Long-Term Care Insurance Policy Terms and Concerns

1. Elimination period. Also called the waiting period, this is the period of time during which you may require long-term care services before the policy begins to pay benefits. In other words, you will have to self-fund 100 percent of your care during the elimination period. Days in skilled rehab will usually be covered by Medicare and count toward the elimination period. Some policies are Calendar Day and no expense is required. Service Day means approved charges must be incurred daily or weekly to count—older policies are usually Service Day. A Waiver for Home Health Care may permit immediate payment for home care services.

2. Benefit period.  Setting a reasonable benefit period can make your long-term health care coverage more affordable. Statistically, two to five years of benefits will cover most long-term events. If you need long-term care beyond the policy benefit you choose, you will have to self-fund or use any available Medicare and Medi-Cal benefits. CA Partnership  policies can help preserve assets from complete spend down. Please see the CA Partnership details at:  http://www.dhcs.ca.gov/services/ltc/Pages/cpltcConsInfo.aspx

3. Benefit amount. Most LTC policies calculate benefit payouts for covered services in two ways: daily dollar amount and the number of years you have chosen. The daily benefit should have some reasonable relationship to the cost of receiving long-term care in your area. The lifetime benefit will be based on the daily benefit times the benefit period. If you chose $200 a day over 1095 days (3 years), you have a bag of money of $219.000. It can be spent at no more than $6200/month, but if you need less per month, benefits can last longer than 3 years.

4. Covered services. Most modern LTC policies include care in a nursing home or hospice facility (skilled, intermediate, and custodial), an assisted living facility, home care, community care, and respite care. The key service can be home care, so that you can live at home and still receive long-term care benefits. Care coordination can be very valuable, providing good advice, negotiated discounts and referrals to good caregivers. Family members can be reassured that they are making better long term care decisions. Respite care is when you need temporary help in or outside the home, to give your family caregiver a break.

5. Inflation protection. This is very important because of the current and historical rise in LTC costs over time. A compound inflation protection rider will automatically increase your benefit amount each year by a stated percentage, such as 5 percent, without increasing your premium. Including compound inflation is necessary to take advantage of long-term care partnership rules. If your LTC policy qualifies for the long-term care partnership program, you are allowed to keep more of your financial assets when becoming eligible for government long-term care benefits.

6. Indemnity rider. An indemnity-type LTC policy will pay the full daily care benefit regardless of the actual charges incurred. If you are chronically ill and receiving long-term care at home, you may still receive your full benefit, even if the care is provided by a family member. Reimbursement policies usually have restrictions on family care giver payment. Some policies can pay benefits by reimbursement one month and indemnity the next, at your choice.

7. Benefit eligibility. This is the policy language that defines when you are eligible for benefits. Post 1996 Tax-Qualified LTC policies state that you must be “chronically ill,” which means you will be unable to perform two or more activities of daily living without substantial assistance for at least 90 days. Activities of daily living are defined in the policy as bathing, dressing, transferring in or out of a bed or chair, using the bathroom, continence, and eating. I have found that bathing and dressing are the most common issues. Severe cognitive impairment is also a benefit trigger. Older policies may vary, but the vast majority of policies available today will be tax qualified.

8. Restoration of Benefits. This relatively inexpensive rider can “restore” your benefits if you have not exhausted your policy value, and have recovered to the point of not needing care for at least 6 months. With a shorter policy bought at a younger age, an accident could qualify as a long term care event, yet you can recover without losing any of your policy value.

9. Shared Policy. A couple may find it helpful to have a “shared” LTC policy. With a 3 year policy for each, if one of the pair needs care longer than what their own policy can pay, the other can give some of their coverage to them. If one of the couple dies, their premium stops, and the surviving partner has the benefit of both policies.

10. Group policies. Buying policies at work can be tricky. A “true group” policy may have limited plan design choices and little guidance to tailor the coverage to your needs. I often see group policies with  guaranteed inflation offers every three years. With the 15% inflation added to your premium  every 3 years, and the need to buy at your attained age, these can get extraordinarily expensive in just a few years, and you may need to stop adding inflation. With 5% compounding included, a $200/day policy will grow to $400 in 15 years, $800/day in 30 years with a higher initial premium, but less cost in the long term. Without inflation, you will only have $200 when $800+ may be needed. The biggest benefit to true group is that little or no underwriting may be required. Check the individual market first—you may find better coverage at lower cost. “Multi-life” group is an option that allows for an additional discount, and an agent can help with your individual needs and budget concerns.