Tools for the First Time Buyer

from book CHOOSING THE RIGHT LONG-TERM CARE INSURANCE by JK Lassers

If you’re a first time-buyer, the agent wants to hook you in immediately so that
you will attend carefully to the sales pitch. He or she does that in a variety of
ways, most of them shady.

THE SCARE
Agent: “Look at these statistics showing that you and your husband have a four
out of five chance to end up in a nursing home. Your children will not want to
take care of you, either.” The agent knows that these statistics will certainly
frighten you, and hopes that you’ve recently spatted with your daughter as well.
Your rebuttal: “My children and even my grandchildren have assured us that
we will never spend a day in a nursing home. Both of our children have large
winter and summer homes with enough room to take care of us if that time
ever comes. In the interim, we have the kids’ old rooms to house live-in help if
one of us needs ongoing care.”

THE THREAT
Agent: “If you can’t afford the premium, how will you afford long-term care
when you need it?” Two thousand dollars a year sounds like a lot of money to
most of us, even though our life insurance may cost considerably more. Besides,
the agent knows that death is inevitable, even if the need for long-term
care may not be.
Your rebuttal: “The insurance company takes risks. Well, I take risks in my
life, too. At this stage of the game, I feel that I have complete knowledge of all
the facts. I’m a grown-up and I can handle the risks.”

THE PREDICTION
Agent: “You have to buy now because you’ll be too sick later to qualify for the
coverage and you’ll need it for sure.” Look around you, the agent is implying,
see all your sick neighbors and friends? That twinge you have today may be the
harbinger of a condition that will prevent your buying the insurance. Then
you’ll regret not acting.
Your rebuttal: “Mr. Agent, if you hurry down to the local convenience store
before it closes, you can buy a lottery ticket and win $10 million. Better hurry
or you’ll regret not acting.”

THE COMPARISON
Agent: “Aren’t you embarrassed and don’t you feel squeamish when your
friends and neighbors talk about the long-term care insurance that they’ve
purchased, which will keep them out of the poorhouse?”
The agent is playing to your 13-year-old self, when you wanted to do everything
that your best friends did and have what they had.
Your rebuttal: “We don’t envy our neighbors, and we don’t expect to go to the
poorhouse, either. We have three healthy and happy children who respect and
keep in constant contact with us. Many of my friends and neighbors wish they
could say the same.”

THE FLUFF
Agent: “Look at these brochures, which show you that you’ll have to pay about
$7,000 a month just for a double room at the nursing home down the block.
And how about these pictures from another nursing home over in the next
town? Do you want to live like this?” Bringing out photos from the most expensive
and the least appealing nursing home alternatives is intended to shock
you right into bringing out your checkbook.
Your rebuttal: “The fancy nursing home brochure is pretty, but there isn’t a
nursing home in the United States that can provide care 24 hours a day, 7 days a
week, with sensitive and caring individuals. I know that fact to be true. We witnessed
the rapid turnover of help when our parents were in a nursing home, and
we also observed many unskilled personnel who were insensitive. We want to
stay at home, but if not, we’ll look for the best alternative when the time comes.”

THE APPEAL TO GUILT
Agent: “Your accountant, who referred me to you, will be disappointed if I have
to tell him that I left this appointment without a signed application.” You owe
it to your accountant to buy a policy from me. He will think less of you if you
don’t act fast.
Your rebuttal: “Don’t be concerned. I will help my accountant deal with that
disappointment. I will also tell him about the high-pressure tactics you tried to
use during our interview.”

(from book CHOOSING THE RIGHT LONG-TERM CARE INSURANCE by JK Lassers)

Insurance Companies: Never Ask These Questions! (3)

Will I be covered by a group or an individual policy when I buy from
an association like AARP?
The differences between group and individual policies can be very significant
in terms of portability and coverage options. Saving a few dollars
through a group plan may not be the best option for a healthy applicant.

If I am to be covered under a group policy, will the insurer provide me
with a copy of the master policy? Will the certificate I may receive be
derivative of that master policy?
Long-term care insurance policies are complicated and detailed. You
need to see exactly what benefits you’re buying and what conditions will
trigger them.

What fees are being paid to those who manage the group plan?
Your group discount may not be as good a deal as it appears. If the insurer
has enough of a margin to give up to 3 percent in fees to the group,
you may be able to find another policy in the individual market that has
better benefits for almost the same premium.

If I have bought from a group trust, what fees are being paid to sponsors
or directors?
Did the sponsor or director shop in your best interest or their own? Was
the bidding rigged to favor an insider?

Is my call to the group insurer being recorded? What information is
going into the computer? Can I get a copy of the notes they’ve taken
of our conversation?
Your agent has an obligation to keep your personal information private.
But does the intake person on the telephone have the same obligation?

Also read:

• Insurance Companies: Never Ask These Questions! (2)
• Insurance Companies: Never Ask These Questions! (1)

Insurance Companies: Never Ask These Questions! (2)

What range of bone density levels are in your underwriting guidelines
to determine whether an applicant can receive preferred, standard,
rated, or no coverage at all?
Unfortunately, osteoporosis becomes a fact of life for many of us as we
grow older. Each insurer’s underwriters have their own guidelines for acceptable
bone density levels. It may pay you to shop around for a company
that doesn’t penalize you if your bone density is not ideal.

Will you pay for any expenses that are payable under my Medicare
coverage?
Some forms of indemnity coverage will pay the full daily benefit regardless
of what Medicare pays for.

How many claims have you had under your temporary insurance
benefit?
Temporary insurance receipts, sometimes called binders, can be unclear.
You need to know just what is covered and what your limits are.

How many different policy series has the company written since it began
writing long-term care insurance?
If your company introduces a new policy series, it may mean that the existing
policy is not properly priced. Long-term care insurers are reluctant
to raise premiums for fear of losing market share. Instead, they prefer to
eat their losses on the old series, but roll out a new contract and justify
higher premiums by adding enhancements and bells and whistles.

What is the ratio of your actual claims versus anticipated claims?
If the actual claim exceeds the anticipated claim, the insurer has several
options: increase the premiums, tighten underwriting, resist questionable
claims, and reduce service capabilities.

What percentage of your in-force business contains a nonforfeiture
benefit?
A low percentage would indicate the cost is too expensive and the extra
premium would be better spent to increase existing benefits.

Also read:

• Insurance Companies: Never Ask These Questions! (3)
• Insurance Companies: Never Ask These Questions! (1)

Insurance Companies: Never Ask These Questions! (1)

When you go shopping for long-term care insurance, you don’t have to have all
the answers. You just need to know how to ask the right questions.

Will asking these questions make the insurer pause? So what? You’re
spending significant dollars to buy significant potential coverage. You have
a right to look closely into the details of your purchase. In some cases, you
will be asking about basic policy features the insurer has already included;
in others, you will be addressing more problematic areas. In all cases, the
most consumer-friendly insurance companies understand that long-term
care coverage is a new product for most people. They will welcome your
questions.

Here are some you should ask:

If your policy excludes claims resulting from treatment for alcoholism
or drug addiction, will it pay for a dependency that results
from physician-prescribed medications?
While you may have agreed that you will not qualify for long-term care
benefits if your disability is caused by an addiction to drugs or alcohol,
an addiction to a physician-prescribed painkiller may be a shared responsibility.
Look at your policy to see how your insurer would treat this
eventuality.

Do you automatically provide waiver of premium for both home care
and nursing home coverage without an additional premium if the feature
is not included in the basic policy?
Some insurers treat home care differently from nursing home care when
it comes to waiving benefits. Do you want to be subjected to a special
waiting period before your premiums are waived because you choose to
be cared for at home and not in a nursing home?

When on a claim do the provisions of your inflation rider still apply,
or does the maximum daily benefit in effect at the start of any claim
remain constant?
When you bought your policy, you selected a benefit that would pay you
for several years, often three, four, or five. You may also have bought an
inflation rider, to protect yourself in the very long-term against rising
costs. Now you need the long-term benefits, but have discovered that
each year the cost for your care is increasing by 3 percent to 5 percent or
more. Will the inflation option rider you purchased continue to be operative
while you are on claim?

Who in your company will have access to my medical data contained
on my policy application and information obtained from my doctors?
Your medical data is your own business. It’s private. Your agent has a legal
obligation to respect your privacy, but what about the company’s paper
handlers? Does the insurer have a privacy protection policy in place that
prevents unauthorized employees from having access to your records?

Also read:

• Insurance Companies: Never Ask These Questions! (3)
• Insurance Companies: Never Ask These Questions! (2)

Inflation Protection in Long Term Care Insurance

The only way to protect yourself from such skyrocketing costs is to make sure your long-term care policy has good inflation protection built into it. Note the emphasis on good inflation protection—it comes in several different forms, and some are better than others.

• Added coverage purchase. This type of provision permits you to purchase added coverage every few years with higher benefits. The problem is that the added coverage will also come with new premiums—based on your increased age plus any other rate increases—that you may not be able to afford. You may find yourself with benefits too low to be useful and no way to buy added coverage, which means you may wind up dropping the insurance just as you reach an age when you might need coverage.

• Simple automatic increase. Many policies offer benefits which increase by a fixed percentage—usually 5%—or by each year’s national cost-of-living increase. However, these policies always use the original benefit amount to calculate the percentage increase. These policies are better than the added coverage purchase option because your benefits go up automatically without requiring higher premiums.

• Compounded automatic increase. These policies automatically increase benefit amounts each year by a set percentage or by the cost-of-living increase. These policies compound theincreases each year rather than always using the original benefit amount as a base figure. Over ten to 20 years, this compounding might increase your benefits substantially. Of course, because automatic compounded inflation protection is so much better for the insured, the premiums for such coverage are usually considerably higher from the beginning.

• Time limited protection. Most policies put a time limit on the yearly inflation benefit increase. The limit is usually ten to 25 years from the date the policy begins, or when the insured reaches a certain age, usually 80 or 85. If you buy the policy when you are in your 50s or 60s, make sure you get the longest possible period of inflation protection.

Good inflation protection may raise the initial cost of a policy by 25% to 50%. But without good inflation protection, the lower premiums may be a total waste of money.

Seek long-term home care insurance

If you seek long-term home care insurance, try to get the widest variety of coverage possible.

There are a number of conditions and restrictions of which you should be aware:

• A few policies cover skilled nursing care and physical therapy in the home but not custodial care. Such coverage is far too limited, and you should reject it.

• Most home care policies cover skilled nursing care, other professional medical services, and nonmedical personal care, provided by a licensed home care agency. Personal care includes help with the activities of daily living (ADLs), such as eating, bathing, dressing, using the toilet, and moving around. It may also cover what are sometimes called “instrumental” ADLs, such as monitoring medications, going outside, light shopping, helping with meals and clean-up, laundry, and household telephone calls and paperwork.

• A few policies also provide limited coverage of some homemaker services—such as regular housecleaning, grocery shopping, and meal preparation—if an agency home health aide also does other personal assistance duties.

• Good policies cover care provided not only in the home, but also in licensed community care facilities such as adult day care centers.

• Good home care policies also provide for respite care and hospice care

The Performance of Long-Term Care Insurance

The relatively slight chance that an elder will need three or more years of nursing facility care means that the insurance industry has not had to pay out on its policies to nearly the extent that it suggested when they were sold. And when the policies’ conditions, exclusions, and benefit limits are figured in, the performance of these policies—at least in the decade of the 1990s, for which complete statistics are available—has been quite poor.

• About 50% of all policies lapsed before any benefits were paid; people were unable or unwilling to continue paying their premiums.

• Of those people who bought the insurance and later entered a nursing facility, about half never collected a dollar from their LTC policies.

• No benefits were ever paid to the many who bought nursing facility coverage but instead received home care or entered a residential facility, not covered by the insurance.

• When benefits were paid, they were far below the actual cost of care.

• For many of the longest-term residents, benefits were used up before the nursing facility stay ended.

In all of these situations, the LTC insurance failed to live up to its promise to help people avoid using up their savings, or relying on Medicaid, to pay for long-term care. In other words, it was a lousy investment.

Assess Medical Needs for long-term care

Because a specific physical or mental condition often leads to the need for long-term care, one of the first things you should do is get professional advice both about the need for immediate care and about likely changes in the condition over time. Talk with your primary care physician first; he or she may refer you to a geriatric specialist for further consultation.

An additional resource to help you assess medical and personal care needs is a geriatric screening program. Local hospitals have them, as do community and county health centers. If you have trouble finding a geriatric screening program, check with your county social service agency or local or Area Agency on Aging, or call the senior referral number in the white pages of the phone book.

Some important things to consider when assessing an older person’s need for medical care are:

• Specific medical requirements. The doctor or other health screening personnel can discuss the elder’s specific medical needs (such as monitoring and administering drugs or providing physical therapy), explain how they can be met, and let you know who can do it. The doctor or health care worker can also discuss the level of ongoing care that would be required to deliver those medical services: Family members supplemented by occasional visits from home care aides, a more sophisticated home care program, or various levels of residential nursing facility care, for example.

• Changes in care over time. The doctor or other health care worker can also discuss the medical prognosis—that is, what the future is likely to hold: Whether to anticipate a short or long recovery period, whether a condition is likely to stabilize over a long period, or whether it will become worse over a short or long period. Knowing of likely developments in the medical condition will help you plan the right level of care and allow for these changes.

• Mental impairment. A thorough geriatric screening and evaluation are particularly important when the elder seems to have a mental impairment. An older person’s physical problems may become much more difficult to manage because of added symptoms of forgetfulness, disorientation, or general listlessness.

Find people to evaluate long-term care needs

If you need care, you may find it a hard topic to raise with others because it seems like a blow to your self-esteem, a subject that means you are really “old.” You may also be reluctant to begin a process of giving up some of your independence or surrendering full control over your life. Remember, the first step in getting necessary care is to overcome your reluctance to talk about it. Once the discussion has begun, you can use the information in this book to organize and choose the right kinds of care.

Here are some of the people you can turn to for help in beginning to evaluate long-term care needs:

• Your personal physician is often a good place to start, not necessarily to moderate discussions but to define your medical needs and refer you to others who may be helpful in making arrangements.

• Traditional word-of-mouth is still one of the best ways to begin tackling any new problem. Friends and neighbors whose opinions you trust, and who may have already faced similar situations, are often a good source of information. The people at your local senior center may know of sources for long‑term care assistance. These word-of-mouth sources often let you know of “unofficial” personal care aides who would not be available through more formal channels.

• A clergy member may be able to help directly or to refer you and your family to professionals who can introduce alternatives and coordinate planning.

• County family service agencies, Area Agencies on Aging, or other senior information and referral services are experienced sources that can provide direct access to specific care providers and help you develop an overall care plan. These agencies can direct you to a counselor or social worker who specializes in long-term care for elders and can help you begin your discussions and planning.

• If residence in a nursing facility is not absolutely necessary, many people make use of the services of a professional geriatric care manager to see what at-home and other supportive services are available and to organize care from different providers.

• If you or your loved one has Alzheimer’s disease or a similar mental impairment, you can turn to organizations that specialize in providing information and referrals to people facing these difficult situations.

Understanding Waiting Period in Long Term Care Insurance

In order for you to understand the relative value of the waiting period in a particular company, you should ask these questions:

• How many days during the week do I have to receive at least one day of professional home and community care that will be counted as seven toward completing the elimination period? With some insurers you only have to receive care at least one day to qualify for a seven-day credit.

• How long a period do I have for completing my waiting period? If, for example, you chose a 90-day waiting period and you have the type of illness that in the initial stages does not require care every day some companies require that you have at least your 90 days of care during a 180- or 360-day period. If you do not qualify and have the appropriate number of days during that period of time your clock starts all over again and you must sustain treatment during your 90-day period during another 180- or 360-day period. This feature is becoming highly competitive and some companies are about to offer the ability to accumulate your waiting period during a 720-day period.

• How often do I have to satisfy an elimination period to access benefits? Some companies provide that any elimination or waiting period longer than 30 days must be satisfied by you only once during your lifetime.

Just how different insurers treat this feature could be a significant factor in determination of the appropriate company to select for your long-term care insurance.

Reimbursement VS Indemnity in Long term care policies

Long-term care policies come in two basic models: reimbursement and indemnity. Choosing between these two types of policies is not nearly so simple.

Consider these questions:

1. How are your benefits paid?

Assume you have a $200 daily benefit. Reimbursement pays for only the covered service. If you spend $70 on a provider, you get $70 in reimbursement. The other $130 remains in your pool of benefits. As long as you have a documented service, indemnity will pay you the full $200 even if you spend only $70.

If you take the indemnity plan’s full $200 every day, you may run out of your money while you still need it. Your pool will run dry. A reimbursement plan keeps the money that you don’t spend in your pool of money, thus effectively stretching out the time limits on your benefits until you spend whatever is left.

The indemnity seller asks the customer, “Why should the insurance company tell you how to spend your money?” The reimbursement seller asks the customer, “Did you actually buy long-term care insurance to pay for airline tickets?” Reimbursement sellers argue that the insurance money was never intended to pay for services that any caring family member or friend would do for love and for free.

2. Who provides the service?

Reimbursement policies insist that you use licensed caregivers, although you may be able to purchase a rider to allow you to pay family members. An indemnity plan may let you pay family members or informal caregivers who cost less than licensed providers. Why buy a reimbursement policy, especially if you think you’ll have trouble finding a licensed caregiver? Because the policy usually allows for these conditions, and besides, the companies have developed networks of providers for practically every area of the country.

3. Which model costs less?

Indemnity sellers say that their claims don’t cost much to process, there is less overhead, and the premiums should be less. Sellers of reimbursement policies make the opposite case, arguing that premiums for reimbursement are lower because the claims costs tend to be lower; indemnity policies may cost more because claims costs are higher for indemnity insurers. In fact, as of this writing, the premium costs are almost the same. But a Life Plans consultant anticipates that this will shift as the indemnity insurers begin to play catch-up as their claims start to come due in 10 years.

How You Can Finance Your Long-Term Care

There are four basic ways to finance your long-term care:

1. Family support and caregiving. This is the way long-term care has been provided for generations. While all of us like the idea of taking care of our parents as they age or being taken care of by our children, this is simply not a viable option for most Americans today
   who have jobs and/or children of their own.
2. Personal savings. This is not a viable option for most people because they do not have millions of dollars available, nor do they know how much long-term care they will need. It is also selfish if your estate will be needed to support your spouse or children after you are gone.
3. Home equity options. This is an increasingly popular method, particularly with the advent of reverse mortgages, but it has the same limitations as personal savings. In addition, most people would prefer to live out their later years in a place other than a full-size home (e.g., in a retirement community).
4. Private long-term-care insurance. This is my favorite choice for financing long-term care. Insurance is the ideal method to finance unknown risks that can be predicted in the aggregate using actuarial information.