Top Five Long-Term Care Insurance Myths
If you’ve decided to purchase long-term care insurance (LTCI), good for you. There’s no question that LTCI can help protect your family’s finances by covering the exorbitant costs of long-term care if and when necessary.
However, because LTCI is such an important and sometimes costly purchase, it’s vital that you do your research and buy a policy for the right reasons. Too many insurance companies persuade consumers to buy LTCI with exaggerated claims and unproven “facts.”
Don’t fall prey to these fallacies. When purchasing an LTCI policy, keep your eye out for these top five sales pitches:
- An LTCI policy is a valuable tax write-off.
This may be true in some cases, particularly for business owners, but this statement is a myth for many LTCI policy owners. Although premiums paid for a tax-qualified LTCI policy can ultimately reduce your tax bill, you have to itemize deductions to qualify.
Additionally, for tax write-off purposes, LTCI premiums fall into the medical and dental expenses categories. This category is limited to expenses that surpass 7.5% of your income. So, if you’re income is $75,000, you’ll need more than $5,625 in unreimbursed health and dental care expenses before you can even add in your LTCI premiums.
Plus, even if your LTCI premiums go above 7.5% of your income, you can’t include all of the payments in your medical and dental expenses deduction. Your premiums are deductible according to a sliding scale based on your age. Therefore, LTCI may not be such a great tax write-off after all—depending on your situation, it may not save you a single dime in taxes.
- Assisted-living facilities are all created equal.
This is definitely not true. Under current law, there is not a national standard definition for “long-term care facility.” Therefore, if your LTCI policy says it covers a stay in an “assisted-living facility” or “adult day-care facility,” this could mean something different depending on the particular policy and the state where the policy was created.
Therefore, if you purchase an LTCI policy and then move to another state, there’s a possibility that there are no facilities in your new state that match the definitions of your policy. Obviously, this could put you and your family in a serious bind if you ever require long-term care. Before you sign on the dotted line, ask plenty of questions and make sure you fully understand what type of facilities the policy covers.
- Buy now to lock in the price.
When purchasing an LTCI policy, many consumers are under the false impression that their premiums will be the same forever. Although your premiums typically depend on your age at the time you purchase the policy, this does not mean the premiums will stay the same for the life of the policy. Your premiums can go up any time your insurance company enacts a rate increase, as long as the increase is approved by the state insurance commissioner.
Additionally, LTCI is particularly vulnerable to rate increases because it’s relatively new to the insurance world. Insurance companies don’t have a sufficient amount of data to predict the number of long-term care claims they will face in coming years.
- You should replace your current LTCI policy with a newer one.
If an insurance agent pushes you to get rid of your current policy for a new one and he doesn’t explain the benefits of the switch, this should sound off alarm bells. More than likely, the agent is just looking to boost his commissions.
Although some LTCI policies may have an added benefit that your current policy doesn’t include, it’s typically not a wise move to switch policies in mid-game. First of all, your premiums are based on your age at the time you purchase the LTCI policy. Therefore, if you switch you to a new policy, your premiums will increase. On top of that, you may have developed a pre-existing condition since you purchased the first policy, and this may not be covered by the new policy.
If you want to add benefits to your policy, you’re probably better off to upgrade your current policy instead of buying a new one.
- An insurance company’s financial rating isn’t important.
If an insurance agent tells you a carrier’s rating isn’t important, run as fast as you can and don’t look back. You wouldn’t eat at a restaurant with an “F” health inspection grade, would you? For the same reasons, you shouldn’t do business with an insurance company that has low marks.
Before you buy an LTCI policy, check the company’s financial rating with Standard & Poor’s, Moody’s, A.M. Best, Fitch or Weiss—these are all reputable financial rating services. You may also want to contact your state’s insurance department for additional details on specific companies.