What is evaluating, comparing, replacing, and conserving long-term care insurance (LTCI)?

In some ways, comparing long-term care insurance (LTCI) policies from different insurance companies is like comparing apples with oranges. LTCI can be expensive, especially if you decide to purchase a policy particularly late in life. In addition, because LTCI policies are not standardized at present, provisions contained in different policies may vary greatly, and the premiums charged will vary as well. Therefore, it is important for you to evaluate and compare various LTCI policies to ensure that you purchase a policy that best fits your needs, financial and otherwise. To compare the cost of two policies accurately, you’ll need to ensure that each policy provides the specific benefits that you require.

While it’s important for you to review the provisions of each policy, it’s also essential to research the financial stability of the issuing insurance company and to decide whether you want to purchase a traditional policy or one of the new tax-qualified policies. And if you already own an LTCI policy, you might wish to consider switching plans or upgrading coverage. This might be appropriate, for instance, if you’re in good health and have an old LTCI policy that was highly restrictive (e.g., it required you to have a prior hospital stay before benefits would kick in). Most of the newer policies are less restrictive and offer the added advantage of inflation protection. In terms of conserving your policy, you’ll want to make sure that you pay your premiums in a timely fashion and follow all applicable requirements to ensure that your policy remains in effect.

How should you evaluate and compare LTCI policies?

Many factors are involved in selecting a suitable LTCI policy. The best policy for you depends on your family arrangement, your financial situation, your preferences regarding long-term care choices, and the level of risk you are willing to accept. There is no one best company or one best policy for everyone. You should select a policy that meets your needs. But before analyzing different policies, you should complete the following steps:

• Obtain sample policies and outlines of coverage from each carrier you are The outline of coverage summarizes the policy’s benefits and highlights the important features.
• Review the company’s rating and financial strength (discussed later).
• Determine the current cost of long-term care in the area in which you live (or the area in which you intend to move). You can do that by contacting nursing homes, home health care agencies, adult day cares, and state elder affairs offices.

Next, you need to read the actual policies carefully, making sure you understand each provision. After you’ve made sure that each policy contains the provisions you desire, you’ll want to compare prices. Finally, you might wish to consult with an agent, financial planner, or other professional to ensure that you’ve selected the policy that will best suit your needs.

Cost of LTCI

Because LTCI premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive the annual premium will be. The premiums for most policies stay level each year as you age (unless your state’s insurance commission approves a rate increase for all persons within a given class). Therefore, if you buy at age 55 a policy that costs $800 per year, it is likely that you will continue to pay the same premium. However, if you wait until you are 65 to buy a policy, the same policy might cost you $1,700 per year.

In general, premiums for LTCI begin to accelerate each year around age 65. Rates increase dramatically for those buying coverage in their 70s and 80s. Nevertheless, it probably makes little sense to buy a policy before age 50. This is because you’ll probably end up paying premiums for many years unnecessarily, considering that most people don’t enter nursing homes in their 50s. Bear in mind that an inexpensive policy is not necessarily the best policy. Furthermore, it’s difficult to compare premium costs between two plans, since the cost for care fluctuates between insurers, issue ages, and benefit levels. It’s important, therefore, to review the provisions of each policy to make any price differential more meaningful. For instance, it may be that the policy with the higher premium allows you the flexibility to receive care in virtually any setting, whereas the policy with the lower premium limits care to a skilled nursing home.

Comparing provisions

You’ll want to determine that certain necessary provisions are included in the policy while keeping in mind that the more features or benefits the policy has, the more expensive it will be. Questions that should be addressed when evaluating an LTCI policy include the following:

• What long-term care services are covered? Does the policy cover skilled nursing, intermediate care, custodial care, home health care, and adult day care?
• Is the policy renewable regardless of the insured’s age or physical or mental condition?
• How do you qualify for benefits?
• When do benefits begin? Is there a waiting or elimination period?
• How long will the policy pay benefits?
• How much does the policy pay? What is the minimum and maximum daily benefit amount that you can purchase?
• Will benefits increase with inflation?
• Is the policy tax qualified?
• Can the policy be upgraded if the insurance company offers an improved policy?
• What conditions are specifically excluded from coverage?
• Does the policy limit benefits because of pre-existing conditions?

How should you compare companies?

You should check with several companies and insurance agents before you buy an LTCI policy. And it’s important to check out the financial strength of the companies you’re interested in. You can determine a sound investment by reviewing the company’s A. M. Best Company’s rating along with the opinions of other rating services, such as Moody’s or Standard & Poor’s Insurance Rating Services, at your local library.

If you decide to go with an A. M. Best rating, you should select an insurance company that has received a rating of at least A or A+. This means that the investment is excellent or superior and entails very little risk. The following table outlines the various ratings:

 

Company Rating	A. M. Best Score
Superior (little risk)	A++ or A+
Excellent (slightly more risk)	A, A-
Very Good (strong claims-paying ability)	B++, B+
Fair (less protection against risk)	B,B-
Marginal (relatively high risk factor)	C++, C+
Weak (high risk factor)	C,C-
Poor	D
Under Regulatory Supervision	E
In Liquidation	F
Suspended	S

If you are financially savvy, you can also review the company’s financial statements to determine its financial stability. Review the annual report and find out how long the company has been in business. (Note that this type of research might prove to be quite time consuming, however.)

What about replacing or updating your policy?

There might be situations in which canceling an existing policy and buying a new one makes sense. You should carefully compare the increased premiums to the added benefits of the new policy. Insurance companies introduce new products every few years.

An older plan might be more restrictive (e.g., it might require a hospital stay before paying benefits for nursing-home care, or it might not cover assisted living).

Ask your agent about the company’s record regarding policy upgrades. Many companies automatically notify existing policyholders and offer the new policy at a higher premium because of the enhanced benefits. Some companies automatically upgrade existing policies to new policies. If a policy is upgradable, you’ll be able to acquire an improved policy without meeting the health requirements of a new policyholder. In some cases, it may be possible for you to replace your current policy with one of the new tax-qualified policies. Qualified policies allow certain taxpayers to deduct all or part of the premium for their long-term care insurance. However, these tax-qualified policies can be more restrictive.

What about conserving your policy LTCI?

You probably shouldn’t buy an LTCI policy unless you intend to keep it for the rest of your life. Unfortunately, it’s all too easy for some people to allow a policy to lapse inadvertently or because they can no longer afford the premiums. “Conserving” your policy means ensuring that you pay your premiums in a timely fashion and follow all applicable requirements to keep your policy in effect.

Some companies have begun to add safeguards to make sure that the people who want to stay insured do. If you miss a premium, some companies will send a notice of a missed premium to a third party of your choosing. Some companies may offer the right to reinstate a policy after five months if it lapsed because a policyholder was cognitively or functionally impaired. Some states require these provisions. At a price, you can also purchase nonforfeiture of premiums as an option. This requires the insurance company to refund all or a part of your premiums if you hold the policy for a specified number of years before discontinuing it.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2022

* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Consumers Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.