The 9 Steps to Financial Freedom (17 page)

Is your company on the block to be sold?
The answer you want to hear is: No. Even if the company has a great LTC track record now, what would happen if the company that bought it wasn’t a company you felt safe with?

What are your ratings from the following independent companies, all of which rate the safety and soundness of insurance carriers?

The only acceptable answer is: At least two of the insurance rating companies listed must have awarded these ratings or better. Insist that the insurance company send you the ratings in writing, or call the ratings companies yourself.

Acceptable answers to every single one of these questions will tell you if the company is safe. Here are the questions you want to ask about the policy itself.

Questions About the Policy

What does it take to qualify for benefits?
In order to qualify for your benefits, and have your insurance company start paying your LTC bills, you are going to have to prove to this company that you really need long-term care. This is called “making it through the gatekeepers.” You won’t see a penny until you qualify.

In a tax-qualified plan, the first gatekeeper is not to be able to carry out certain
activities of daily living (ADLs)
. In order to function normally, most of us need to be able to 1) bathe ourselves; 2) feed ourselves; 3) clothe ourselves; 4) transfer ourselves (get in and out of bed, chairs, and the like unattended); 5)
be continent; and 6) use the toilet. With a good policy, if you got to a point in your life where you could not do two out of these six ADLs, then you would qualify for benefits.

The second gatekeeper is
cognitive impairment
, which simply means that you qualify if you come down with, say, Alzheimer’s disease or cannot think or act clearly on your own and therefore cannot care for yourself.

How much is it going to cost?

Please note: there is a huge difference in pricing among companies offering LTC insurance (or any insurance, for that matter). I have seen policies from different carriers offering essentially the same benefits but with a difference of up to $1,500 a year—a big difference, especially for retirees, and especially when premiums can be raised. When you are comparing these prices, make sure that you are comparing apples with apples—comparing policies that have the exact same benefits across the board. Otherwise your price comparisons won’t give you the information you’re really looking for. The benefit period, the elimination period, the benefit amount, the inflation rider, and home health care will all need to be identical when comparing prices among different companies. Here are explanations of what those terms refer to.

The
benefit period
means the length of time the policy will pay for your long-term care. I recommend choosing at least a three-year plan.

The
elimination period
means the amount of time you have to pay out of your own pocket before the policy will kick in. I recommend a thirty-day elimination if money for premiums is not an issue. If it is, then go for no more than a fifty-day elimination. Can you imagine where your loved ones would get the money to pay for the first hundred and twenty days of your stay, for instance, if the cost of a home was $10,000 a month? I
would rather see you pay a little more now than possibly a lot more later.

The
daily benefit amount
means how much the policy will pay per day if you use the benefits. Policies are now being sold in two ways: the original way, where there is a specific fixed amount of money that the policy will pay per day for your covered LTC stay, or for home health care. If the policy that you are considering is sold under these guidelines as of 2011, I would recommend purchasing about a $150- to $200-a-day benefit (depending on your location without considering inflation benefits) amount for LTC care. The actual amount you purchase ultimately depends on where you plan to use the policy and how much of your needs you expect it to cover. You would figure the exact daily benefit amount you should purchase by calculating how much other income you will have at that time that could go to pay for an LTC stay.

A policy that offers just a daily benefit amount works like this: If you bought a six-year policy that offers a $167-a-day benefit amount, you would have a policy that would pay up to $167 a day for six years in a facility.

The other way a growing number of policies are being offered is based on a
pool-of-money
approach. The pool-of-money design is one where you start off the old policies purchasing a specific benefit amount for a specific period of time. But in the new policies, the insurer takes the dollar amount you have purchased and conceptually puts it in a benefit account. That account can be accessed at claim time for any kind of covered service up to your lifetime maximum benefit. This results in a policy that will pay for home health care (see below) or a nursing home in any order, in any combination, for any length of time. When the pool of funds is used up, the policy or your coverage is over. But this way you can use the pool of money to best meet your needs.

The
inflation rider
means how much the daily benefit amount
paid will increase year after year. I recommend 5 percent compounded inflation. Unless you are over seventy, in which case a 5 percent simple inflation or a higher daily benefit to start is the way to go. If inflation benefits were added to the benefit amounts example above, then both daily benefit limits and the amount of money in the pool will go up by 5 percent per year until benefits are exhausted.

The
home health care (HHC) clause
means that you can receive certain kinds of long-term care at home if this care is administered by professionals, friends, or individuals deemed qualified by the insurance company to provide HHC. Some plans state that if you belong in a nursing home but prefer to be at home, the policy will pay your LTC benefits at home. I tend to view HHC as coverage you would need at home for the short term—for a broken hip, for example. With HHC, you are expected to get well. With LTC, you are not expected to get better.

As of the writing of this book, many carriers include far more than just home care in that portion of their policy. There are policies that offer benefits for assisted living centers, adult day care centers, adult congregate living facilities, and other community-based care providers. So it is important that you find a policy that has a good emphasis on home care benefits. Make sure you ask what is covered.

Why is it important that an HHC policy offer so many different kinds of care alternatives?

It is important that you have a choice in what kind of care you may want versus having to take the kind of care that your carrier is willing to pay for. So given that most of us would prefer to avoid being put in a home or institutionalized at all, it is important that you know there are policies out there today that have options that include being able to move into a private residence that has been converted to allow barrier-free access and
has some monitoring staff available around the clock, but where you have a private room, furnished with your personal furniture and decorated with your personal items. It’s less of an institution; it’s more palatable. Most important, in my opinion, it’s the growth market for the future. Nursing homes are now getting more and more skilled care for patients who used to be in hospitals. More and more custodial patients are finding better care options outside the nursing home.

Given that the trend is moving toward care outside of a nursing home, is it better to purchase an exact daily benefit amount policy or a pool-of-funds policy?

Given the situation today, I am leaning now toward the pool-of-money design because the insured are covered, in the best contracts, without much regard to site of care. They have an increasing freedom to choose, which allows for a degree of independence.

If you or a loved one you’re responsible for ends up in a nursing home or needs extensive at-home care, all the great things you wanted to do with your money, all the sums you eventually accumulate, all can be lost. Don’t let this happen. There is nothing worse than seeing someone in his or her seventies or eighties devastated emotionally by losing a spouse to a nursing home, then also having to endure the financial devastation that can follow. Although our bodies age, we all still feel deep inside that we’re twenty or thirty years old, and we don’t want to deal with things like this. But we must. We may even feel that our parents are still invulnerable. But they’re not. Estimates are that at least 70 percent of people over age sixty-five will require long-term care services at some juncture. Love and loyalty aside, if you are to pay for this, it may leave you very little money with which to create more money and not very many ways to hold on to what you already have.

With long-term-care insurance in place, this most likely will
not happen. You will have gone a long, long way toward being responsible not only to those you love, but also to yourself and the money you’ve worked so hard to earn.

Long-term disability (LTD) insurance
is another kind of insurance that can protect you if a catastrophe happens that prevents you from being able to earn a living. Depending on the kind of work you do, an injury, an illness, or certain chronic conditions could cut off your income for a long time or even permanently. These policies will usually pay up to 66 percent of your current salary in the event of such a disability.