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Most long-term care insurance policies cover some combination of nursing home care, home health care, assisted living and/or adult day care. With so many long-term care insurance policies to choose from, insurance companies are attempting to distinguish themselves and their products from one another.
One strategy is to offer policies with a laundry list of special features, discounts, riders and expanded benefits. As insurers develop new long-term care products to appeal to baby boomers, they'll add a variety of features to entice you.
When you're shopping around for long-term care insurance, compare the same level of coverage from policy to policy. You'll find that isn't always easy because long-term care policies differ enormously from company to company. Complicating matters more is that some companies include certain benefits in a basic policy, while others add them through riders at an extra cost. A rider can add valuable benefits, but you must determine which riders are worth the extra cash. Some riders add to the cost without a corresponding increase in benefits.
"A lot of those bells and whistles were made available 10 to 20 years ago," says Jesse Slome, executive director for the American Association for Long-Term Care Insurance, an independent non-profit organization that serves consumers and professionals in the long-term care insurance industry. "But very few people choose them or find them attractive because they are very expensive."
Slome believes that long-term care policies should be "simple" and "affordable" and that certain riders — such as those that promise to return your premium — make policies complicated and expensive. Still, when you buy an LTC policy you will want to review all your rider choices. Here are some that may be available by your insurer.
This used to be a popular rider. Today, almost all long-term care insurance policies have some form of home health care baked into them.
The most common long-term care policies are those termed "tax-qualified." That means they follow certain consumer-protection guidelines set by the National Association of Insurance Commissioners (NAIC) and the Health Insurance Portability and Accountability Act (HIPAA). Robert Zirkelbach, spokesperson for America's Health Insurance Plans (AHIP), says that roughly 95 percent of all policies are tax-qualified. That also means that when you cash in a benefit, it is not considered taxable income. In the past, some insurers offered home health care as a rider. Now, all tax-qualified basic LTC policies cover some home health care. If you are among those rare few with a non-tax-qualified policy, ask your insurance agent if you have home health care coverage.
State insurance regulations require that all tax-qualified long-term care insurers offer nonforfeiture benefit riders. Zirkelbach says that while insurers are required to offer them, they are not purchased by many consumers. As the name suggests, these riders assure that you won't forfeit all of your benefits even if you stop paying premiums. There are two types of common nonforfeiture riders, Zirkelbach says. A cash-back option (also referred to as a "return of premium" rider) guarantees to refund your premium to you or your beneficiary if your policy lapses due to death or if you stopped payments. Or you can choose to buy a "shortened benefit period" rider, he says. This rider guarantees your benefit for a specific amount of time based on how much you paid into the policy, Zirkelbach says.
According to AHIP's guide to long-term care, a nonforfeiture benefit rider can add 20 to 100 percent to a policy's cost. Shop around for a policy in your state that has the benefits you want at a cost you can afford.
Return-of-premium riders for long-term care are not available from all companies nor in every state and are only paid upon death. They are considered to be another form of nonforfeiture benefit for an LTC policy. Your estate or a designated beneficiary will be entitled to the return of some or all of your premiums if the policy isn't used during your lifetime. There are two types of common return-of-premium upon death benefits. One can be built into a policy at a minimal cost and the other — generally in the form a of a rider — can increase the cost of your policy by more than 40 percent, says Kim Purnell, a long-term care specialist from Palm Bay, Fla.
The cheaper built-in policy is designed to attract "younger" buyers in their 40s or 50s, Purnell says. It stipulates that if you die before a specified age (generally before 65 or 70 years), the total premiums that you paid for the policy will be returned to your beneficiary or estate upon your death.
"So if you pay $25,000 in premiums and you die before that age, all of those premiums are refunded to your estate or beneficiary," Purnell says.
The other return-of-premium upon death rider is designed for working professionals in the business and corporate market, Purnell says. With this rider, it is generally the corporation or business that pays the premium for its employee — and receives an annual tax deduction for the amount of the premium. This rider does not have an age limit. But in order to receive any benefits, the policy must be in place for a specified number of years (generally at least 10 years).
A shared-benefit rider lets you extend the duration of your benefit if both you and your spouse buy LTC coverage. The rider lets either draw of you from the other's policy if your own benefits are exhausted. Some insurerers build this "shared care" feature into certain policies without using a rider and permit couples to share one single pool of benefits. It's less expensive than buying two separate policies.
No matter which long-term care policy you buy, an inflation rider is an important option. These riders help ensure that your long-term care policy benefits keep pace with the escalating cost of health care. Because this coverage is so important, insurance regulators in many states require any purchaser of a long-term care policy to specifically reject the inflation rider if they don't want it.
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