Financial News & TipsAlan S. Moore / L’Observateur / March 3, 1999Long-term care insurance can provide you or a loved one with the financialprotection necessary during a period of serious prolonged physical illness,disability or cognitive impairment. It can also help you safeguard yourassets and protect your financial stability. But before you buy, there are afew things you should know…

Published 12:00 am Wednesday, March 3, 1999

Shop around.For starters, all long-term care insurance policies are not the same.According to the Health Insurance Association of America, there arecurrently more than 115 private insurance companies that offer long-termcare insurance products to individuals. These policies are far fromstandardized. They offer a wide variety of benefits and coverages. It isimportant, therefore, that you take the time to find the policy that bestfits your specific situation.

Make sure you are eligible for coverage. Unfortunately, not everyone automatically qualifies for long term careinsurance. So before you get involved in significant policy comparisonactivities, you should take the time to talk to your long term careinsurance representative about any current health concerns you may befacing. If you have already been diagnosed with forms of dementia or evena small stroke, chances are you will not qualify. Other conditions that areviewed as legitimate underwriting concerns include Cancer, MultipleSclerosis, and Insulin-Dependent Diabetes. While this may all seem a bit disheartening, the good news is that mostpeople do qualify, and the underwriting process is less involved than theunderwriting process one goes through when trying to obtain lifeinsurance.

Learn the ins and outs of the policy you are considering.Take the time to become familiar with all the policy benefits associatedwith the insurance contract you are considering by reading the outline ofcoverage that should be sent with any product proposals you arereviewing. This outline not only helps you understand the conditions ofyour coverage, it provides information on how your benefits will be paid. Some of the policy provisions you should become familiar with include:the policy’s benefit triggers and when they are activated; if and when thepolicy premiums are waived; the choices of care facilities that thecontract provides; and the additional features that are available. Thispolicy analysis is one of the most important steps in any long term careinsurance research and comparison process.

Understand how your benefits will be paid and for how long.Most insurance companies pay benefits one of two ways: (1) the expenseincurred method, or (2) the indemnity method. With the expense incurredmethod of payment, benefits are paid to either you or the provider wheneligible services are received. With the indemnity method, benefits arepaid directly to you and no one else without regard to services received. Ingeneral, the expense incurred method tends to be less expensive and toprovide benefits for a longer period of time. It is also the method ofpayment used by most policies today.Payment of your benefits, however, may not begin the first day youreceive care. Most policies have an elimination period (also known as awaiting or deductible period) of anywhere from 0 to 365 days (yourchoice) which means your benefits will not begin until that many daysafter your first day of care. Of course, the shorter the elimination period,the greater the policy premium.Policies also vary in the length of coverage. When looking into a long termcare insurance policy, you need to choose the benefit period that best fitsyour situation. Many industry experts suggest a four year benefit periodbased on some average nursing home duration statistics. Lifetime orunlimited benefit periods are also available with most contracts as wellas two-year, and five-year benefit periods. It is important to work withyour insurance professional to design the policy with the level of benefitsthat suits you best.

Know your insurance company. Take a look at the financial health of the insurance company you areconsidering. You want to be dealing with a company that has received highfinancial ratings from A.M. Best, Moody’s and Standard and Poor’s. Manyindustry experts will also tell you to go with a company that has alreadypaid significant claims. Generally speaking, going with a stronger companydoes not mean you have to pay higher premiums.Once you have decided which insurance company you are going to dealwith, be sure the company is licensed in your state. If you are not sure,find out by contacting your state insurance department. Insurancecompanies must be licensed in your state in order to sell long-term careinsurance. If the company you choose is not licensed in your state, youshould start looking at other companies.

Consult a knowledgeable advisor.If all of this information seems overwhelming, you should always considerthe benefits associated with the knowledge a professional advisor canoffer. Be it a financial, tax, legal or insurance advisor, do not hesitate toconsult him or her about your specific needs.(Alan S. Moore is a financial advisor of Legg Mason Wood Walker, Inc., adiversified securities brokerage and financial services firm that is amember of the New York Stock Exchange, Inc. and SIPC.)

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