What Are the Major Parts of a Long-Term Care Insurance Policy?

There are more similarities than there are differences between the various long-term care products available in most states. These include the traditional plans, hybrid plans, and short duration plans which are available for consumers to choose from.  Here are some of the features and benefits with plans available to you:

Daily or Monthly Benefit

This is the amount of money available to pay toward your care either on a daily, weekly, or monthly basis. This benefit could increase over time with an inflation benefit.

When you have a choice of a daily or monthly benefit always choose a monthly benefit. The reason is simple. Since most claims start with care at home the delivery of homecare can vary. You might have multiple providers on one day and nobody on another. A daily benefit could cause a substantial amount of out-of-pocket expense that otherwise can easily be avoided.

In this example, let’s assume the cost of care as follows:

Home health aide is $20 an hour.

RN is $25 an hour

Physical Therapist is $23 an hour

This policyholder is receiving care in their home using the cost of care listed above. Once the policyholder has satisfied the elimination period, they will be eligible for benefits. This is the plan of care scheduled for care:

Monday 4 hours – home health aide $80
Tuesday 4 hours – home health aide - 2 hours - RN visit – 2 hours - physical therapy $176
Wednesday 4 hours – home health aide $80
Thursday 4 hours – home health aide $80
Friday 4 hours – home health aide – 2 hours - RN visit – 2 hours - physical therapy $176
Saturday 4 hours – home health aide $80
Sunday 4 hours – home health aide $80

If this policy has a daily benefit of $100 it would pay Monday, Wednesday, Thursday, Saturday and Sunday in full. There would be no out-of-pocket expense. However, on Tuesday and Friday, the policyholder would have $76 each day of out-of-pocket expense. This means an out-of-pocket expense of $152 for the week or about $608 each month.

However, if the policy had a $3000 monthly benefit instead of a $100 daily benefit, this policy would pay much more leaving the policyholder with a much lower amount of out-of-pocket expense. In this example, the total expenses totaled $3008 for the month, but the out of pocket expense would only be $8 instead of $608.

Maximum Lifetime Benefit Periodor Pool of Money/Benefit Inflation Options

This is the maximum amount of money available to pay for your care available in the policy. This could be an unlimited amount. Although very few companies offer an uncapped lifetime benefit, they do exist in both traditional plans and hybrid plans. If you have a substantial family history of dementia and longevity OR you have substantial assets to protect, this could be an option. It will be the most expensive option, however.

Otherwise, you start with an initial pool of money. This might be expressed as a benefit period (four years, for example). It is not, however, an actual time limit. It mathematically calculates the amount of money in your policy.

For example, if you have $4000 a month with a five-year benefit period you start with $240,000 in available benefit. If you have an inflation benefit BOTH the monthly benefit AND the pool of money increase. If you don’t use the maximum available each month you don’t lose the money, it stays in your benefit account and continues to grow with inflation.

Let’s use an example of a 50-year-old with the benefit described above. You will see by age 80 (see chart below with age 80 highlighted) this policy would have $9709 a month available with a pool of money of $582,543. If you only use $6000 a month, the remaining money stays in the benefit account and grows. Most policies WAIVE the premium when you are receiving benefits as well.

50 $240,000 $4,000
51 $247,200 $4,120
52 $254,616 $4,244
53 $262,254 $4,371
54 $270,122 $4,502
55 $278,226 $4,637
56 $286,573 $4,776
57 $295,170 $4,919
58 $304,025 $5,067
59 $313,146 $5,219
60 $322,540 $5,376
61 $332,216 $5,537
62 $342,183 $5,703
63 $352,448 $5,874
64 $363,022 $6,050
65 $373,912 $6,232
66 $385,130 $6,419
67 $396,683 $6,611
68 $408,584 $6,810
69 $420,841 $7,014
70 $433,467 $7,224
71 $446,471 $7,441
72 $459,865 $7,664
73 $473,661 $7,894
74 $487,871 $8,131
75 $502,507 $8,375
76 $517,582 $8,626
77 $533,109 $8,885
78 $549,103 $9,152
79 $565,576 $9,426
80 $582,543 $9,709
81 $600,019 $10,000
82 $618,020 $10,300
83 $636,560 $10,609
84 $655,657 $10,928
85 $675,327 $11,255
86 $695,587 $11,593
87 $716,454 $11,941
88 $737,948 $12,299
89 $760,086 $12,668
90 $782,889 $13,048
91 $806,376 $13,440
92 $830,567 $13,843
93 $855,484 $14,258
94 $881,149 $14,686
95 $907,583 $15,126
96 $934,810 $15,580
97 $962,855 $16,048
98 $991,740 $16,529
99 $1,021,493 $17,025

 

Most policies offer several inflation options. Generally, you can choose whichever option you would like, however, if you have a Long-Term Care Partnership policy federal law requires the following inflation options:

  • For individuals age 60 or younger you must have "annual compound inflation protection." Some states require no less than 3% compounded, however many states allow anything from 1% up to 5% compounded
  • For individuals at least age 61 but younger than age 76 you must have some type of inflation protection. This need not be automatic annual compounded increases; it could be simple rate increases, a guaranteed purchase option, or some other form of inflation protection.
  • For individuals age 76 or older must be offered an inflation protection option, but they are not required to purchase that option. 

Otherwise, companies offer several options to choose from:

Guaranteed Purchase Option/Future Purchase Option

This option allows a policyholder to purchase additional benefits every few years (depending on the company) without regard to your health as long as you are not on claim at the time. Your premium would INCREASE when you accept this option. With some companies, the increase in benefit happens unless you tell the insurance company in writing you don’t wish to accept the option. With most companies, your benefit will not increase unless you accept the offer in advance. For most people, this is not an ideal way to address the future increases in the cost of long-term care services.

Simple Inflation

This option would automatically increase your benefits by a pre-determined amount by using simple interest. For example, if you select 5% simple inflation, and you have $100 a day, your benefits each year would increase $5 a day. The cost of this option is already included in your premium so your premium does not increase as your benefits increase.

Compound Inflation

This option automatically increases your benefits by a pre-determined amount by using compound interest. For example, if you select 3% compound inflation, and you have $100 a day, in the first year your benefits would increase $3 a day. However, in year two, the 3% would be applied to the inflated amount, $103 in this example. This would give you $106.09 ($103 x 3% = $106.09). Then, the following year, the 3% would be applied to the new inflated total.

Specifically, simple interest is earned on the original amount, while compound interest is earned on the original amount plus all of the increases that were previously earned. For most people compound inflation benefit is preferable.

Elimination Period

This is the number of days it takes before benefits kick in. It could be anywhere from 0 days to 365 days. The normal is 90 days with most companies.

Shared CareBenefits

For many couples, this is a key option. This rider allows a couple to share their benefits. There are several ways this can be done, depending on the company. Generally, the policy will allow one spouse to use the other spouse’s benefits if they exhaust their own. With some companies, the rider creates a third pool which either spouse can use if they exhaust their benefits.  Some plans provide one benefit to be shared by two people.

Case Management

This is a key benefit which helps your family make sure you are getting access to your choice of quality care in the setting you and your family desire. Most insurance companies will provide a nurse case manager. This case manager helps develop an appropriate plan of care once they review your situation and access your preferences and your health needs.

This is not managed care. You are never required to do what the case manager recommends. However, this person becomes your advocate and helps give your family time to be family.

This can be very valuable as the case manager becomes a valuable resource. Most companies have this benefit although it might work a little different with each company.

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 $80
Tuesday 4 hours – home health aide - 2 hours - RN visit – 2 hours - physical therapy $176
Wednesday 4 hours – home health aide $80
Thursday 4 hours – home health aide $80
Friday 4 hours – home health aide – 2 hours - RN visit – 2 hours - physical therapy $176
Saturday 4 hours – home health aide $80
Sunday 4 hours – home health aide $80

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, and 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 Matt McCann.

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 the 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. Matt McCann will review these options and make proper recommendations.

EXAMPLE:

50-YEAR-OLD WITH $3500 A MONTH with $150,000 INITIAL POOL with 3% compound INFLATION RIDER (benefit increase option).

50 $150,000 $3,500 67 $247,927 $5,785 84 $409,786 $9,562
51 $154,500 $3,605 68 $255,365 $5,959 85 $422,079 $9,849
52 $159,135 $3,713 69 $263,026 $6,137 86 $434,742 $10,144
53 $163,909 $3,825 70 $270,917 $6,321 87 $447,784 $10,448
54 $168,826 $3,939 71 $279,044 $6,511 88 $461,218 $10,762
55 $173,891 $4,057 72 $287,416 $6,706 89 $475,054 $11,085
56 $179,108 $4,179 73 $296,038 $6,908 90 $489,306 $11,417
57 $184,481 $4,305 74 $403,919 $7,115 91 $503,985 $11,760
58 $190,016 $4,434 75 $314,067 $7,548 92 $519,104 $12,112
59 $195,716 $4,567 76 $323,489 $7,548 93 $534,678 $12,476
60 $201,587 $4,704 77 $333,193 $7,775 94 $550,718  $12,850
61 $207,635 $4,845 78 $343,189 $8,008 95 $567,239 $13,236
62 $213,864 $4,990 79 $353,485 $8,248 96 $584,257 $13,633
63 $220,289 $5,140 80 $364,089 $8,495 97 $601,784 $14,042
64 $226,888 $5,294 81 $375,012 $8,750 98 $619,838 $14,463
65 $233,695 $5,453 82 $386,262 $9,013 99 $638,433  $14,897
66 $240,706 $5,616 83 $397,850 $9,283      

Elimination Period

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. Matt McCann will help you make this determination.  

Benefit Triggers

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 CareBenefits

This is a popular option many couples choose and many insurers offer in their Long-Term Care policies. This allows couples the ability to share benefits. In the event one spouse/partner was 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. Matt McCann will explain the differences and which one provides you with the most value.

Case Management

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.

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