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Long-Term Care Insurance Online Guide

 

There are six standard "activities of daily living" (ADLs) recognized in long term care policies which measure an individual's reduced physical functioning. These are self-care activities that people must be able to carry out in order to live independently without the help of another person.

What Are the ADLs?

The ADLs are:

  • eating;
     

  • toileting;
     

  • transferring from a bed to a chair;
     

  • bathing;
     

  • dressing; and,
     

  • maintaining continence.
     

These ADLs have long been a part of geriatric assessments. Physicians, nurses and social workers use ADLs to measure an individual's ability to function independently and to identify specific impairments or limitations. If an individual is unable to function independently, the ADLs help to determine the kinds of long term care services needed.

A key consideration for people who are choosing a long term care insurance policy is how reduced physical functioning is measured according to the policy. You should understand the requirements of any policy you are considering. Some long term care insurance policies include other activities, such as walking, to determine whether an individual is eligible for benefits. Some policies include only five of the standard six ADLs.

Tax-qualified long term care insurance policies (see Long Term Care and Your Taxes) cover "chronically ill individuals" who are expected to need "substantial assistance" for at least 90 days. These policies must take at least 5 of the standard 6 ADLs into account.

How Do ADLs Describe an Independent Person?

A person is independent if he or she requires no supervision or assistance. He or she:

  • can eat by him or her self without help (except for help with cutting meat or buttering bread);

     
  • goes to the bathroom, uses the toilet, arranges clothes and returns without any help (but he or she may use a cane or walker for support and may use a bedpan or urinal at night);

     
  • gets in and out of bed and a chair (transfers) without help (but he or she may use a cane or walker);

     
  • receives no help with bathing or is helped with bathing only one part of the body;

     
  • gets clothes and dresses without any help, except for tying shoes; and,

     
  • controls bowel and bladder completely by him or her self (is continent) excluding occasional accidents.

     

How Do ADLs Describe a Dependent Person?

Individuals who need help from another person to carry out ADLs are not completely independent. A person's need for assistance with any single ADL can range along a continuum. This assistance can be described as:
 

  • "no assistance needed at all" (for a person without any ADL impairments);

     
  • "requires intermittent checking and observation";

     
  • "requires minimal assistance at times";

     
  • "requires continual help or physical assistance";

     
  • "requires constant supervision"; and,

     
  • "cannot participate/requires total help."

     

Examples of reduced physical functioning or ADL impairments include:

  • an individual who is unable to perform an ADL, such as eating or transferrring, without the physical assistance of another person; and,

     
  • an individual who needs the presence of another person within arm's reach to prevent injury while attempting to perform an ADL, for example to prevent a fall while bathing or toileting.

     

The types and amounts of help an individual needs -- and whether he or she can remain at home or should move to a nursing home --- is assessed by how well he or she can perform ADLs, and the kinds and amount of help available to them.

Needs Assessment

When an individual has functional limitations, whether due to physical or cognitive conditions, a qualified professional care provider will need more information than just how a person is doing relative to ADLs. They will complete a full needs assessment to learn about the individual's physical, social and other needs as well as their ADL and cognitive status. All this information is needed to create a coordinated "care plan" so the individual's needs are met, especially when family caregivers and formal service agencies are joined in meeting the needs of the impaired individual.

Assessors are likely to ask about the individual's housing situation, neighborhood safety, health status, nutrition, current services received, whether he or she lives alone, whether relatives or friends are available to help, languages spoken and more.

The assessment also might ask about the individual's ability to carry out "IADLs." While ADLs focus on a person's ability to care for themselves, IADLs focus on an individual's ability to interact with his or her environment. IADLs are "instrumental activities of daily living" and include a person's ability to do housework, to go shopping, to do laundry, to use transportation, to prepare and cook meals, to self-administer medications, to handle personal business affairs, and to use the telephone.

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Reduced intellectual functioning can contribute to a lack of ability to carry out activities of daily living. It can be measured by standardized tests of cognition -- the capacity to think and to understand the world.

Reduced intellectual functioning can be caused by medications, drowsiness, depression, Alzheimer's Disease and other forms of senile dementia or organic brain disease, stroke and other conditions.

To identify reduced intellectual functioning or cognitive impairment, trained personnel -- including physicians, social workers and others -- observe a patient or an individual and administer a screening test. Typical screening questions assess impairments related to:

  • knowing the time and place;

     
  • naming and learning objects;

     
  • stating a numerical sequence and spelling words backwards;

     
  • recalling named and learned objects; and,

     
  • repeating a phrase, following oral instructions and reading and writing a sentence.

Examples of reduced intellectual functioning include:

  • an individual who is impaired by a significant short- or long-term memory loss; and,

     
  • an individual who is impaired by a significant disorientation to people, places or time.

Tax-qualified long term care insurance policies (see Long Term Care and Your Taxes) must cover "chronically ill individuals" who have a "severe cognitive impairment" and need substantial or continual supervision (including verbal prompting, gestures or other demonstrations) by others to protect them.

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For Federal  tax purposes, federally qualified long term care insurance policies generally are treated in the same way as accident and health insurance policies. In addition, the costs of long term care services are treated in the same way as the costs of medical care.

Here are descriptions of Federal  Long Term Care Tax Breaks and help in Comparing Tax-Qualified and Non-Tax-Qualified Policies.


Favorable Tax Treatment

This favorable tax treatment means:

  • unreimbursed long term care services costs may be tax deductible as itemized medical expenses;

     
  • a portion of the premiums paid for qualified long term care insurance policies may be tax deductible as itemized medical expenses; and,

     
  • payments or benefits received from a qualified long term care insurance policy are not counted as income, with certain restrictions.

Long Term Care Tax Breaks describes Federal and New York State tax breaks for long term care and long term care insurance.

 Comparing Tax-Qualified and Non-Tax-Qualified Policies for long term care insurance is a step-by-step guide to help people decide whether a tax-qualified or non-tax-qualified policy might be best for them, including how important is the tax break and which type of policy might have better coverage.

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Here is a description of Federal  "tax breaks" and the treatment of medical care expenses, long term care insurance premiums and policy payments/benefits.

Three "Tax Breaks"

For federal  tax purposes, federally "qualified" long term care insurance policies generally are treated in the same way as accident and health insurance policies, and long term care services generally are treated in the same way as medical care. This results in three "tax breaks":

  • Unreimbursed expenses for federally-defined "qualified long term care services" are deductible as itemized medical care expenses;

     
  • A portion of "federally-tax qualified" long term care insurance premiums are deductible; and,

     
  • Payments/benefits received from "federally-tax qualified" long term care insurance policies are excluded from gross income, with certain restrictions.

CAUTION: Federal tax laws and their long term care provisions are complex, and BOTH tax-qualified and non-qualified long term care insurance policies are available. Individual taxpayers should consult a tax advisor for specific information or advice about their own personal situation. People with long term care insurance policies and people who are thinking about purchasing such policies should consult with their insurance agent to determine whether their policies are tax-qualified.

Itemized Medical Care Expenses

Unreimbursed expenses for federally-defined "qualified long term care services" are deductible as itemized medical care expenses regardless of whether an individual has long term care insurance. Changes in the U.S. Tax Code clarified the law, which had become less and less clear as more and more long term care services were provided at home instead of in nursing homes. (Nursing home expenses already were deductible as medical expenses.) The new law clarifies that other, non-nursing home, long term care costs, if unreimbursed, also are deductible as medical expenses.

Unreimbursed Expenses. Itemized long term care expenses must not be reimbursed by insurance or otherwise. That is, these must be paid by the taxpayer from his or her own funds. Medical care deductions must be for medical care for the taxpayer, his or her spouse and dependents to the extent that all medical expenses exceed 7.5 percent of the taxpayer's adjusted gross income. (As explained later, medical care also now includes eligible premiums paid -- up to certain limits -- for any qualified long term care insurance policy.)

Qualified Long Term Care Services. "Qualified long term care services" are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal care services that are required by a "chronically ill individual," and provided pursuant to a plan of care prescribed by a licensed health care practitioner. Qualified long term care services are the typical formal long term care services delivered by licensed providers. They include services delivered by nursing homes, home health care agencies, assisted living facilities, adult day care programs and other services providers. Health care practitioners include physicians, registered professional nurses or licensed social workers.

Chronically Ill Individual. The law has a very specific definition of "chronically ill individual," and the Internal Revenue Service has developed detailed guidance. In general, for income tax purposes, a chronically ill individual is an individual who has difficulty in carrying out day-to-day activities without substantial help from another person. Another person's presence is needed because of the individual's reduced physical or intellectual functioning.

Reduced Physical Functioning. In the case of reduced physical functioning, the chronically ill individual must need help, for at least 3 months, with any 2 of at least 5 of the 6 "activities of daily living" (ADLs): eating; toileting; transferring from bed to chair; bathing; dressing; and, maintaining continence. This help includes either the physical assistance of another person without which the individual could not complete the ADLs or the nearby presence of another person to prevent injury.

Reduced Intellectual Functioning. A chronically ill individual may need help due to a documented reduction in intellectual functioning, often from Alzheimer's Disease or another dementia. As a result, that individual needs someone to be physically present to supervise or coach the individual or to protect him or her from harm.

Long Term Care Insurance Premiums

A portion of "federally-tax qualified" long term care insurance premiums may be deductible. The federal medical care deduction includes a portion of premium payments (up to certain limits) made during the taxable year for any qualified long term care insurance policy. In order for these premiums to be deductible as a medical expense for taxpayers who itemize deductions, the taxpayer's long term care insurance policy must be federally tax-qualified.

Qualified Long Term Care Insurance Policies. For a taxpayer to take advantage of the partial deductibility of long term care insurance premiums, his or her long term care insurance policy must meet the federal requirements. These requirements include the above descriptions of "qualified long term care services" and "chronically ill individual."

Itemized Deductions for Premiums. The dollar amount of the premium deduction is limited by law. Each year the limitation is adjusted to reflect increases in medical inflation.

Payments/Benefits from Long Term Care Insurance Policies

Payments/benefits received from "federally tax-qualified" long term care insurance policies are excluded from gross income, with certain restrictions. For a portion of long term care insurance benefits or payments received by an insured individual to be excluded from gross income, the taxpayer's long term care insurance policy must be federally tax-qualified as described above. For tax purposes, there is a distinction between payments for actual expenses and payments from an indemnity plan.

Payment Methods/Benefits. ALL payments received by a taxpayer from a qualified long term care policy are excluded from income IF the payments are based on actual expenses incurred. For 1999 tax returns, benefits received from a per diem policy (indemnity benefits) could be taxable IF the benefits received exceed $190 per day AND are in excess of the actual expenses. In general, payments up to $190 per day ($69,350 a year) will not be taxed. If a per diem policy pays benefits in excess of $190 per day, the difference between the actual daily payment and $190 could be taxable.

Reports to the Insured and IRS. Insurance companies are required to report to both the insured and the IRS the total amount of long term care benefits paid during the calendar year, regardless of whether the plan covers actual expenses or is an indemnity plan.

Consumer Notes

  • Some believe that this deduction for long term care premiums, while valuable, will PROBABLY NOT be significant for many consumers. Many individuals do not file "long form" tax returns and will not be able to take advantage of this deduction. However, couples might find the deduction useful, if they have high medical expenses, a Medigap policy and a long term care insurance policy.

     
  • Insured individuals should check carefully before adding coverage to or changing an existing long term care insurance policy. A change might be considered a "material change" which could make the policy no longer tax-qualified.

     
  • Tax-qualified long term care insurance policies have the benefit of favorable tax treatment. However, non-qualified policies might have other benefits for policy holders which outweigh the tax benefits. Whether this is so will depend on individual circumstances.

REMINDER: Federal tax laws and their long term care provisions are complex, and BOTH tax-qualified and non-qualified long term care insurance policies are available. Individual taxpayers should consult a tax advisor for specific information or advice about their own personal situation. People with long term care insurance policies and people who are thinking about purchasing such policies should consult with their insurance agent to determine whether their policies are tax qualified.
 

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People who are making their initial purchase decision regarding long term care insurance are likely to have a choice between tax-qualified policies and non-tax-qualified policies. Other people might be thinking about switching to a tax-qualified policy from a non-tax-qualified policy.
 


Introduction

For tax purposes, "tax-qualified" long term care insurance policies generally are treated in the same way as accident and health insurance policies. By law, a portion of the premiums paid for a tax-qualified policy are deductible and the benefits received from a tax-qualified policy (up to certain limits, if itemized) are not taxed as income. (The IRS has NOT determined that the benefits paid out by a non-tax-qualified policy ARE taxable as income. This question is unresolved, and at present the benefits of non-tax-qualified policies are not being taxed.)

Consumer Notes:

  • A tax-qualified long term care insurance policy might have the benefit of favorable tax treatment. However, non-tax-qualified policies have other benefits that might outweigh the tax benefits. Whether this is so will depend on individual circumstances.

     
  • Every individual has different circumstances and different needs. In addition, every individual has a different perspective on how much tax savings is worthwhile and what long term care coverage is best for them. Thus, a tax break alone might not be sufficient reason to purchase a tax-qualified policy. Your choices are your own; only you can decide whether a tax-qualified or a non-tax-qualified policy is best for you, based on your own individual needs, preferences, financial status and family situation.

     
  • You already might have a tax-qualified policy. Many long term care insurance policies were issued before the new law explicitly allowing tax-qualified policies. Those pre-existing policies were "grandfathered" under the new law. That is, policies issued before the new law went into effect are considered tax-qualified unless a major change is made in the policy by the policyholder and company. Therefore, if you have a policy issued on or before December 31, 1996 and you have not made any major changes in the policy, it already is a tax-qualified. Consult with your insurance agent if you have questions about the tax status your policy.

Comparing Tax-Qualified and Non-Tax-Qualified Policies

There are two things to do before deciding whether a tax-qualified or a non-tax qualified policy is best for you. First, determine whether the tax break on a tax-qualified policy is financially meaningful to you. Second, compare the provisions of the tax-qualified and the non-tax-qualified policies you are considering.

Step 1: Determine whether the tax break on a tax-qualified policy is financially meaningful to you.

Some believe that the deduction for a portion of the long term care insurance premiums paid on a tax-qualified policy, while valuable, PROBABLY WILL NOT be significant for many consumers. Many individuals do not file a "long form" tax return and will not be able to take advantage of this deduction. However, couples might find the deduction useful, if they have high medical expenses, a Medigap policy, and a long term care insurance policy.

To determine whether the tax break on a portion of your tax-qualified long term care insurance premiums is financially meaningful to you, you need to know how that tax break would affect your federal taxes.

Federal Taxes --
 

  • If at present you usually itemize on your federal tax return, then it might be worth your while to consider a tax-qualified policy.

     
  • If in the future you would begin to itemize on your federal return because of the added deduction of a portion of your long term care insurance premiums, then it might be worth your while to consider a tax-qualified policy.

     
  • Consult With a Tax Specialist --

    In each of the above circumstances, you should review, with a tax specialist, the tax consequences of purchasing a tax-qualified policy.

     
  • If you WOULD NOT receive what you consider to be a reasonable tax benefit, then a tax-qualified policy might not be for you.

     
  • If you WOULD receive what you consider to be a reasonable tax benefit, then it might be worth your while to purchase a tax-qualified policy.

     

Remember, too, that a tax-qualified policy has the definite benefit that its benefit payments are not taxed as income. It has not been determined whether the benefit payments from a non-tax-qualified policy will be taxed.

Also, you might want to consider whether you would need to pay to have your tax returns prepared if you do decide to itemize deductions.

After completing step 1, you should have a good idea of whether the tax break on a portion of your premiums on a tax-qualified policy is financially meaningful to you. REMEMBER: Your income and deductions might change in retirement. Whether the tax break is meaningful or not, the next step is to compare the provisions of the tax-qualified policies you are considering with the non-tax-qualified policies you are considering.


Step 2: Compare the provisions of the tax-qualified and the non-tax-qualified policies you are considering.

Regardless of whether you would receive a good tax break by owning a tax-qualified policy, its provisions might not be as good for you as a non-tax-qualified policy. You need to understand how the tax-qualified policy is different from the non-tax-qualified policy in terms of what it takes to qualify for benefits and what those benefits are.

To find out which policy is "better" for you, you need to compare them. Here are some examples of general differences between policies. REMEMBER: Every policy is different, so the following are general examples. There is no way around it, YOU HAVE TO COMPARE THE ACTUAL POLICIES -- POINT-BY-POINT.
 

-- How do you qualify for benefits?

In order to qualify for long term care benefits, you must meet certain policy requirements. These requirements usually are different under tax-qualified and non-tax-qualified policies. In particular, "medical necessity," "activities of daily living," and "cognitive impairment" might be different.

Medical Necessity. In general, "medical necessity" allows greater discretion on the part of a physician to qualify you for benefits. Therefore, in general, it is better for a policyholder if a policy includes medical necessity as a benefit trigger. Medical necessity might trigger benefits under a non-tax-qualified policy. Tax-qualified policies MUST cover "chronically ill individuals" -- people who are unable, without substantial assistance from another person, to perform at least 2 activities of daily living for a period of at least 90 days.

Activities of Daily Living (ADLs). Activities of Daily Living (ADLs) are used to measure an individual's ability to carry out every day tasks. The inability to carry out these activities triggers eligibility for long term care insurance benefits. Tax-qualified policies MUST include at least five of the six ADLs required by law. Non-tax-qualified policies can include any number of ADLs or even other ADL-like activities. In determining whether someone is qualified for long term care insurance benefits, generally it is better for the policyholder if help is required to be needed with as few ADLs as possible (usually help with two ADLs is needed) out of as many different ADLs as possible (usually up to six). For your information in considering which ADLs might be most important to you:

  • Families generally find it very difficult to deal with an individual's loss of continence, but by that time the individual usually needs help with other ADLs.

     
  • The ability to bathe without help often is one of the first losses of physical functioning. Therefore, in general, it is important that bathing be included as one of the ADLs to be considered in qualifying for benefits.
     

How much help is needed to carry out activities of daily living determines whether an individual qualifies for benefits under a long term care insurance policy. In general, the less help someone must need in order to qualify for benefits, the easier it is to qualify. Tax-qualified policies MUST require that the covered individual need "substantial assistance" -- a fairly high level of need. Non-tax-qualified policies might have a lower level of need -- "regular human assistance or supervision," for example. However, regardless of the term used, you should understand the definitions (or triggers) used in the policy, how they are applied, and who makes the eligibility determination.

Cognitive Impairment. How a long term care policy covers cognitive impairment is an important concern. Tax-qualified policies MUST cover a "severe" cognitive impairment. Non-tax-qualified policies may cover cognitive impairments which would not be considered "severe." Similarly, tax-qualified policies must require that the covered individual need "substantial supervision" -- a fairly high level of need. Non-tax-qualified policies might have a lower level of need. You should understand what condition your current policy covers and how much help qualifies you for benefits.
 

-- What benefits are covered?

The benefits available under a tax-qualified policy may be different from those under a non-tax-qualified policy. Compare those benefits carefully, especially whether each would be of help to you should you need them.

After completing step 2, you should have a good idea of the coverage offered by both policies. If you don't understand how you would qualify for benefits or how benefits are different between tax-qualified and non-tax-qualified policies, ask your agent for more information.

Your Decision

You now should have a good idea about whether the tax break on a portion of the premiums paid for (and the taxation of any benefit payments made by) a tax-qualified policy is worthwhile to you. You also should have a better understanding of how you would qualify for benefits under both policies and what those benefits are.

You need to balance the tax gain or loss, if any, with the coverage gain or loss, if any. ONLY YOU can make this decision for yourself. Don't purchase any policy until you understand how it works and how the requirements of the policy will affect you.

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Long term care insurance policies have many provisions that limit, improve or describe the coverage, benefits and responsibilities of the insurer and the insured. Your insurance policy is a legally binding contract.
 

This section provides descriptions and explanations of the below terms you will encounter.

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Most long term care insurance policies do not cover the full charge for long term care services. The amount they pay is called the "daily benefit amount" -- the dollar amount payable per day based on the type of care (nursing home or home care) being provided. Any charges above the daily benefit amount must be paid by you.

Some policies cover provider charges UP TO the daily benefit amount. For example, if your daily benefit amount is $100 and your nursing home costs are $180 per day, you are responsible for $80 per day. (At least one insurance company uses a monthly benefit amount.)

When considering a long term care policy, be sure to understand how much you are required to pay -- the difference between the actual costs and the daily benefit amount -- if you need long term care. Can you afford that amount? Higher benefit amounts usually mean higher premiums. You need to think about both your budget (in terms of premiums) and your savings (in terms of paying part of the charges).
 

 

The "deductible or waiting period" is the number of days you must be in a nursing home or must receive home care BEFORE long term care benefits will begin to be paid. During the deductible or waiting period, you will have to pay out-of-pocket for the full cost of the care you receive. This sometimes is called an "elimination period."

This period of time that you must pay for before the policy benefits begin is usually 20, 30 or 100 days. If the policy you are considering requires a 30-day waiting period, for example, you would pay $6,000 out-of-pocket (at $200 per day) for your nursing home care.

Be aware that a new deductible or waiting period might be required for each benefit period, i.e., each NEW time you use long term care.

Be sure you understand the deductible or waiting period required by the policy you are considering. Is there a new deductible or waiting period required EVERY NEW TIME you once again use long term care? Higher deductibles or longer waiting periods result in lower premiums. BUT be careful when making your choices! Even with a lower premium, you still need to ask yourself whether you can afford to pay the deductible or to pay for your own care during the waiting period.
 
In Florida, an individual policy holder has the right to continue his or her insurance for long term care services as long as the premiums are paid on a timely basis.

Once an individual policy is issued, an insurer may not ask for further evidence of insurability. Even though your health status might decline or other circumstances might make you uninsurable, an insurance company may not terminate your coverage if you continue to pay the premiums.

However, your premiums might increase, but only for all members of a class -- usually the same type of policy, if approved by the State Department of Insurance.

This is a vital consumer safeguard, since policies usually are one-year contracts and are renewed annually.

 
In an indemnity policy, the inflation protection benefit increases the daily benefit amount over time to help keep pace with inflation and increased expenses. Without this protection, the charges you pay above the daily benefit amount are likely to increase considerably over time.

All policies covering long term care services in Florida must OFFER an inflation protection benefit. A daily benefit amount which is adequate today to meet nursing home or home care costs might not be adequate ten years from now.

In Florida the inflation protection benefit on an individual indemnity policy MUST, at a minimum:
 
  • increase benefit levels annually by five percent or in proportion to the increase in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics; OR

     
  • guarantee the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status so long as the option has not been declined for three consecutive times.
     

Of course, you are not required to purchase inflation protection. HOWEVER, considering that the costs of long term care services continue to increase, you would be wise to consider carefully the protection offered by this benefit.

Many consumer advocates say that inflation protection is a necessity. However, understand that it is more important for younger people who might not need long term care for many years and less important for older people who might need long term care sooner. Also understand that this protection comes at a cost; it increases your premiums.
 

The "maximum policy benefit" is either the period of time OR dollar amount limit for which long term care benefits will be paid under the policy. Once the time limit or dollar limit is reached, no other benefits will be paid.

Some long term care insurance policies contain period of time maximums. For example, coverage might be limited to a maximum of from one to seven years.

Other policies have a dollar amount maximum. That dollar limit is calculated by multiplying the number of years of benefits chosen, times 365 days, times the daily benefit amount chosen. For example, a policy which provides a daily benefit amount of $200 for four years would have a dollar amount limit of $292,000 ($200 x 365 x 4).

In some policies, the maximum benefit period or amount is not the same for all benefits available under the policy. Some policies also contain a separate benefit limit for each "confinement" (e.g., each stay in a nursing home).

To understand your choices, be sure to ask about maximum policy benefits. Are the maximums determined by a period of time or by a dollar amount? Are the maximums the same for all covered benefits? Are there other limitations on benefits?


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The nonforfeiture benefit is designed to ensure that if you lapse your policy after a specified number of years, you retain some benefits from the policy. This way you retain some of your long term care coverage, even if you cannot afford to keep paying premiums.

There are two main types of nonforfeiture benefits being offered with long term care insurance policies, the "reduced paid-up benefit" and the "extended term benefit."
  • The reduced paid-up benefit provides that if you lapse your policy after a specified number of years, the policy will continue with REDUCED daily benefit amounts.

     
  • The extended term benefit provides that if you lapse your policy after a specified number of years, a benefit account will be established for you. In that case, when you need long term care which is covered by your policy, the expenses incurred -- up to the policy limits -- will be paid from the benefit account until those funds are exhausted.

The reduced "paid-up percentages" may apply to nursing home benefits only or to all benefits in the policy. These percentages must appear in the policy and MAY CHANGE based on experience, provided the policy states that such change will only be made in conjunction with an increase in premium.

It is not wise to purchase a long term care insurance policy with the expectation of letting it lapse. However, the nonforfeiture benefit is an important feature. Be sure to find out how the nonforfeiture benefit would work in the policies you are considering. Is it a reduced paid-up benefit or an extended term benefit? How many years are the specified number of years necessary to have some coverage? The nonforfeiture benefit adds cost to a policy, but the longer a policy remains in force, the more important it is to have this feature.

 
Specific exclusions are listed in all long term care insurance policies. Some of the more common exclusions are:
  • mental illness, except that this limitation MAY NOT exclude or limit benefits for Alzheimer's Disease, senile dementia or demonstrable organic brain disease;

     
  • intentionally self-inflicted injuries;

     
  • alcoholism and drug addiction;

     
  • care in government nursing homes (unless you are required to pay); and,

     
  • coverage outside the United States and its possessions.

     

Be sure to obtain and review a complete list of the policy exclusions in the long term care insurance policy you are considering. Think about how those might affect your coverage.

Also note that the preexisting condition limitation can affect your coverage as well.

 
A "preexisting condition" means a condition for which medical advice was given or treatment was recommended by, or received from, a licensed health care provider within six months before the effective date of coverage of the insured person.

Benefits WILL NOT BE PAYABLE for care related to the preexisting condition for up to six months AFTER you buy the policy. This means that if you need care, you will have to wait up to six months before your coverage begins. You must pay for your own care during that time.

Some experts have said that this preexisting condition limitation has little practical meaning in long term care insurance because the insurer probably won't sell you a policy if you might need long term care within six months. In fact, some policies do not have any preexisting condition limitation.

Preexisting condition limitations are somewhat straightforward. Be sure you understand whether any condition you have will be considered a preexisting condition. Long term care insurance policies may not have preexisting condition limitations of more than six months.

Also note that policy exclusions will affect your coverage as well.