Long-term care insurance premiums are considered medical expenses, and can be tax-deductible. “Medical expenses over 7.5 percent of your AGI (adjusted gross income) are deductible,” said Martinetti-Katz, who is also a certified public accountant. “But after 2012, that threshold is going up to 10 percent, because of healthcare reform.”
Look at the options
Buying long-term care insurance is like buying a car. Do you want leather seats? Do you want a luxury model? You have to figure out the options you want, Kaskel said.
Some of the options that will determine premium are daily benefit amount, your deductible and inflation protection.
• Daily benefit amount: This is the amount that would be paid out daily for your care. Most people pick $100 to $200, Kaskel said. Options allow you to choose how the benefits are paid, such as reimbursed to the care provider or paid out to you in cash. Most policies allow your benefits to reset after you recover from an incident, a provision called restoration of benefits, Kaskel said.
• Benefit period: This is the minimum number of years that you want coverage. The industry average is three to 10 years, according to the American Association of Long-Term Care Insurance. Kaskel says most clients go with three to seven years. On average, you’re not going to need long-term care more than seven years, she said.
• Elimination period: This is how much time you want to cover your own expenses before coverage takes effect. A policy can have one elimination period for life, or have one per incident, depending on the insurer.
“People are always shocked about the ‘elim,’ ” Schwartz said. “They don’t realize that it can be thousands of dollars out of their own pocket.” Some clients try to beat the system, by hiring a neighbor or friend, thinking that will use up the elimination period. “But they have to follow the insurance company’s rules,” Schwartz said.
“Look at it as a deductible. For example, I want to pay the highest deductible I can on my home, because I want coverage for a catastrophic event,” he said. “I don’t want coverage for when the toilet overflows. I want it for a hurricane.”
• Inflation protection: Kaskel said she recommends it to 97 percent of her clients. It does increase premium, but “I would rather see someone take less of a daily benefit than to go without inflation protection,” she said. A compound inflation option will grow to a greater benefit than a simple inflation option. If 60 and younger, she recommends a compound inflation option, for ages 61-75, any inflation option; and 76 and older, no inflation option.
The national Long-Term Care Partnership Program allows you to buy coverage that protects part of your assets if your long-term care benefits are exhausted and you want to apply for Medicaid. The protected assets must match dollar-for-dollar to what the long-term care policy paid out, and you must still meet income eligibility for Medicaid. For more information about Medicaid eligibility and asset disregard, call the Department of Children and Families ACCESS Call Center at 1-866-762-2237.
Traditional long-term policies, like most insurance, have a use it or lose it philosophy. Alternatives are hybrid policies, which links a long-term care component to an annuity or life insurance. But hybrid policies typically require an up front, lump sum payment. Another choice is a limited pay policy, which sets a higher premium for a shorter time period, reducing the chance of premium increases.
“A lot of people in their 40s or early 50s do this, so when they retire, they’ll have no premium,” Kaskel said. “For people who have the money to do that, it’s a great idea.”
When people are looking at the options, they should look beyond price and benefits, Martinetti-Katz said.
“You should think about why you want to buy this policy. What do you want to get out of it? It depends on individual circumstances and what your needs are,” she said.