Understanding the Language of an LTC Policy

There are some important questions to consider when researching your LTC program and understand the language of the policy: 

What triggers the claim?

Benefit Amount

The most important decision to consider is how you determine the dollar amount that will cover the cost of your care. This is the amount that will be paid out to you at the time of claim. You can chose between a daily benefit or a monthly benefit that would afford you more flexibility at the time of claim. The choices range from $50-$500 per day. The average cost of care in Florida, for example is $219 per day or $79,935 annually. Keep in mind that 80% of claims are for home care which could be much less expensive than care in a nursing home. Keep in mind that the average stay in a nursing home is approximately 2 and ½ years.

Benefit Period

This is the amount of time that the policy will cover the insured at the time of claim.  The range is between 2 years or unlimited benefit.  Most policies sold today are considered a “pool of money”. This is similar to a bank account.  If you consider a $200 a day benefit and policy is a 3 year policy and if you use the entire coverage. $200X 3 years (1095 days) which equals $219,000. The $219,000 has been exhausted and the company has completed its’ obligation to you. But if you have not used all of the $200 for everyday or you do not need the 3 years care, there will be money left in the pool for you to use in the future.

When selecting your coverage, it is wise to consider the time that might be spent in a nursing home or care given in your own home.  Keep in mind the average stay in a nursing home is 21/2 years and 4 years of care in the home.  Also consider your family history as well as your age, health condition, and how much money you are willing to spend out of your own pocket to cover long term care expenses. 

There is no easy answer and nor is there a “crystal ball” the can foretell the future, but with careful consideration and by purchasing comprehensive coverage, we know that we are planning for our future and working to protect our assets for yourself and your loved ones.

Elimination Period

Long-Term Care insurance has what is called an elimination period or a deductible.   Most contracts include this as part of the policy and it represents the number of days that the insured agrees to pay out of pocket before the company pays out benefits. This waiting period or elimination period can range from 0 days to 365 days and, in some contracts, even more. The 90 day elimination is one of the most popular choices and most companies require that you only meet the elimination period one time during the life of the contract. The longer the elimination period, the lower the premium. It is important to compare all of your options to on maximizing your premium dollars.

Inflation Protection

Most people today that are evaluating the purchase of LTC are under 70 years old.  If you are in this age-group, it would benefit you to purchase some type of inflation protection as a rider to your LTC coverage. There are options when purchasing your inflation rider: They are a guaranteed purchase option which gives you the option to purchase additional coverage in the future. Upon renewal of your policy, every two to three years, you will have the opportunity to add more dollars to your daily benefit.  This will increase your daily amount and will not require additional underwriting, but will increase your premium and the calculation will be based on your present age for the additional dollar benefit.

Another option is the 5% simple inflation rider. This can add 40%-50% to your premium, but it can double your daily benefit in 19 1/2 years.  5% compound inflation option is another choice that is available and your daily benefit will double in 14 1/2 years. Recently other options have become available such as 3% compound inflation and some also linked to the Consumer Price Index.

Other Riders and Features

There are many riders in today’s marketplace that offer additions to the basic Long Term Care Policy.  Some of them are shared care, survivorship, restoration of benefits, joint waiver of premium, cash payouts, etc. These options or riders can add between 2% - 65% to the basic premium.  Many LTC policies now have built in coverage at no extra charge for caregiving training, medical equipment and home modifications, care-coordination, bed reservation, and waiver of premium. Flexibility is the key and the most important part of these add-ons is that the policy can be tailor-fit to meet the needs of each and every individual.  It is important to note, however that by working with a specialist like me, you can be sure that your various options are explained in detail and that you can be part of the process by seeing your choices and reviewing the comparisons to help you select the very best plan for you.

Tax Advantages

Buying a Tax Qualified LTC insurance plan offers great tax advantages.  If the insured is a business owner, depending on the type of corporation, there may be a large portion of premium that is tax deductible.  The benefits will not be considered income and in most cases will be tax free.  It is best to discuss these issues with a tax advisor or CPA.

If the insured is an individual, the Long Term Care policy is treated the same as a health insurance policy.  There are tax guides that are published with specific information regarding these issues covering state and Federal tax codes.

Conclusion

When the Deficit Reduction Act of 2005 was enacted, the Federal government sent a loud message to all Americans: the government cannot afford to pay for the long-term care needs of all of its citizens. Planning for a long term care event is an individual’s responsibility. Medicaid will only cover those individuals who cannot afford to pay for their care. The legislation made it very difficult to transfer assets in order to qualify for Medicaid.

The Act also allowed states to offer Long Term Care Partnership policies. This is another incentive to plan for a long term care event and purchase a policy in advance of the need.

A partnership long term care insurance program allows individuals who have purchased an LTCI policy and have exhausted the policy benefits, to protect some of their assets from Medicaid/Medical spend down requirements (i.e., the requirement that Medicaid recipients be legally destitute before receiving benefits).  The states are using the program to encourage the sale of private Long Term Care insurance in order to decrease the pressure on state Medicaid budgets. The program hoped to attract lower- to middle-income earners since they are most likely to turn to Medicaid but surprisingly it attracted higher-income Americans as well. Please ask us if there the partnership is a viable option for you or your loved ones.

Using a qualified professional to help you put the plan together will also make this process easier.  This person should have experience and knowledge to share with you when you are considering buying your Long Term Care policy.