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Dodging Shortchanged Long-Term Care Insurance

Are you being hit by high rates?

What is Insurance?

Insurance is a legal contract that protects people from the financial costs that result from loss of life, loss of health, lawsuits, or property damage. Since no one knows in advance when a loss will occur or how serious that loss will be, insurance provides a means for individuals and societies to cope with some of the risks faced in everyday life. While a policy for fire or flood insurance may have a high probability of never being used, a purchaser of long-term care insurance has over a fifty percent chance of needing their policy at some time in the future.

What is Long-term care?

Long-term care may be defined as the assistance provided when a person is unable to provide for him or herself any longer due to disability or a prolonged illness. It may range from providing personal care at home, such as bathing and dressing, to skilled nursing services in a nursing home. Long-term care is often offered through community home care agencies, senior centers, adult day care centers, and traditional nursing homes.

While a definite need for this type of assistance exists for a large portion of the population, the purchase of a long-term care insurance policy is not in everyone’s best interest. In fact, for many people it is not a good idea. As such, when considering if you should buy long-term care insurance, make it a family decision. Bring together everyone who has an interest: your spouse, children, siblings, and closest personal friend. There is a special value in collective decision-making that will help avoid some of the pitfalls that have been well documented.

What should you ask before buying Long-term Care Insurance?

For example, when considering long-term care insurance, first complete a thorough financial analysis – do not make the decision based on emotion. The thought, alone, of needing long-term care can strike at the heart of one’s personal concerns about losing health and economic independence. Consequently, seniors tend to be particularly vulnerable to scare tactics and to stories of the infirm being thrown onto the street because they do not have long-term care coverage and lack the financial ability to provide for themselves.

The fear of nursing homes and desire to avoid becoming dependent on family or friends makes seniors especially open to high-pressure sales tactics that focus upon the risk of losing assets and with reassuring promises of protection. In addition, loneliness clearly magnifies seniors’ concerns and their vulnerabilities as consumers. One-third of those over age 65 lives alone and is most often targeted to buy long-term care insurance. This can lead to problems of fraud, misrepresentation, and potential financial exploitation.

Standards for Long-term Care Insurance

Due to these dangers, the National Association of Insurance Commissioners has developed standards to help protect consumers. Each policy you consider should include:

* At least one year of nursing home or home health care coverage, including intermediate and custodial care. Nursing home or home health care benefits should not be limited primarily to skilled care.

* Coverage for Alzheimer’s disease, should the policyholder develop it after purchasing the policy.

* An inflation protection option. The policy should offer a choice among:

  • automatically increasing the initial benefit level on an annual basis,
  • a guaranteed right to increase benefit levels periodically without providing evidence of insurability.

* An “outline of coverage” that systematically describes the policy’s benefits, limitations, and exclusions, and also allows you to compare it with others. A long-term care insurance shopper’s guide that helps you decide whether long-term care insurance is appropriate for you. Your company or agent should provide both of these.

* A guarantee that the policy cannot be canceled, nonrenewed, or otherwise terminated because you get older or suffer deterioration in physical or mental health.

* The right to return the policy within 30 days after you have purchased the policy and to receive a premium refund.

* No requirement that policyholders:

  • first be hospitalized in order to receive nursing home benefits or home health care benefits,
  • first receive skilled nursing home care before receiving intermediate or custodial nursing home care,
  • first receive nursing home care before receiving benefits for home health care.

Ask for help before making the decision

With the assistance of loved ones, assess the odds that you will need long-term care and stringently analyze the reasons for a policy and your ability to pay for it for the balance of your life. Many policies are cancelled by policyholders as they grow older and after years of paying premiums, due to the fact that they are on a fixed income. Buying a policy must be a function of your age, health status, overall retirement objectives, income and wealth.

If you find that your only source of income is a minimum Social Security benefit or Supplemental Security Income (SSI), and/or if paying for utilities, food or medicine stretches your budget; a long-term care policy may not be right for you. However, if you have significant assets that you want to preserve for family members, long-term care insurance may be a viable option.

Since purchasing any type of insurance can be confusing, the Kansas Department of Insurance has developed a booklet to help you sort through the various questions you may have about long-term care insurance. This guide provides a definition of common terms, guidelines about who should buy long-term care insurance, and general information about the policies being sold in Kansas. In addition, be an informed consumer by comparing long-term insurance rates through the available “Long Term Care Insurance Shopper’s Guide.” You may contact the Kansas Insurance Department’s knowledgeable staff by calling 1.800.432.2484 for further information.

Malissa L. Walden, Esq. ©2007

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