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Take Charge of Your Future

Do You Have the Right Insurance?

Advice to help you determine whether a long-term care policy makes sense for you.

Will my benefits keep pace with inflation?

Since many people purchase long-term care insurance 10, 20, or 30 years before receiving benefits, inflation protection is an important option to consider. Indexing to inflation allows the daily benefit you choose to keep up with the rising cost of care.

Therefore, if you're under age 70 when you buy long-term care insurance, buying automatic compound-inflation protection is critical. Over the life of the policy, simple, automatic increases in the daily benefit that are based on the original benefit amount typically don't keep pace with the price of services.

Some policies offer future-purchase options or guaranteed-purchase options. These policies often start out with more limited coverage and a corresponding lower premium. At a later, designated time, you have the option of increasing your coverage—albeit often at a substantially increased premium.

If you turn down the option several times, you may lose the ability to increase the benefit in the future. Without increasing your coverage, this option may leave you with a policy that covers only a fraction of your cost of care.

The younger you are when you buy long-term care insurance, the more important it is to buy a policy with inflation protection.

What if I can no longer pay premiums?

If—for any reason—you stop paying your premium or drop your benefit, a "non-forfeiture" option will allow you to receive some reduced amount of benefit based on the amount of money you've already paid. Some states require policies to offer non-forfeiture benefits, including benefit options with different premiums.

Since non-forfeiture provisions vary by state, check with your state's insurance department, or SHIP, before dropping your policy. If your policy doesn't have a non-forfeiture option and you stop paying the premiums, you'd lose all the benefits for which you paid.

Will I need to pay premiums once I receive benefits?

Many policies allow you to stop paying your premium after you've started receiving benefits. Some companies waive premiums immediately, while others waive them after a certain number of days.

Can the company cancel my policy?

Policies are "guaranteed renewable," which means that they cannot be canceled or terminated because of the policyholder's age, physical condition, or mental health. This guarantee ensures that your policy won't expire unless you've used up your benefits or haven't made your premium payments.

Will my premiums increase?

Companies can't single you out for a rate increase, although they can increase rates on a class of similar policies in your state.

Most premiums do increase over the life of the policy. About 20 years ago, some companies set unrealistically low premiums and were unable to cover costs. They then were forced to request significant rate increases. Many of these companies eventually dropped out of the long-term care insurance market.

Now, the National Association of State Insurance Commissioners has established rate-setting standards that use more conservative estimates when setting premiums. About half of the states have adopted these measures, along with several of the large insurance companies. Some state's insurance departments track benefit-rate increases, and others, such as California and New York, post them online.

Are there coverage exclusions?

All policies have some conditions for which they exclude coverage. Ask the agent to review them with you. Most states have outlawed companies from requiring you to have been in a hospital or nursing facility for a specific number of days before qualifying for benefits. Some states permit this exclusion, which could keep you from ever qualifying for a benefit.

Coverage exclusions for drug and alcohol abuse and HIV-related illnesses are common. Be sure that Alzheimer's disease and other common illnesses, such as heart disease, diabetes, or certain forms of cancer, are not mentioned as reasons not to pay benefits.

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