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Common Mistakes
1. Applying right after an
illness; you will probably be declined. On the next application you will be asked this question about declination and
it will prejudice that second application.
2. Buying too much insurance. I have reviewed
several policies that were “oversold” to people who made good money while they were working. After retirement
the premiums became a burden. Look at just mitigating the risk of you needing care, not paying the entire bill. Generally,
we do not need skilled care (a price tag in 2011 of between $7,000-12,000 a month, depending on where you live) immediately
unless you are in a bad accident or have a severe stroke – things like that. Most of us just get frail as we age.
We may start off with a caregiver coming to our home three days a week for four hours. In today’s dollars,
that would cost $20 an hour or $960 a month. Assisted living can range from $3000-4500/month – again, depending
on where you live. So as you choose your monthly benefit, take into consideration how much you are willing to spend of your
own money every month towards your care. This scenario is different if you are married as the healthy spouse will still be
at home, the unhealthy one in assisted living or skilled care. This can potentially double your total monthly expense.
3. Rejecting one person’s policy if the other partner is declined for insurance. Bad idea.Take
the one policy and work with your agent on getting the other person approved. This may take a year or two.
4.
Not understanding your deductible. This is worded in terms of “Elimination Period. “It is the time you must
wait before the company will start paying the claim. You always want to notify the company that you want to go on claim
immediately but your deductible may be zero, 30, 60, 90 days or more. You make this choice when you apply. Check if it is
a “service day” deductible or “calendar day” deductible. It will make a big difference.
5.
If you have $100,000 that you do not need and will not need, consider a single premium annuity. You give the insurance company
your $100,000 and they pay you interest on it. But if you have a long term care need, you can use this money (a limited percentage
every month) to pay for this. If you do not need LTC and you die, this can possibly go to your heirs. Check with
your CPA on the tax implications. Downside: you are self-insuring, using your own money dollar-for-dollar to pay for
your care. It is not insurance and works better for higher asset clients. If you need and can qualify for
life insurance, you can do something similar. But you will be reducing the death benefit as you use it. On both of these,
you are “two-timing” your money.
6. Choosing a company based on price.
7.
If you are a Federal worker, look at this plan. If you work for a large company, also look at their plan. It’s
worth paying a specialist to help you sort through it. If you own a company, you can have your own LTCi plan for
key employees as a golden handcuff. Again, talk to a specialist about setting this up. It’s a very tax efficient way
to pay for the owner’s long term care.
8. My husband told me to add: Understand what
the policy will and will not pay for. Let’s run a scenario: Bill is injured in a car accident. He goes through
hospitalization, an operation and then into a skilled nursing facility for two weeks. If he is expected to recover within
a 90 day period then claiming on a LTC policy will not fly, His health insurance will pay for this. But let’s say that
Bill has a stroke and loses his ability to dress himself or to walk unaided and this will continue for longer than 90 days.
He should claim. These decisions are based on what his doctor says and the insurance company will verify. Believe me, they
will verify.
9. Look closely at the company financials – I use Comdex as a benchmark. It
is easy to understand. Each company will give you a history of their premium increases. Older policies have had significant
increases because 20 years ago they weren’t priced correctly. They are priced much better now. But, still –
expect and plan for premium increases. It depends on the company, the risk it has taken on and the claims processed. As an
example, let’s say Nora is 68 and her policy today costs $3100 a year in premium. If it should increase 15% in ten years,
she would pay an extra $465 a year. Can she do that?
10. Not understanding inflation protection
and how it relates to your State Partnership with Medicaid.
11. Not finding a long term care
specialist – someone who can be clear, concise and help simplify this product for you but at the same time, look at
all the options. Most general insurance agents do not have the time to keep up with this specialized field and they
realize that. Most of our referrals come from other agents. The original agent is a trusted advisor and they can stay
in the loop. You get two agents looking at this instead of one.
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