What Are the Major Parts of a Long-Term Care Insurance Policy?
There are many characteristics of an LTC Insurance policy. Because of government regulation, there are more similarities than differences between Long-Term Care Insurance policies. Let's review the items a majority of policies include.
Monthly Benefit
This is the available amount of money the insurance company will pay each month toward your care. If there is an inflation benefit, this amount will increase over time. Some companies only offer a daily benefit, and some offer an option for monthly or daily benefits.
If you have a choice, insist on a monthly benefit.
The reason you want a monthly benefit is simple. Most claims start with care at home. However, how home care is delivered can impact your insurance benefit if you don't have a monthly benefit.
For this example, let's say the cost of care where you live is as follows:
Home health aide is $20 an hour, an RN is $25 an hour, Physical Therapist is $23 an hour.
Let's say you receive care at home using today's costs, and you have a Long-Term Care Insurance policy. Once you satisfy your elimination period, here is the schedule for your care:
| Monday | 4 hours – home health aide | $80 |
| Tuesday | 4 hours – home health aide - 2 hours - RN visit – 2 hours - physical therapy | $176 |
| Wednesday | 4 hours – home health aide | $80 |
| Thursday | 4 hours – home health aide | $80 |
| Friday | 4 hours – home health aide – 2 hours - RN visit – 2 hours - physical therapy | $176 |
| Saturday | 4 hours – home health aide | $80 |
| Sunday | 4 hours – home health aide | $80 |
If your policy has a daily benefit of $100, it will pay Monday, Wednesday, Thursday, Saturday, and Sunday in full with no out-of-pocket expense. However, you would have $76 out of pocket on Tuesday and Friday. That would total $152 for the week or about $608 per month.
However, if you have a monthly benefit instead of a daily benefit, your policy will pay $3000 ($100/day * 30 days) per month. In that scenario, your bills still totaled $3008 for the month, but your out-of-pocket expense is $8 instead of $608.
Benefit Pool or Benefit Period
This can be confusing. The benefit pool (or benefit account) is the initial amount of money available within the policy on day one. Some insurance companies create the initial benefit pool by using a benefit period. So instead of saying you have $100,000 in your pool, they use the monthly benefit x the total number of months in the benefit period = benefit pool total.
The main thing to remember is that a benefit period is more about money than time. It represents the minimum amount of time the policy will pay benefits once you qualify for benefits. Most Long-Term Care Insurance claims will start with in-home. Typically, you would not be using the maximum amount of money available right away. You don't lose the money you don't use; it remains in the benefit pool or account and may continue to grow with inflation if you had selected an inflation benefit.
Policyholders are ruled by the pool of money and not a stopwatch for benefits. This is to the consumer's advantage.
Remember: If you are not using the maximum amount of money you have available each day or month, you don't lose the money; it stays in the benefit pool and is still subject to increases if you have an inflation rider. That means that even when you are taking money out of the policy, your benefits could still be growing at the same time.
Unlimited benefits are rare, but some companies still offer them. Though unlimited policies can be very costly, 'unlimited' means you could never exhaust your benefits. If you want "total asset protection," this might be an option to consider.
You may want to consider an unlimited benefit if you have a large estate to protect, a strong family history of longevity or loved ones who needed care for very long periods of time, and peace of mind. In many situations, though, you can design a plan with sufficient benefits, so unlimited may not be necessary.
In partnership states, the dollar-for-dollar asset disregard provides additional asset protection based on the amount of benefits paid by the policy.
If this is a concern, discuss it with a Long-Term Care Insurance specialist like Matt McCann.
Benefit Increase Rider/Inflation Benefit
Since most people who purchase Long-Term Care Insurance are doing so well before retirement (in their 40s and 50s), inflation protection is a vital part of a policy. Depending on your age, an inflation rider is required in partnership states.
There are several ways policies provide benefit increases over time.
Guaranteed Purchase Option or Future Purchase Option (GPO / FPO)
This option gives the policyholder an OPTION to purchase additional benefits without regard to health, as long as you are not receiving benefits at the time.
This option is available every two or three years. Usually, you must exercise this option when made available; however, some companies will assume you will select it unless you refuse the offer.
Your premium will go up either way unless you refuse the offer. The increased premium is based, in part, on attained age. This option is normally not available on a partnership-qualified plan. With plans that are partnership certified, if you decline an inflation option in the future, it cancels the partnership certification.
Usually, this is not the best way to address the higher costs of long-term health care. Many inexperienced insurance agents will recommend it since the initial premium is lower. However, with increases, your premium continues to go up, and you pay much more over time.
Automatic Increase Based on Specific Percentage
This is the most common method for benefit increases. Regulations require insurance companies to offer 5% compounded annually, although this is often much more than most people need. Some companies offer as low as 1% compounded. The option most commonly chosen is 3% compounded.
Some companies also offer 5% simple, or a variable rate based on the CPI, or other methods that change over time based on your age.
Matt McCann will review these options and make proper recommendations.
Elimination Period
The elimination period is just a fancy way to say 'deductible.' Elimination periods for Long-Term Care Insurance are based on DAYS, not DOLLARS. It is the period of time you have to wait before you are eligible to receive your monthly/daily benefit in your long-term care policy. The most common elimination period is 90 days.
This is a once-in-a-lifetime deductible, not a new elimination period per occurrence with most companies. There are two options: the calendar day elimination period and the service day elimination period. It is to your benefit to have a calendar day elimination period.
A calendar day elimination period uses cumulative days before the benefits are available. Some companies use service days instead of calendar days, which means only days where services are received by the policyholder count to decrease the days in the elimination period.
Some companies also offer riders that allow for home care to be paid on day one (Waiver of Home Care Elimination Period).
You have to determine if the cost of the rider is worth the benefit. Matt McCann will help you make this determination.
Benefit Triggers
Benefit triggers are fairly standardized because of regulation. Your health care professional must certify you need assistance with at least two of the six Activities of Daily Living or require supervision due to memory loss. This help must be expected to last at least 90 days.
Activities of Daily Living (ADLs) include bathing, continence, dressing, eating, toileting, and transferring.
Shared Care Benefits
This is a popular option many couples choose, and many insurers offer it in their Long-Term Care Insurance policies. Shared benefit policies allow couples the ability to share benefits. In the event one spouse/partner was to spend down all of his/her own benefit pool, that spouse could use money from the other spouse/partner's benefit pool. If one spouse were to pass away, the premium would disappear, but 100% of the unused benefit goes to the survivor.
Some companies offer a third pool of money that either spouse may use if they exhaust their own benefit pool.
Matt McCann will explain the differences and recommend one that provides you with the most value.
Case Management
The feature has many different names but provides help at the time of claim, which will benefit the policyholder and his/her family at the time of claim.
Insurance companies will pay for a nurse case manager when you start needing care services. This case manager helps provide care options, recommend plans of care, research arrangements, and even search out provider discounts. The case manager will monitor your needs over time.
Case management is not managed care, and you are not required to do what the case manager recommends. However, it reduces the stress and burdens otherwise placed on your family. Case managers will understand your needs and preferences, and they know the quality of care options that are available to you.
Not every policy has this benefit, and it works a little differently with each company. However, it is very valuable and helps reduce the burden on the family at the time of claim.
There are many other options with Long-Term Care Insurance. Some of these are less important, but Matt McCann will explain the options and make the proper recommendations.
Remember, each state's insurance department regulates insurance products and premiums. No individual agent, agency, or advisor can offer you special deals.
Matt will match you, your health, and your family history to find the right options and save you money. He is licensed nationwide and is certified with the federal/state long-term care partnership program available in most states. Matt McCann is also one of the few agents endorsed by the American Association for Long-Term Care Insurance.
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