Thinking Long Term in the Short Term

A Policy That Fits

In contrast to the other options, long-term care insurance can help fund care in ways that protect you and your family. “Long-term care insurance can preserve your assets, your family relationships, and your dignity,” Newman says. It’s important to understand the policy choices, however, and to buy a product that fits your needs.

Begin by determining the likely cost of care. Service costs can vary greatly by region, so investigate the price of home care, assisted living, and residential nursing care in the area where you will retire. “Once we identify the location, the daily benefit is a pretty easy decision,” says Mark Wilson, owner of Long Term Care Advantage, Inc., an insurance agency in Minneapolis.

You’ll also need to determine the number of years that your policy will cover care. Wilson usually suggests a four-year benefit period, unless there’s a history of age-related dementia in your immediate family. People with cognitive problems often need care for longer than those with other ailments.

Next, consider what types of care you want covered. Fifteen years ago, long-term care insurance paid mostly for nursing home care, but now nearly 75 percent of claims are paid for home-based care, says Brian Peterson, senior vice president and national sales manager for Minneapolis-based Allianz Life Insurance Company of North America. “The big push for long-term care insurance now is to keep people out of the nursing home. Most people want to stay in their own homes,” he says. In addition, in-home care is often limited—a home health care worker that stops by periodically, for instance—which is less expensive than around-the-clock care in a nursing home. If you’d like to continue living at home or prefer an assisted living community, make sure your policy covers those options.

Not everyone wants to receive care at home, though, and a nursing home–only policy can be less expensive than one with more flexibility. Wilson mentions a client who lives alone. “He says, ‘If I need care, I don’t want to be locked in my house—I want to go somewhere where there are other people,’” Wilson recalls.

You must also verify how your policy will pay out. A reimbursement policy pays you for the cost of your care up to your maximum daily benefit. If you spend less than the maximum, the extra money typically stays in the pot and extends your coverage period.

An indemnity policy delivers your maximum daily benefit, regardless of how much money you’re spending on care, giving you some flexibility. You might have a maximum daily benefit of $200, for instance, and spend $100 a day on in-home health care. You could use the extra $100 to pay a family member for help.