Are Long-Term Care Insurance Policies Expensive?

Since you generally buy Long-Term Care Insurance once because premiums are based on your age at the time of application along with your health, family history in addition to 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”. This means they must comply to Sections 7702B and 4980C of the Internal Revenue Code. This provides important consumer protections and uniformity between plans. These 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 which (A) are required by a “chronically ill individual” and (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” as:

(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


(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.

 By federal definition, the “Activities of Daily Living” include only the following: eating, toileting, transferring, bathing, dressing, and continence. A policy may not be considered “tax-qualified” unless the determination of whether an individual is a “chronically ill individual” takes into account 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.)

It is true at most plans will share many core benefits but differences do exist between companies and the various types of plans available. Unfortunately, many financial planners and general insurance agents have limited knowledge and experience in planning for long-term care 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. Since premiums can vary over 100% for the same coverage this is very important.  

You should be aware that insurance premiums and policies are regulated by each state’s Department of Insurance. This means no one individual insurance agent can give you special discounts or deals. If multiple agents give you quotes for the same coverage 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. Premiumdifferences 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.

Most plans include special “riders” to consider, and which will certainly affect your premium, including various inflation options and shared spousal benefits for spouses/partners. These vary from company to company.

Most states have partnership plans which provide additional dollar-for-dollar asset protection or “asset disregard”.  Specific states have different requirements for inflation options for a policy to be considered a partnership plan.

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 generally use the same trigger for benefits as traditional tax-qualified plans use.

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. Some are just an acceleration of the death benefit and require you to be terminal in addition to the normal triggers for care.

They fall into two categories, either 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 care.

The best plans are actually fully comprehensive long-term care policies included in a life insurance policy or annuity. Generally, you get money from the 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.

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A Long-Term Care Specialist is an insurance agent who has substantial experience in Long-Term Care Insurance.

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