6 Common Long-Term Care Insurance Mistakes

When shopping for long term care insurance to cover home health care, nursing home care or adult day care, avoid these six common mistakes.

Mistake 1: Buying Based on Premiums Only

Make sure to choose a policy with premiums you can afford. However, the initial premium quote shouldn’t be the only factor for choosing a policy. Make sure the policy with affordable premiums also provides adequate benefits. Excessively low premiums may have correspondingly low benefits that won’t accommodate your needs. Check the company’s history or rate increases, too. A policy from a company with a history of raising premiums over 20% will quickly become unaffordable.

Mistake 2: Not Getting Inflation Protection

Long term care insurance policies provide a set daily, weekly or monthly benefit, but the cost of long term care increases about 5% annually. Inflation protection riders increase the benefit amount so your policy has the same buying power in 20 years as it did when you took out the policy. Policies with inflation protection have higher premiums, but the benefits have a better chance of keeping pace with the costs of care.

Mistake 3: Choosing the Wrong Policy

Long term care insurance policies can be either tax-qualified or non-tax-qualified. Premiums paid on tax-qualified plans may be tax-deductible as medical expenses, and the money the policy pays for care isn’t considered taxable income in most cases. Non-tax-qualified plans lack those tax advantages, but often have more lenient benefit triggers that pay out claims in cases where tax-qualified plans won’t. Consult a tax advisor about whether which type of plan suits your specific situation.

Mistake 4: Expecting a Policy to Pay For Care Provided by a Family Member

Family members often provide some of the support for activities of daily living when care is provided in the home. However, long term care insurance covers only services provided by licensed health care professionals and in most cases excludes family members, even if they are health professionals.

Mistake 5: Waiting too Long to Buy Long Term Care Insurance

Long term care insurance is medically underwritten, and companies may decline an application from someone who has already developed a condition that may require care within a short time after getting the policy. Even if you are healthy, the longer you wait to take out a long term care insurance policy, the more expensive the premiums become.

Mistake 6: Omitting Medical Information on the Application

Because long term care insurance has medical underwriting, people with pre-existing conditions may be tempted to omit that information from the application. However, insurance companies will investigate a policyholder’s medical records for up to two years back before issuing the policy. If underwriting finds information on a pre-existing condition not disclosed on the application, the company can deny an application or charge higher premiums. Some long term care insurance policies, generally more expensive, are available to people in the early stages of Alzheimer's or other dementia.

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