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Understanding the Major Parts of a Long-Term Care Insurance Policy

Quick Answer

There are many parts to a long-term care insurance policy. Let’s review the items a majority of long-term care insurance plans include.
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Detailed Answer

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

Daily or Monthly Benefit

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

When you have the choice of selecting a daily or monthly benefit, always choose a monthly benefit. The reason is simple. Since most claims start with in-home care, the delivery of home care 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:

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 will 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 expenses. 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 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 Period or Pool of Money/Benefit Inflation Options

This benefit is the maximum amount of money available to pay for your care available in the policy. Think of this as being a 'benefits account' or money in a checkbook. 

This could be an unlimited amount. Although very few companies offer an uncapped lifetime benefit, they exist in traditional and hybrid plans. If you have a substantial family history of dementia and longevity OR you have significant 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 benefits. 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 (GPO/FPO)

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. 

This is not an ideal way for most people 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 have $100 a day, your benefits would increase by $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, your benefits would increase by $3 a day in the first year. 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 previously earned increases. For most people, compound inflation benefit is preferable.

Elimination Period

This period 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. Think of an elimination period as a deductable based on days - not dollars.

Shared Care Benefits (Shared Spousal or Partner Benefits)

For many couples, this is a crucial 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

Case management is a significant benefit that 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 (or pay for) a nurse case manager. This case manager helps develop an appropriate care plan once they review your situation and access your preferences and your health needs.

However, case management does not mean 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 helpful to the family as the case manager becomes a valuable resource. Most companies have this benefit, although it might work a little differently with each company.

Benefit Triggers

Benefit triggers determine if you are eligible to receive the benefits from the Long-Term Care policy. These triggers 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.

Equipment Benefits

Many Long-Term Care Insurance policies offer additional money to pay for things like ramps, chairlifts, medical alert systems, and more. Usually, these benefits are provided to help you remain in your home. 

Core Benefits Similiar - DIfferences Exist

Remember, the core benefits are similar, but many policies offer other benefits, including international coverage, cash benefits, restoration of benefits, and more.

Every insurance company must file their products and policy language for approval with every state's insurance department. 

Compare the major insurance companies that offer long-term health care solutions - Top Insurers for Long-Term Care Insurance | LTC News.

Premiums also vary between insurance companies but differ as much as 100% or more between companies. 

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