long-term care insuranceIt’s no secret to anyone that the cost of health care is going up, and the cost of health insurance is going up along with it. And while the Affordable Care Act has brought some welcome changes to the health insurance marketplace, there is one product whose sticker price regularly gives sticker shock: long term care insurance. Long-term care insurance (LTC), in general, covers the costs of nursing home care which aren’t covered by health insurance, and on the surface, this can seem like a must-have type of coverage. But after reviewing the exclusions, conditions, gaps, and costs, LTC insurance can seem like a bad buy for most of us. Caregivers, loved ones, and homecare companions need to know all the pros, cons and ‘hows’ of long-term care insurance so that those who need it, buy it, those who have it, use it, and those who can’t afford it, find a reasonable alternative.

How do you know if you should buy LTC insurance? According to the Motley Fool’s retirement advice, you need LTC insurance only if all three of these conditions apply to you:

  • You want to leave an estate to your heirs;
  • You have enough retirement income to reliably cover both your expected retirement lifestyle and the long term care insurance premiums; and
  • Don’t have enough in assets to reasonably self-insure against the risk

If you are in the market for LTC insurance, be sure you know what you’re shopping for, and what you’re really getting. Long-term care insurance covers your stay in a nursing home after the first 90 days of your illness or incapacity. Most policies require that you be unable to perform two of six activities of daily living on your own: dressing, bathing, using the toilet, eating, walking and remaining continent. These terms may seem simple, but again, a closer look reveals many unpleasant caveats. If you are only temporarily unable to do the activities of daily living, your policy may not cover you. If you can walk to the kitchen, but not the corner store, your policy may not cover you. If you do meet all these requirements, you may exhaust your benefits after a certain dollar amount, or a certain number of years. And then where are you?

The worst part of LTC insurance is that it’s built like car insurance: if you don’t use it by filing a claim, your premiums are gone forever. And if you miss a payment, your coverage lapses immediately and you start from scratch. This last detail is most important, because coverage for a 55-year in good health averaged $2,007 in 2012, with a $150/day benefit and a three year coverage period. But a 65-year-old buying the same coverage could pay more than double that yearly premium, assuming his health stayed the same – a big gamble! It’s no coincidence that many insurers have stopped offering LTC insurance, when 40% of people receiving long-term care are between ages 18 and 64, and at least 70% of people over 65 will require some kind of long-term care in their lifetime.

If LTC insurance is the right choice for you, U.S. News and World Report offers these nine tips for evaluating long-term care policies:

  • Consult a long-term care specialist. This field is too complicated and too important to go it alone.
  • Compare all the policies you’re considering, and read all the fine print carefully. Exlusion periods, capacities, years of care, daily benefit amounts – all these things matter and affect the value of what you’re buying.
  • Investigate the carrier of the policy just as thoroughly. Many insurers have left or are planning to leave this market, so be sure to choose a keeper.
  • Don’t insist on a gold-plated plan when you may only be able to afford a bronze – something is better than nothing at all in this market.
  • Whatever you do, don’t stop paying the premiums, and if you can’t be sure you can pay consistently, don’t start. You will lose everything with just one missed payment, and the same goes for Mom or Dad. If dementia is an issue, be sure this is the one bill you pay yourself.
  • Institute a buddy plan, so someone is paying the premiums, or filing claims, on your behalf.
  • Buy as early as possible. The older you get the more likely you are to get rejected for health reasons.
  • Consider a couples’ policy. You and your spouse can share benefits, and premiums are typically lower than those of individuals.
  • Review your policies every year. Products in this industry are changing all the time, offering new choices and better options for coverage. Stay informed.

You may find that none of these options are right for you. Along with many Americans, you may want to consider a plan ‘B’. As an industry insider said, “The problem with long-term care insurance is that anybody who can afford it doesn’t need it, and anybody who needs it can’t afford it.” But there are alternatives that make very good sense for anyone who doesn’t have enough assets to self-insure, but doesn’t want to rely on what’s available when all their assets are gone. At the end of May, in Caregiver Cheat Sheet: The Pros and Cons Of Long Term Care Insurance, Part II, we will look at the alternatives to traditional long-term care insurance that have grown up in the wake of the big changes in the long-term care insurance market.