount of coverage provided by your policy or certificate is expressed in different ways. Be sure you understand the amount of coverage you have in your policy or certificate. Also, keep in mind that the type of service received will dictate the amount of coverage, and that the amount of coverage may vary depending on the type of service you receive.

1. Lifetime Maximum Benefits

Most plans have a total maximum benefit they will pay out over the length of the policy's duration. The maximum benefit limit is generally expressed in language similar to: "total lifetime benefit," "maximum lifetime benefit" or "total plan benefit." When you are examining a policy or certificate, be sure you carefully consider the total amount of coverage you will have available. A few plans offer unlimited lifetime benefits. Often, these benefits are expressed in the marketing materials as benefit periods of one, two, three or more years, or total dollar amount available. Which is better - a longer or a shorter benefit period? Most nursing home stays are short - three months or less - but some illnesses can go on for several years, necessitating very long stays. You will have to decide whether you want to be protected for such catastrophic events, bearing in mind that policies with longer benefit periods tend to cost more.

2. Daily/Monthly Benefit Amounts

Benefits are often payable on a daily, weekly, monthly, annual or other basis. For example, in an expense incurred plan, a nursing home benefit might be paid on a daily basis in an amount up to $100 per day, while a home care benefit might be paid on a weekly basis of up to $350 per week for approved home care services. Some policies include single event benefits, such as a single payment for installation of a home medical alert system. Typically, insurance companies offer you a choice of periodic benefit amounts (usually $50 to $250 a day; $1,500 up to $7,500 a month) for care in nursing homes. It is important to know how much nursing facilities in your area charge before you select a benefit amount for your policy. The worksheet on page 27 can help you keep track of nursing home charges in your area. If home care if a covered benefit included in your policy, the benefit for those services is normally half or some other percentage of the benefit for nursing home care.

Note: For home care coverage, the benefit period may be different from the benefits for nursing home stays, though in some policies it may be the same or longer.

F. When Are You Eligible For Benefits (Benefit Triggers)

All policies contain provisions that determine if and when benefits are payable. The provisions that companies use to determine benefits, sometimes called "benefit triggers," are generally contained in a section of the policy and outline of coverage entitled, "Eligibility for the Payment of Benefits" or simply "Eligibility for Benefits." The manner in which a company determines when benefits are payable is an important feature of a long-term care policy and one you should pay careful attention to as you shop. There might be a wide variation among policies when it comes to these provisions. Some policies use more than one provision to determine when benefits are payable. Some states have specific benefit trigger requirements. Check with your state insurance department to find out what is required in your state.

1. Activities of Daily Living (return to section II)

The most common method for determining when benefits are payable is based upon the insured's inability to perform activities of daily living, commonly known as ADL's. Generally speaking, the most common ADLs used by insurance companies are bathing, continence, dressing, eating, toileting and transferring. Typically, benefits are payable when a person is unable to perform a certain number of ADLs, such as three of the six or two of the six.

When you are considering a policy that bases payment of benefits on ADLs, be sure you understand what it means by the inability to perform a particular activity of daily living. Some policies spell out very clearly what they mean by failure to feed or bathe oneself. A definition that says you must have someone actually help you perform the activity, also known as hands-on assistance, is more restrictive than one that calls for someone to supervise the activity, which is also known as stand-by assistance. The more specific a policy describes its requirements, the less hassle you or your family will have when the need to file a claim arises.

Note: the six ADLs have been developed through years of research. This research also has shown that bathing is usually the first ADL that a person is unable to perform. If a policy only uses five ADLs and bathing is not included, it may be more difficult to qualify for benefits through that policy than through a policy that includes the bathing ADL.

2. Cognitive Impairment

Many policies also have a provision for "cognitive impairment" or mental incapacity. This type of provision generally provides benefits if the insured is unable to pass certain tests assessing his or her mental function. The provision is especially important if a person has Alzheimer's disease. Most states prohibit policies from containing an exclusion for Alzheimer's disease. However, a policyholder who has Alzheimer's disease may not qualify for benefits if he or she is physically able to perform the activities of daily living specified unless the policy has a provision for cognitive impairment or mental incapacity. If the policy uses only an ADL benefit trigger, those with Alzheimer's disease may not qualify for benefits. But if a policy also has a benefit trigger for cognitive impairment or mental incapacity, an insured with the disease is more likely to receive benefits.

3. Doctor Certification of Medical Necessity

Under some policies, you'll qualify for benefits if your doctor orders or certifies that the care is medically necessary. If you need personal care in a nursing home, but are not sick or injured, you may not qualify for benefits under a medical necessity requirement, depending on how the policy defines medical necessity.

4. Prior Hospitalizations

Some policies sold several years ago required the insured to have a prior hospital stay of at least three days before qualifying for benefits. This requirement is very restrictive and can severely limit your ability to receive any benefits from your policy. This type of provision is prohibited in the current NAIC model laws. Most states now prohibit policies from requiring a prior hospitalization. However, a few states still permit insurance companies to use this benefit trigger. Check with your state insurance department to find out if this applies in your state. Be aware, however, that Medicare does require a three-day prior hospital stay to determine eligibility for skilled nursing facility benefits.

Note: The provisions for benefits that companies use for home are coverage may be different from those it uses for nursing home care.

G. When Do Benefits Begin (Elimination Period)

With many policies, your benefits won't begin the first day you enter a nursing home or begin using home care. Most policies include an elimination period (sometimes called a deductible or a waiting period). That means benefits begin 20, 30, 60, 90 or 100 days after you enter a nursing home, depending on the elimination period you pick when you buy your policy. You might be able to choose a policy with a zero-day elimination period, but these also tend to cost more. Some companies may not give you the option of selecting such an elimination period, you'll have to cover the cost of long-term care services yourself. Elimination periods may be shorter for home care benefits.

In choosing an elimination period, you'll have to weigh the trade-off between paying a higher premium for a shorter elimination period. If a nursing home in your area costs $80 a day, a policy with a 30-day elimination period will require you to pay $2,400 out of pocket, a policy with a 60-day period will require $4,800 of your own money, and a policy with a 90-day elimination period will cost you $7,200 of your own money. If your stay is short and you have a policy with a long elimination period, you may not receive any benefits from your policy. On the other hand, if you can afford to pay for a short stay, a longer elimination period might be in order. In this manner, you'll be protected if you have a prolonged nursing home stay, and at the same time keep the cost of your insurance down.

You may also want to consider how the policy pays if you have a repeat stay in a nursing home. Some policies require you to be out of a facility for a certain period of time before you can receive benefits for a second stay. Others will consider the second stay as part of the first one as long as you are released and then readmitted within 30, 90 or 180 days. You need to find out in the insurance company requires the elimination period to run again for a second stay. Keep in mind that repeat nursing home stays are not typical, so you may not want to put a lot of emphasis on this feature as you do your shopping.

H. What Happens When Long-Term Care Costs Rise (Inflation Protection)

Inflation protection can be one of the most important additions you can make to a long-term care policy. However, inflation protection adds to the cost of the policy. Unless your policy provides inflation for your daily benefit to increase over time, years from now you may find yourself owning a policy whose benefit has not kept pace with the increasing costs of long-term care. A nursing home that costs $86 a day now will cost $228 a day in 20 years, assuming an inflation rate of 5% a year. Obviously, the younger you are when you purchase a policy, the more important it is for you to consider adding inflation protection.

There are two ways that inflation protection is most commonly offered. The first automatically increases your benefits each year. The second allows you the option to increase your benefits on a periodic basis, such as every three years. Be sure you understand the implications of accepting or rejecting an opportunity to increase the inflation protection benefits of your policy.

There are also two types of increases that are generally made available, simple and compounded rate increases. Under both, the daily benefit increases annually by a fixed percentage, usually 5%, for a certain period, usually 10 or 20 years. Even though the automatic increases are a fixed percentage amount, the dollar amount of the increases from year to year will differ, depending on whether the inflation adjustment is "simple" or "compounded." If the inflation adjustment is simple, the dollar amount of the increase added to the benefit stays the same every year; but if the adjustment is compounded, the benefit increases by an increasing dollar amount from one year to the next. For example, an $80 daily benefit that increases by a simple 5% a year will provide $160 a day in 20 years, but if it's compounded, it will provide $212 a day. It is desirable to choose a policy with automatic increases that are compounded, but some policies do not provide for that. Some states now require that inflation increases be compounded. Check with your state insurance department to find out if this applies in your state. Compounding can make a large difference in the size of your benefit.

Note: The NAIC model regulation requires companies to make an offer of inflation protection, leaving it up to you to decide whether to buy the coverage. Most states have adopted this provision. If you decline, you will be asked to sign a statement saying you don't want the inflation protection. be sure you understand what you are signing.

I. What Other Optional Policy Provisions May Be Available

Other options may be available to you. These optional features may add to the cost of your policy. Ask your insurer what features add to the cost of the policy.

1. Third Party Notification.

This benefit allows you to name a third party who would be notified by the insurance company if the policy is about to lapse because of the non-payment of the premium. The third party can be a relative, friend, or a professional (a lawyer or accountant, for example). This third party, after he or she has been notified, would then have a period of time to pay the overdue premium. Individuals with cognitive impairments who have forgotten to pay the premium have had their policy lapse when they have needed it the most. If you select this provision, a lapse can be prevented. You can generally designate a third party at no additional cost to you. Some states now require that the insurance company provide you with the opportunity to name a third party and may even require that you sign a waiver if you elect not to name anyone to be notified in the event that the policy is about to lapse.

2. Waiver of Premium.

This provision allows you to stop paying premiums once you are in a nursing home and the insurance company has started to pay benefits. Some companies waive the premium as soon as they make the first benefit payment. Others wait 60 to 90 days. Waiver of premium may not apply if you are receiving care in your home.

3. Restoration of Benefits.

This benefit provides for the maximum amount of your original benefit to be restored, even if you have previously received benefits through your policy. Generally, if you receive long-term care benefits, and then go for a stated period of time without receiving long-term care services, the amount of your benefit reverts back to the amount you originally purchased. For example, if you used $5,000 of long-term care benefits that were paid for by your policy (out of a maximum available amount of $75,000), and thereafter used no long-term care services for a specified period of time, the $5,000 would be restored back to the maximum amount of benefit you would have available. Instead of having only $70,000 of benefits remaining, you would have the original $75,000 benefit available.

4. Nonforfeiture Benefits.

This benefit returns to you some of the investment (through the premiums paid) in the policy if you drop your coverage. Without this type of benefit, you receive nothing if you drop the policy 10 or 20 years later.

Some states may require the offer of nonforfeiture benefits and each has a different premium associated with it. A company may offer a nonforfeiture benefit by giving you a reduced paid-up policy. This coverage generally provides the same daily benefit purchased for a reduced period of time based on the number of years the policy was in premium paying status. Other carriers may offer a "return of premium" benefit under which they return all or a portion of the premiums after a certain number of years if you drop your policy. This is generally the most expensive type of benefit. A nonforfeiture benefit can add roughly 10% to 100% to a policy's cost, depending on such things as your age at the time of purchase, the type of nonforfeiture benefit offered, and whether the policy provides for inflation protection.

5. Premium Refund Upon Death.

This benefit refunds to your estate any premiums you paid minus any benefits the company paid. To receive a refund at death, you must have paid premiums for a certain number of years. In some policies, death benefits are payable only if the policyholder dies before a certain age, usually 65 or 70. Death benefits may also add to the cost of a policy.

IX. Will Your Health Affect Your Ability To Buy A Policy?

Companies selling long-term care insurance "underwrite" their coverage. That means they look at your health and health history before they will issue a policy. Some companies do what is known as a "short-form" underwriting. On the application for coverage, they will ask you to answer a few questions about your health; for example, they may want to know if you have been hospitalized in the last 12 months or are confined to a wheelchair. Some companies conduct more extensive underwriting. They may examine your current medical records and ask for a statement about your health from your doctor. These companies may be more selective about whom they will insure. Having certain conditions that are likely to require a nursing home stay in the near future (Parkinson's disease, for example) probably will disqualify you for coverage at these companies. In either case, you must answer certain questions that the company uses to determine if it is going to issue the coverage. Some group policies, especially those available through an employer, may be available without any underwriting requirements.

No matter what kind of underwriting a company uses, it is very important to answer all health questions truthfully. If a company later learns you did not fully disclose your health status on the application, and the company relied on the misstatement of information to grant coverage, it can rescind, or cancel, your policy and return the premiums you have paid. It usually can do this within two years after you buy the policy. Sometimes companies do not investigate your medical record until you file a claim, and then they may attempt to deny benefits based on inconsistencies. This practice is called "post-claims underwriting" and is illegal in many states. Companies that thoroughly check on your health before issuing a policy are not as likely to engage in post-claims underwriting. Most states require the insurance company to provide you with a copy of the application you completed when you applied for coverage. You should review the application and be certain that you have answered all health questions truthfully and the information you provided to the company is accurate. This copy of the application should be kept with your insurance documents.

X. What Happens If You Have Pre-Existing Conditions?

Many companies will usually issue a policy to people who have relatively minor health problems. The company may not pay benefits for conditions related to these minor health problems, or pre-existing conditions, for a period of time after the effective date of the policy, usually six months. Some companies have longer pre-existing conditions periods; others have none. A pre-existing condition is normally defined in the policy as one for which you sought medical advice or treatment or had symptoms within a certain period before applying for the policy. Companies also vary in the length of time they will look back at your health status, and you will want to consider these variations as well. If the company discovers you have not disclosed a pre-existing condition on your application, it may refuse to pay for treatment related to that condition and perhaps terminate your coverage.

XI. Can You Renew Your Coverage?

In most states, the laws require policies currently sold to be guaranteed renewable. When a policy is guaranteed renewable it means that the insurance company guarantees that it will offer you the opportunity to renew the policy and maintain the coverage. It does not mean that you are guaranteed the opportunity of renewing at the same premium. Premiums may rise over time as companies pay claims in greater amounts and frequency. However, once you buy a policy the premiums won't rise just because you get older. Keep in mind that insurance companies cannot raise the premiums on any individual policy. They must raise the premiums on all policies of the same class in your state. If you have purchased this policy setting and you leave the group, you may be able to convert your coverage from the group policy to an individual policy, or continue your coverage under the group policy. You should consult with your state insurance department to determine if this is required in your state.

XII. What Do Policies Cost?

A long-term care policy can be expensive, and you might want to be sure you can pay the premium for it as well as premiums for your other health insurance which you also consider to be important. The annual premium for long-term care insurance policies with inflation protection can run as much as $2,000 for someone aged 65. Obviously the premium will be lower for those who are younger and more for those who are older.

If you buy a policy at age 75, the premium will generally be two and a half times greater than if you had bought the policy at age 65. It will be six time higher than if you bought at age 55. It's not unusual for a couple aged 65 to spend around $7,500 for all their health insurance coverage. If you buy a policy with a large daily benefit or a longer benefit period, it will also cost you more. Inflation protection can add 25% to 40% to the premium. Nonforfeiture benefits can add 10% to 100% to the premium, as noted above.

When buying a long-term care policy you must consider not only whether you can continue to pay the premium now, but also if you will be able to continue to pay the premiums in the future, when they most likely will be higher. Premiums on these policies may increase. Insurance companies can raise the premiums on their policies, but only if they increase the premiums on all policies of that class in that state. No individual can be singled out for a rate increase, regardless of the amount of claims that they have incurred. Some states have rate increase restriction laws. Check with your insurance department to find out how rate increases are regulated in your state.

Consider how much income you have and how much you could afford to spend on a long-term care policy now. Also try to project what your income is likely to be in the future, what your living expenses will be, and how much you can pay for long-term care insurance premiums. If you don't expect your income to increase, it probably would not be wise to purchase a policy now with a premium that is at the upper limit of what you think you can afford.

Note: Don't be misled by the term "level premiums." Some persons or entities marketing long-term care insurance might tell you that your premiums is "level" and imply that it will never rise. With the exception of "whole life" insurance policies, companies cannot guarantee their premiums will never increase. The NAIC model prohibits insurance companies from using the word "level" in connection with a sale of guaranteed renewable policies. Many states have adopted this provision. New rules require companies to tell prospective customers that the premiums on their policies may go up. Look for that disclosure on the outline of coverage and the face page of the policy when you shop.

XIII. If You Already Own A Policy, Should You Switch Plans Or Upgrade Existing Coverage?

Before you buy a new policy, make sure it is better than the one you already have. Even if your agent has switched companies, carefully consider any changes. If you decide to switch, make sure your new application is accepted and the policy is issued before you cancel the old policy. If you cancel a policy in the middle of its term, most companies will not return any premiums you have paid. If you switch policies, new restrictions on pre-existing conditions may apply, and you may not have coverage for certain conditions for a specific period of time. Some states do not allow a new pre-existing condition waiting period for similar benefits if you switch policies. The new waiting period will apply for new benefits only.

It may be appropriate to switch, however, if you have an old policy with requirements for a prior hospital stay or for prior levels of care, and you are in good health and can qualify for another policy. If you have a good policy you bought when you were younger, you might ask if the insurance carrier can enhance the policy, for example, by adding inflation protection or removing the pre-hospitalization requirement. It might be cheaper to keep the policy you have and improve it rather than to buy a new one.

XIV. What Shopping Tips Should You Keep In Mind?

Here are some points to keep in mind as you shop.

A. Ask questions.

If you have questions about the agent, the insurance company or the policies, contact your state insurance department or senior counseling program. (See the list of insurance departments provided here.).

B. Check with several companies and agents.

It is wise to contact several companies (and agents) before you buy. Be sure to compare benefits, the types of facilities you have to be in to receive coverage, the limitations of coverage, the exclusions, and, of course, the premiums. (Policies that provide identical coverage and benefits may not necessarily cost the same.)

C. Take your time and compare outlines of coverage.

Never let anyone pressure or scare you into making a quick decision. Don't buy a policy the first time an agent comes calling. Ask the agent to give you an outline of coverage. The outline of coverage summarizes the policy's benefits and highlights important features. Compare outlines of coverage for several policies.

Most states require the agent to leave an outline of coverage at the time the agent initially contacts you. If the agent does not give you an outline or tells you he or she will provide it later, do not deal with that agent.

D. Understand the policies.

Make sure you know what the policy covers and what it does not. If you have any questions, ask the agent or call the insurance company's home office before you buy.

If the agent gives you answers that are vague or differ from information in the company literature, or if you have doubts about the policy, tell the agent you will get back to him or her later and don't hesitate to call or write to the company and ask your questions. Beware of any sales solicitation that claims the policy can be offered only once.

Some companies may sell their policies through the mail, bypassing agents entirely. If you decide to buy a policy through the mail, contact the company if you don't understand how the policy works.

Discuss the policy with a friend or relative. You may also want to contact your state insurance department or your state's insurance counseling program. A list of insurance departments and counseling programs can be obtained by contacting us.

E. Don't be misled by advertising.

Don't be misled by the endorsements of celebrities. Most of these people are professional actors who are paid to advertise. They are not insurance experts.

Neither Medicare nor any other federal agency endorses or sells long-term care insurance policies. Be skeptical of any advertising that suggests the federal government is involved with this type of insurance.

Be wary of cards received in the mail that look as if they were sent by the federal government. They may actually have been sent by insurance companies or agents trying to find potential buyers. Be skeptical if you are asked questions over the telephone about Medicare or your insurance. Any information you give may be sold to persons or entities marketing long-term care insurance who might call you, come to your home, or solicit you by mail.

F. Don't buy multiple policies.

It is not necessary to purchase several policies to get enough coverage. One good policy is enough.

G. Don't be misled by marketers of long-term care insurance who say your medical history is not important.

Disclosing your medical history is very important. Make sure you fill out the application completely and accurately. If an agent fills out the application for you, don't sign it unless you have read it and made sure that all of the medical information is correct. If information about the state of your health is wrong, and the company relied on it in granting coverage, the company can refuse to pay your claims and can even cancel your policy.

H. Never pay in cash.

Use a check or money order made payable to the insurance company.

I. Be sure to get the name, address and telephone number of the agent and the company.

Obtain a local or toll-free number (if the company has one).

J. If you don't receive your policy within 60 days, contact the company or agent.

When you receive your policy, keep it in a convenient place where you can find it, and tell a trusted friend or relative where it is.

K. Be sure you review your policy during the free-look period.

If you decide you do not want the policy after you purchase it, you can cancel the policy and get your money back if you notify the company within a certain number of days after the policy is delivered. This is called the "free-look" period. Some states require that the insurance company disclose information about the free-look period on the cover page of the policy. Most states allow policyholders to cancel within 30 days, but some may have a shorter free-look period. Check with your state insurance department to find out how long the free-look period is in your state. If you want to cancel, do the following:

• Keep the envelope the policy was mailed in, or insist your agent give you a signed delivery receipt when he or she hands you the policy.
• If you decide to return the policy, send it to the insurance company along with a brief letter asking for a refund.
• Send both the policy and letter by certified mail and obtain a mailing receipt.
• Keep a copy of all correspondence.
• The refund process usually takes four to six weeks.

L. Read the policy again and make sure it provides the coverage you want.

Reread the application you signed. It becomes part of the policy. If it's not filled out correctly, notify the insurance company right away.

M. It may be a good idea to have premiums automatically deducted from your bank account.

That way, if an illness causes you to forget to pay them, your coverage won't lapse. If you decide to not renew your policy, be sure to contact the bank and stop the automatic withdrawal.

N. Check the financial stability of the company you're considering.

Several private companies or rating agencies conduct financial analyses of insurance companies and grade them. These ratings carry no guarantee of accuracy but can provide you with information on how some analysts view the health of particular insurance companies. Different agencies use different rating scales, so be sure to find out how the agency labels its highest ratings as well as the ratings for the companies you are considering.

Additional Information

If you would like to request a copy of this Shopper's Guide from All About Long Term care, please visit and fill our our request form.

Ratings from some agencies are available at most public libraries, or you can call the agencies directly at the numbers listed below. (Note that there will be an extra charge on your telephone bill for calls to a "900" number.)

End-Notes:

¹ American Health Care Association study, 1993 (return)
² Peter Kempner and Christopher M. Murtaugh, "Lifetime Use of Nursing Home Care," The New England Journal of Medicine324, No. 9, (Feb. 28, 1991): pp. 595-600. (return)