Breakdown of a Long-Term Care Insurance Policy
There are more similarities in policies than differences. Let’s review the items a majority of long-term care insurance plans include:
Monthly Benefit. This is how much the insurance company will pay toward your care on a monthly basis. If there is an inflation or benefit increase rider this amount will increase over time. There are some companies that only offer daily benefit and some that offer an option of monthly or daily. If you have a choice, insist on a monthly benefit.
The reason is simple. Most claims start with care at home. The way homecare 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 is as follows:
Home health aide is $20 an hour, 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 policy. Once you satisfy your elimination period, here is the schedule for your care:
|Monday||4 hours – home health aide|
|Tuesday||4 hours – home health aide - 2 hours - RN visit – 2 hours - physical therapy|
|Wednesday||4 hours – home health aide|
|Thursday||4 hours – home health aide|
|Friday||4 hours – home health aide – 2 hours - RN visit – 2 hours - physical therapy|
|Saturday||4 hours – home health aide|
|Sunday||4 hours – home health aide|
|Tuesday||$80 + $50 + $46||$176|
|Friday||$80 + $50 + $46||$176|
If your policy has a daily benefit of $100 it would 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 were able to get a monthly benefit instead of a daily benefit, your policy would pay $3000 ($100/day * 30 days) per month. In that scenario, your bills still total $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 is the initial total benefit the policy will pay. Some insurance companies create the initial pool by using a benefit period. So instead of saying you have $100,000 in your pool, they use the monthly benefit * total number of months in the benefit period = benefit pool total. In either case, with most companies, policyholders are ruled by the pool of money and not a stopwatch for benefits. This is to the consumer’s advantage. If you are not using the maximum amount you have available each 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, even when you are taking money out of the policy, your benefits could still be growing at the same time.
There are some policies where the benefit period is a stopwatch. In other words, if it says you have a two-year benefit period, that is all you get. Once you start needing care it will expire in that period of time. If the policy you are considering has a benefit period, be sure to ask if it’s a benefit pool of money or not. Ideally you want a pool of money product and most policies are constructed that way.
Unlimited benefits are rare but some companies do offer them. Though they can be very costly, ‘unlimited’ means you could never exhaust your benefits. There are reasons why you may want to consider an unlimited benefit (a large estate to protect, family history of longevity or care, 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 Mary Ann DeKing.
Benefit Increase Rider/Inflation Benefit
Since most people who purchase long-term care insurance are doing so well before retirement, inflation protection is a key part of a policy. Depending on your age, an inflation rider will be 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 on claim. In these policies, you need to elect to exercise your ability to purchase additional coverage. When you buy-up, your premium will increase based on your attained age. This option is normally not available on a partnership qualified plan. However, there are other policies that only allow you to decline the increases, this means you’ve selected a policy where the premium automatically increases over time and it may provide partnership certification. If your plan only gives you the chance to decline the increases, in some states it could be partnership certified. Please note, though, if you ever DECLINE an increase you would lose the partnership certification.
Automatic Increase Based on Specific Percentage
This is the most common method for benefit increases. Companies must offer 5% compounded annually, although this is often much more than what most people require. 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. Mary Ann DeKing will review these options and make proper recommendations.
50-YEAR-OLD WITH $3500 A MONTH with $150,000 INITIAL POOL with 3% compound INFLATION RIDER (benefit increase option).
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.
With most companies, this is a once-in-a-lifetime deductible, not a new elimination period per occurrence. There are two options: calendar day elimination period and service day elimination period. A calendar day elimination period uses cumulative days before the benefits are available. Some companies use service days as opposed to 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, which allow for homecare 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. Mary Ann DeKing will help you make this determination.
These are fairly standardized. 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 a cognitive impairment. 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 in their Long-Term Care policies. This allows a couple the ability to share benefits. In the event one spouse/partner were 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 disappears but 100% of the unused benefit goes to the survivor.
This benefit can work in a number of different ways. Mary Ann DeKing will explain the differences and which one provides you with the most value.
Called by a number of different names, this benefit helps the policyholder and his/her family at the time of claim. This can include: providing care options, recommending plans of care, researching arrangements, and even searching out provider discounts. 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 Mary Ann DeKing will explain the options and make the proper recommendations.