In our most recent blog post, we introduced you to long-term care insurance and explained risk management and how to evaluate a policy, including factors to consider. We continue our discussion below, beginning with benefit flexibility.
A comprehensive policy may be purchased that covers the individual in a nursing home, adult day care center, assisted living facility, his or her own home, or just about any other setting. Or a nursing home only or home care only policy may be purchased.
Most policies will pay 100% of the daily benefit for skilled care, but many policies will reduce the percentage they pay if care is received for custodial care. Some policies will also reduce the benefits depending on where the care is received. For example, it will pay 100 percent for care received in a nursing home but only 80 percent for assisted living. Further, many polices allow the client to choose a lower coverage rate in order to keep the cost of the policy down. In this situation the policy may pay 100% of the daily benefit for nursing home coverage and the client could choose a 50% or 80% rate for home health care.
As long as the coverage is affordable, it is wise to have a policy that pays 100% at any level of care and 100% regardless of the care facility. This way the client can choose where he/she will receive care at the time of claim as opposed to at time of application.
Benefits are paid usually in one of two ways. A policy can be designed to pay for expenses actually incurred (reimbursement) or by indemnity (in cash). In the reimbursement policy the insurance company either pays the client or the provider up to the limit contained in the policy. Here the policy will pay benefits only when eligible services are received. The indemnity method will pay benefits to the client directly in the amount specified in the policy without regard to the specific services received. Most of the policies offered today are reimbursement policies. They will use a pool of money concept or some will pay actual expense up to the daily maximum with any remaining benefit forfeited.
Common provisions in long-term care policies
Maximum Daily/Monthly Benefit:
Most policies pay a fixed dollar amount for each day of care. Benefits can range from $50.00-$350.00 per day.
Lifetime Maximum Benefits:
Most plans have a maximum benefit they will pay. It is usually expressed in years, such as 1, 2, 3, 4, 5, 6 years, or for lifetime.
Waiting Period (Deductible):
Most LTC policies require the client to pay their own way for a specified number of days before the insurance company will begin to pay benefits. They range from 0 to 180, and the shorter the waiting period, the higher the premium. Be careful of the policies that require the days to be consecutive.
Waiver of Premium:
Some policies will waive the future premiums after you have been in the nursing home for a specified number of days. The most common is 90 days, but some companies waive the premium as soon as they make the first benefit payment. One thing to look for in the insurance contract is the requirement for the days to be continuous; this can delay the waiver. Language that does not require the days to be continuous is preferred. Some companies do not waive the premium for care received at home.
Inflation Protection: Since costs inevitably increase, a policy without a provision for inflation may be outdated in a few years. Of course, an additional charge is incurred for this protection.
There are also provisions for a variety of other issues, such as tax-exempt status for premiums, tax incentives, guaranteed renewability, prior hospitalization, pre-existing conditions, etc., so be sure to discuss policy details in depth with your insurance agent.
When asked the question “What is long-term care?” the typical answer would be that it is care provided in a nursing home for old people. In today’s society, the perception of long-term care has changed drastically. Today’s definition has broadened to include a wide range of services that address the health, medical, personal care, and social needs of people with chronic or prolonged illnesses, disabilities and cognitive disorder. Most often it is referred to as providing assistance with the activities of daily living. And it is not just for old people. People of all ages are at risk.
The problem with either definition of long-term care is that it can be emotionally, mentally, physically and financially devastating to not only the individual requiring care, but for the entire family. Some of these challenges have been caused by the social changes in our country and others have been caused by the rapidly increasing economic aspects of providing long-term care services.
With the increasing problems surrounding long-term care issues, the way we handle the risks should be examined from a risk management point of view in order to better evaluate who should buy long term care insurance. The conclusion here is that for many individuals, long-term care insurance is an excellent technique for handling the risk associated with long-term health care issues. However, it is not appropriate for everyone and these people may prefer other risk management techniques more suited to their situation.
For the people who choose to use insurance to handle their long-term care risks, there are several decisions to be made in selecting a contract that will meet their needs. Today’s policies offer both comprehensive coverage as well as limited coverage in tax-qualified and non-qualified contracts. The contracts contain benefit flexibility so each individual’s specific needs can be addressed in designing their coverage. In the end, there are several well-respected companies who offer this type of insurance and with careful analysis, proper coverage should be obtained.
Have questions or concerns? Do you still wonder if you need long-term care insurance? Give us a call at 206-386-5455 or click here to email us. We’ll be happy to help however we can.
To your wealth,
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance
Author of Exit Insight: Getting to “Sold!”