Long-term care insurance isn't new anymore. Insurance companies are getting smarter about how to write their plans, and financial advisers are getting more savvy about how to choose them.
But for consumers, it's the same old mind-bending, head-scratching confusion.
"Consumers face a bewildering array of LTCI policy choices," reports Bonnie Burns, of the advocacy group California Health Advocates in a paper for the AARP Public Policy Institute. "(They) will find very little independent and objective help or guidance to assist them."
Individual insurance companies offer plans of their own design, with unique riders and dozens of variables, making comparisons almost impossible. And consumers who are priced out of the most full featured products can't figure out which features to focus on and where to economize.
But all is not lost.
As long-term care insurance comes of age, the policies get better. And while it is still confusing, there is more information put out about how much policies cost and what they contain, so consumers can start to learn about what they are buying.
Here are some points to look at if you're thinking of buying a policy.
How much will it cost?
The American Association of Long Term Care Insurance publishes an average cost index that can offer some pointers. For example, the average cost for a 55-year-old purchasing long-term care insurance is $772-per-year. The average annual cost for a 65-year-old is $1,456. Buyers at these prices are cutting their costs with spousal discounts, good health, and 3-year limitations on their benefits.
What does it cover?
Choose a policy that covers both home and nursing home care. If you have no assets, Medicaid will pay for nursing home care, but not for home care. Some policies will even pay relatives who take on that home-care responsibility.
Check facilities in your area to get an idea of the average daily cost, so you know about how much benefit to buy. Some financial planners recommend buying a monthly benefit instead of a daily benefit, according to the Financial Planning Association. That gives you the flexibility to collect more benefits if your care is heavier on some days and lighter on others.
When does it start?
The elimination period is the time you have to pay out of pocket before your policy kicks in. It's like a deductible in other kinds of insurance and has the same trade-offs. The higher your elimination period (90 days is a commonly sold amount), the lower your premiums. The catch is that policies with lower waiting periods cost more, so folks who can't afford to pay for that three-month elimination period might not be able to pay for the higher priced policy, either.
And a 90-day elimination period for a daily benefit doesn't necessarily mean your coverage will kick in in three months, warns policy salesman Ron Hagelman of Republic Marketing Group in New Braunfels, Texas. If the policy has a daily payout, it will typically pay only for those days when you use care and they may not come sequentially.
"It could be six months before you use up that elimination period," he notes.
What about inflation?
Some inflation coverage is crucial if you're buying a policy when you're in your 50s or 60s. By the time you actually need care, the benefit you are buying today might be meaningless. But a complete, compound inflation guarantee could be cost prohibitive, adding as much as 50 percent to a policy's cost, according to the Financial Planning Association. Cheaper (and less protective, but a compromise), might be buying a bigger benefit than you need today and foregoing the inflation adjustment, or buying a "simple" inflation adjustment that would increase your benefit by a set amount each year. For example, if you were buying $150 of daily coverage, and bought a simple adjustment of 4 percent, your daily benefit would move up by $6 a year, every year.
If you sprang for the compound benefit, it would go up by $6 the first year, and then 4 percent of $156 the second year, and so on. Younger consumers who buy compound inflation coverage might also benefit if they eventually turn to their state to provide Medicaid coverage for part of their care.
How long should you cover?
The average nursing home stay is under three years, but then the average home-care experience is over four years. Or, it could be longer. Capping a policy at three, four or five years can be a way to play the odds and limit your policy costs. But if the point of insurance is to protect you from the risk you can't afford to cover, then buying a longer policy makes more sense.