Understanding Long Term Care Policy Design
How are Insurance Companies Rated?
A Look inside Group Policies
Buying from a Long-Term Care Specialist versus a Financial Planner
Is it Better to buy LTC insurance from a Local Agent?
Can I buy Long-Term Care "Direct" and save money?
What happens if I have to make a claim
Understanding Long Term Care Policy Design
Long term care policy design does not have to remain a mystery to consumers. There are some basic design parameters that need to be reviewed, and then, based on your own unique choices, will allow you to select the policy that best suits your comfort level as well as pocketbook.
Below are some guidelines developed by a seasoned long term specialist in the business.
There are 4 basic components to designing a long term care policy. These are:-
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The Daily Benefit Amount you wish to start with;
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The Benefit Period (length of time you want the insurance company to be responsible to pay for your claim);
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The Elimination period (waiting period); and
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The Inflation Guard
#1. Selection of Daily Benefit Amount
The average cost of Care varies from State and even location within the State. At the time of the initial review, depending on which State and town you reside in, we will provide you the latest information relative to the anticipated costs in your neighborhood.
In general, Nursing Facilities are the most expensive, and can typically run anywhere from $140 - $180 per day. The cost of Assisted Living facilities is typically lower, and one can anticipate a cost of somewhere between $120 - $150 per day for a good facility. Depending on actual services used. Home Care can cost anywhere between $100 - $400 per day.
Since we assume that most people can afford to self insure a minor amount in order to moderate their premium, we normally recommend a $120 - $160 per day Daily benefit for a Comprehensive care policy.
#2. Selection of Benefit Periods
There are two ‘types’ of Comprehensive long term care coverage that consumers can purchase, namely;
(i). Unlimited benefit periods - which mean that the insurance company will pay for as long as the client requires care. There is no limit to the length of time that they will pay;
OR
(ii). Shortened/Specific Benefit periods - which mean the consumer can chose the length of time they want the company to guarantee payments, i.e. 2, 3, 4, 5, or 6 years. These policies are proportionally less expensive than Unlimited type.
The majority of Shortened/Specific benefit period policies purchased are typically 3 or 4 years in duration, since statistically, the average anticipated period of care most consumers might require generally will not exceed 3 years in cumulative length.
NOTE: Be certain that if you do purchase a policy with a Shortened/Specific benefit period, that it includes a feature known as Restoration of Benefits, which allows the entire benefit period to be fully restored after a 6 month recovery without an active claim. It is your safety valve with a Shortened/Specific benefit period policy, as it allows for a recapturing of the benefit already paid out should you be fortunate enough to recover.
# 3. Selection of Elimination Period or “Deductible”
An Elimination period is the initial time period that YOU elect to be responsible for. After you have satisfied the initial Elimination days that you selected, then you qualify for benefits, and you begin to receive reimbursement for your claim expenses based on the Daily Benefit you selected. We also recommend you read the information about Tax Qualified versus Non-Tax Qualified policies to get a more thorough understanding of how deductibles are handled in these two types of policies.
There are 3 ‘types’ of Elimination periods that consumers can purchase, namely;
(i) Low Elimination periods, which are generally either 0 to 30 or 60 days; or
(ii) High Elimination periods, which are generally 90 days or more
(iii) Split Elimination periods, which allow the consumer the lower premium advantage of the higher 90 day elimination on the Facility component of the policy, yet offers a 0 day Home Care elimination option.
The advantage of this Elimination method is that it allows much quicker access to paid Home care services, which has a far higher statistical probability of usage than does a Nursing Home confinement.
# 4. Selection of Inflation Protection
There are generally three primary ‘types’ of Inflation Protection consumers can purchase, namely;
(i) 5% Compound Inflation, which adds 5% to the benefit value based on the previous years attained amount, or
(ii ) 5% Simple Inflation, which adds 5% annually based on the original amount only.
If you are over 70, we generally suggest 5% Simple, assuming it is an available option with the insurance policy that you are most interested in. Outside of that, anyone under the age of 70 should seriously consider including Compounded inflation protection.
(iii) Future Purchase Option.
There are few areas in a long term care policy where you can make an obvious major error, but this is clearly one of them where it can happen.
Some companies (few, fortunately) offer consumers a Future Purchase Option which in essence offers a consumer a policy at a much lower premium than its competitors – which should be a sure tell-tale sign right there, one would think – and promises that you will be offered an opportunity every year or two to increase the value of your policy in order to compensate for the cost of living increase. Sometimes this is called “ CPI” Inflation Protection as the increase is based on the cost of living.
It is critical to know what this means. Firstly, the premium is ridiculously low because you are in essence purchasing a policy WITHOUT any automatic built in inflation protection. A flat-liner, as we say. At the anniversary of your policy, you will be offered the opportunity to increase the daily benefit by a certain percentage ….at your new attained age !!!! It should come as now surprise that it will only take a few years of these new premium changes being assessed at your increased age, that the typical consumer will cease the ‘Increase in Benefit Offer’, simply because you will end up spending a heck of a lot more for the policy as opposed to simply locking in a guaranteed Inflation protection right up front.
CONCLUSION.
It doesn’t come cleaner and simpler than this, folks. The above analysis review simply provides the mechanism by which to establish the Chassis of the policy. Once the benchmark has been established using the above model, then we can use this chassis to do an empirical, impartial comparison between the company plans. It is here that we begin to employ real skill in understanding and explaining the actual differences between these plans, because the substance of one versus the other may be the difference between night and day.
As a seasoned professional in this regard, rest assured that we will tailor a program to your needs in order to discover your best options relative to benefits & premiums.
