Factors to consider when purchasing long-term care insurance

April 17, 2013

Factors to consider when purchasing long-term care insurance

Article provided by Weiner & McCulloch, PLLC
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Thinking about and determining the resources needed to address the long-term care needs of an aging parent or family member is difficult yet important. Long-term care insurance may not be right for everyone's needs, but if long-term care insurance is appropriate for you or your loved one there are a number of factors to consider when choosing a policy.

Personal risk factors

To decide whether long-term care insurance is appropriate for your long-term care needs consider your costs, income, assets, risk factors and available alternatives. To begin, there are certain personal risk factors that may impact the likelihood of needing long-term care. The first is life expectancy. The longer you live, the more likely you will need long-term care. One way of determining your life expectancy is by looking at your family's tendency for long life expectancy. Another risk factor is gender. Women generally live longer than men and therefore women may need long-term care insurance more so than men. Finally, your family situation and your family health history are also personal risk factors to consider. If your family has a history of certain debilitating diseases, then you may have greater need for long-term care; however, if you have a spouse, adult children or other family members who are able to care for you during old age you may not need long-term care help or a policy with long-term coverage.

Financial considerations

Finances are also an important factor. Long-term care insurance tends to be cheaper if it is bought when you are younger. When thinking about your finances and the choice of purchasing long-term care insurance think about the following questions:
-What are my assets?
-Will my assets change over the next 10 to 20 years?
-What is my current income and how will it change over the next two decades?
-Will I be able to afford the policy premiums if my income decreases or if the premiums increase sharply?
-How will retirement affect my ability to pay premiums?
-How much does the policy cost and how will I pay for the cost?
-If I wait to purchase the policy, how much will the policy premium increase?

Tax considerations

Some long-term care policies may qualify for a tax deduction. You may be able to deduct a portion of the premium for a tax-qualified long-term care policy from your taxes as a medical expense, and you generally do not have to claim your qualified long-term care benefits as taxable income. Policies sold before January 1, 1997 are automatically tax-qualified and polices sold after that date are either tax-qualified or not. An attorney experienced in long-term care planning can help you decide whether your policy qualifies. To claim a tax deduction for long-term care premium payments, your out-of-pocket medical expenses including premiums must be more than 7.5 percent of your adjusted gross income. The tax deduction for long-term care premiums is also age determinative.

Policy terms and coverage

Finally, policies differ so consider the terms of the policy and what the policy covers before going forward. Policies offer a range of services and can include home health care, assisted living facility care, adult day care, and nursing home care, so consider what types of care are covered by the policy and where. Also, policies will not pay until you've met certain requirements, such as the inability to perform certain daily tasks. Be aware that eligibility criteria differs from policy to policy. You should also be aware of the daily benefit amount of the policy and how long benefits are paid. The majority of policies will pay a maximum daily amount for your care, and the maximum daily benefit is decided when the policy is purchased.

Remember that the policy may not have to cover the full cost of care depending on your financial situation. Also be aware that benefits under a policy are normally paid for three to five years. For many people, a few years is a sufficient and cost-effective amount of time; however, those concerned with a long lasting affliction may opt for the more expensive lifetime coverage. Finally, in addition to other considerations, you should determine whether the policy has a preexisting condition waiting period and whether the policy can be upgraded at a later time.

Deciding whether long-term care insurance is appropriate is a complex decision as is deciding the type of policy that best fits your situation. An experienced life care planning or estate planning attorney can help you decide what policies and planning tools will help you best.