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5 Guidelines for Buying the Right Long Term Care Insurance
Buy Early
Similar to basic life and health insurance, long-term care insurance premiums balloon as people age. Consider purchasing long-term care insurance at 50. According to Money magazine, a 50-year old in good health could pay $2,000 a year for a policy while a person turning 70 can kick off that decade with an annual premium of $8,000 or more!
Adjust for Inflation
As Baby Boomers age (25% of our population will be 65 or older by 2012), expect health care costs to escalate. Inflated costs can devour your long-term care coverage. Consider a policy with inflation protection, often called an inflation rider. Riders come in two types: the option to add coverage at a later date; and automatic coverage increases. Both will raise your premium but will help guarantee your coverage will sustain inflation.
Play the Waiting Game
Long-term care policies include a “waiting period” (alternatively called “elimination period.” Think of this as a “time deductible”; it represents the amount of time between receiving care with costs that would be covered under your long-term care policy and when your policy begins contributing to those costs. Just as a higher deductible will lower your insurance premium, a longer waiting period will lower the cost of your long-term-care insurance—options for as many as 100 days are common. If you’d like to receive benefits immediately you’ll pay more for a policy with no waiting period.
Written in Crayon
When reviewing a long-term care policy prior to purchase, be sure the policy clearly explains when you will be eligible for coverage and how this eligibility is determined. For example, some policies may require you spend time in a hospital before benefits can be received. Others may limit or exclude coverage for certain conditions, such as dementia.
To Be or Not to Be (Qualified)
Long-term care policies can be qualified (more common) or nonqualified. The reason this is important: Benefits received under a qualified long-term care policy are generally tax-free. In addition, a qualified policy is considered a form of health insurance; this means itemizers are entitled to a write-off up to an amount determined by the IRS. (As of 12/31/07, deductible amounts range from $310 for ages 40 and under to $3,850 for those over 70. For all deductible amounts, visit www.irs.gov).
If total medical expenses exceed 7.5% of your adjusted gross income, you can write off the excess as an itemized deduction.
*We recommend you consult with a tax advisor to determine the deductibility and tax impacts of employee benefit contributions. This information is only a general description that has been provided as a service and is not intended to be a legal interpretation.