You generally buy Long-Term Care Insurance once since plans are medically underwritten and priced, in part, based on your age when you apply for coverage. The premiums are calculated on several factors that change over time. In addition to age, premiums are calculated by your health, family history, and the amount of benefits you wish to have in place. You want to make the best decision the first time.
Most policies are considered "tax-qualified." Tax-Qualified Long-Term Care Insurance means the policy must comply with Sections 7702B and 4980C of the Internal Revenue Code. These rules provide important consumer protections and uniformity between plans.
Policies That Are Tax-Qualified Include:
- 1. The Code defines "Qualified Long-Term Care Services" as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services
- (A) are required by a "chronically ill individual."
- (B) are provided pursuant to a plan of care prescribed by a "licensed health care practitioner."
- 2. A "Chronically Ill Individual" means any individual who has been certified by a "licensed health care practitioner."
- (i) being unable to perform without "substantial assistance" from another individual at least 2 out of the 6 "activities of daily living" for a period of at least 90 days due to a loss of functional capacity (the ADL trigger)
- (ii) having a level of disability similar to the level of disability described in the ADL trigger as determined under regulations prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services
- Or, (iii) requiring "substantial supervision" to protect such individual from threats to health and safety due to "severe cognitive impairment" (including all forms of dementia, including Alzheimer's
Activities of Daily Living
By federal definition, the "Activities of Daily Living" include only the following: eating, toileting, transferring, bathing, dressing, and continence.
A policy cannot be considered "tax-qualified" unless the determination of whether an individual is a "chronically ill individual" considers at least five of those activities.
Most major companies use all six ADLs. "Substantial assistance" with at least two of the six ADLs means "hands-on assistance" and/or "standby assistance."
"Hands-on" assistance means the physical assistance of another person without which the individual would be unable to perform the activity of daily living.
"Standby assistance" means the presence of another person within arm's reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual's throat if the individual chokes while eating.)
Insurance Agents, Financial Planners, and Specialists
Most plans will indeed share many core benefits, but differences exist between companies and the various types of available plans. Unfortunately, many financial planners and general insurance agents have limited knowledge and experience with long-term care planning and designing plans.
Product features and underwriting standards change frequently. Many inexperienced advisors and agents often recommend benefits that are far more than what you need. A Long-Term Care Insurance specialist can guide you to find the right coverage at the right cost.
Long-Term Care Insurance premiums can vary over 100% for the same coverage; it is very important that you use an experienced specialist who works with the major insurance companies.
You should be aware that each state's Department of Insurance regulates insurance premiums and policies. No individual insurance agent can give you special discounts or deals.
If multiple agents give you quotes for the same coverage with the same insurance company, the premiums should be exactly the same. The only difference is the underwriting category.
An experienced specialist will ask you detailed questions about your health and family history. If they don't, you should find another agent.
Premium differences for the same coverage will be due to the underwriting class they use (preferred, select, standard, substandard), in addition to your gender, spousal or partner discounts, the amount of benefit, and "riders" that are added to the policy.
Inexperienced agents will often quote "preferred" without asking you many questions.
You can find a trusted and experienced Long-Term Care Insurance specialist by clicking here.
Policy Types and Options
Most plans include several individual "riders" or additional options for you to consider. The selection of these options will affect your premium, including various inflation options and shared spousal benefits for spouses/partners. These vary from company to company.
There are three categories of policies. These are:
- Traditional Long-Term Care Insurance
- Short-Term/Limited Benefit Policies
- Hybrid Policies
Traditional LTC Insurance
Traditional Long-Term Care Insurance will offer you the most benefits and options at a very affordable price. Several insurance companies offer these traditional policies. Most states have rate stabilization rules in place, making it much more difficult to raise premiums in the future.
Some of the policy options available include:
- Inflation benefits
- Shared spousal benefits
- Alternate plan of care
- Waiver of premium when receiving benefits
- Equipment benefits
- Restoration of benefits
- Case management
- Zero-day elimination periods for home care
Most states have partnership plans which provide additional dollar-for-dollar asset protection or "asset disregard." Individual states have different requirements for inflation options for a policy to be considered a partnership plan. See if your state offers partnership policies by clicking here.
Short-Term or limited duration plans have smaller benefits but generally have less conservative underwriting requirements. They will also consider new applicants at older ages. These typically use the same trigger for benefits as traditional tax-qualified plans use.
Policies provide one to two years of benefits. Typically they limit coverage to either home care or facility. A few offer one year of coverage for each category.
Asset-based or so-called "hybrid" policies are now also popular with some people. These are life insurance policies with a rider for long-term care services. Hybrid policies offer both a death benefit and benefits for long-term care.
They fall into two categories: a Section 7702B policy or a 101(g) policy. Generally, you want to avoid a policy with a Section 101(g) chronic illness rider when planning for long-term health care.
Careful - Not All Policies are Solutions for Long-Term Health Care
Be careful. Sometimes life insurance gets marketed as a long-term care solution - but it is not! A life insurance policy with a "chronic illness" rider allows you to access the death benefit before you die, but often only a limited portion of the death benefit – if the eligibility conditions are met.
In some cases, they require the policyholder to be "terminal," meaning you have no chance of recovering, or your condition will lead to death. Most long-term care situations are not deemed "terminal." These Section 101(g) plans require the insured to have a permanent need for extended care; however, not all long-term care situations can be classified as "permanent."
Some policies will not pay benefits over a certain age (making them a bit useless for long-term care). The best plans use the regulated language triggers for Long-Term Care Insurance.
Only consider a true "hybrid" Long-Term Care policy that meets federal guidelines for Long-Term Care Insurance - meeting the guidelines set under Section 7702B.
The best hybrid plans are fully comprehensive long-term care policies included in a life insurance policy or annuity. If you are considering a hybrid policy, be sure it is a Section 7702B policy. Generally, you get money from the hybrid policy in one of three ways, you require long-term care, pass-away, or you surrender the policy and get the cash value.
These plans usually feature a single premium, although some can be paid in five, ten, twenty years, even annually with some companies.
However, any policy that is a Section 101(g) policy with a chronic illness rider is something you should avoid if you plan for long-term health care. A Section 101(g) policy legally cannot use the term "long-term care," although many agents position them as long-term care policies.
Remember, these Section 101(g) policies are just an acceleration of the death benefit. Some of them add additional language to the benefit trigger that requires your need for care to be "permanent" or even require you to be terminal in addition to the normal benefit triggers for care.
Some employers offer Section 101(g) policies and market them as long-term care. If you are considering an employer plan, be sure it is a long-term care policy and not a disability policy or a Section 101(g) life policy with a chronic illness rider. Again, always check with a Long-Term Care Insurance specialist. Employer plans are typically not long-term care or are expensive.