Pitfalls of Long Term Care Insurance

      Avoid the seven pitfalls of long term care insurance

While there can be many advantages to purchasing long term care insurance, there are numerous pitfalls that can wipe them out.

Here are seven common pitfalls you might encounter when buying long term care insurance.

Pitfall No. 1: Failure to comparison shop

Price varies widely, depending on the benefits offered, the company's desire to increase market share in particular areas, or even on the company's own flawed pricing methodology. Prices for similar policies from different companies in the same state can vary by $400 a month or more. Prices may go up as more features are added — features that you might not want or need.

Recommendation: Shop around and do not buy benefits you don't need.

Pitfall No. 2: Low-balling

Be aware of low-priced "newbies." That is, some of the cheapest policies on the market could come from some of the newest companies to the long term care market. While that doesn't automatically color them as suspicious, they might not be as good at pricing their policies accurately as some companies that have been in the business longer. Low-balled premiums could mean that, down the road, your rates will increase sharply as the companies scramble to make up for the initial price breaks.

Recommendation: Favor companies that have been selling long term care insurance for at least 10 years.

Pitfall No. 3: Definition of a "facility"

There are no national standards on what counts as a long term care facility. That means the definition of what precisely is an "assisted-living facility" or "adult day-care center" can vary widely from policy to policy and state to state. Consequently, if you buy a policy in one state and then retire to another state, there might not be facilities in your new state that match the definition in your policy — and you'd have nowhere to go.

Recommendation: Make sure you understand exactly what kind of facilities the policy will cover before you buy it. And call the facilities themselves to make sure they fit the criteria in your policy.

Pitfall No. 4: Buying too far ahead

You might want to buy a policy at age 40 to lock in lower premiums, but be careful. Future long term care facilities might not fit the policy's current criteria of long term care facilities because the industry is undergoing rapid change. So the types of facilities defined in your policy today might not match the types of facilities actually available when it comes time to move into one.

Recommendation: Try to buy a policy within 10 years of expected use.

Pitfall No. 5: Spousal discounts

Spousal discounts might not be guaranteed. Most companies give a spousal discount only if you and your spouse purchase identical policies. But purchasing identical policies might not be a good idea, as women tend to live longer than men and are more likely to live alone in their later years, resulting in different long term care needs.

Recommendation: Weigh the pros and cons of spousal discounts, and make sure it's valid if you get different policies.

Pitfall No. 6: Alternate care

Insurance agents may overstate the benefits of alternate care plans, which supposedly allow you to choose the care and setting appropriate to your needs at the time you need care — even if that particular type of care is not covered in your policy. Unfortunately, this benefit is only as good as the insurer's willingness to allow its use. The language of many alternate care policies leaves so much open to interpretation that the company is often free to force you into only the facilities it covers, defeating the purpose of this feature.

Recommendation: Unless a policy has language that specifically defines what it will offer, do not let this benefit influence your purchasing decision.

Pitfall No. 7: Rate hikes

Insurance company promises that there will be no rate hikes might be misleading. Company literature might say the insurer won't raise your rates unless it raises rates for the entire "class" you're in, but the problem is that there is no precise definition of what constitutes your class. That means insurers can manipulate the definition so they can raise your rates.

Recommendation: Make sure the language says your rates won't be raised unless the premiums for all policyholders in your state will go up
 

Excerpted from www.insure.com