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Types of LTC insurance

Weighing Group vs. Individual Policies

People assume that "group" automatically means a better policy at a lower price. For long-term care insurance, nothing could be farther from the truth. Certain drawbacks are quite common in these policies. If you are in relatively good health it is very likely you can purchase a superior individual policy at a lower price. Why is this case? Good question. First, recognize insurance companies don't give away anything for free. Many groups offer a form of "guaranteed issue," which means few people are denied some type of coverage. So in order to pay for these higher-risk people (generally estimated to be between 7% - 12% of all applicants), to remain profitable AND competitive, insurance companies dilute, or strip-down the policy's benefits and coverage.If you do a true "apples to apples" comparison between your group offering and an individual plan from LTCIS, a healthy person can normally purchase a better policy at the same or even lower price! So, make sure you compare!

 

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Standard Insurance Strip Downs:

 

#1 Reduced Percentage Payouts for Assisted Living and Home Care

 

It’s a common practice to use lower payouts for these more likely modes of care. Nursing Home Daily Benefits are the highest reimbursement, generally offered at $150 per day. In group plans, very frequently the Assisted Living reimbursement level is reduced to a lesser amount, typically 70% of the Nursing Home Benefit, which would be $105 a day. Over six months, this would total a loss to you of $8100. Worse yet, the Home Care is often reduced to either 60% or 50% of the original Nursing Home value which over six months means a loss of $10,800. Given statistics have shown you have a greater chance of first using Home Care or Assisted Living care, and a lesser chance of using a Nursing Facility in your lifetime, it should come as no surprise that this is one of the best ways to limit the anticipated payout from a Group Plan.

 

 

#2 Does your group plan offer true Automatic Inflation Protection? FPO vs. CAIP vs. CPI

 

• CAIP = Compounded Annual Inflation Protection
  Best use for those 20-70 who want to keep their premiums manageable as they age. Adds 5% to the benefit value based on the previous years attained amount. This will keep your policy in step with inflation, keep your future rates low, and keep you from being priced out of a policy when you're mostly likely to need it. You know right from the outset what your future premiums will be.

 

• FPO = Future Purchase OPTION Inflation Protection
  Best Use is for people over 70. Inflation protection tied to a periodic option to adjust your present daily benefit by some factor, such as 5%. Consumers are confused by this language, assuming it means they have Automatic Inflation protection on an annual basis. The attraction for people is the inexpensive premiums relative to other quotes. Often the premium offered with “FPO” type inflation protection is about 40% less than a policy with CAIP. The reason for this large disparity in premium costs is the FPO Option means you have bought a policy with NO automatic inflation protection other than the option to purchase this ‘upgrade’ every time it’s offered. Here’s the downside…every time you exercise this FPO option, your premium increases relative to the NEW AGE that you have attained. So if purchasing a policy at a younger age, in your 40s or 50s, you will see your premiums increase significantly over the years assuming you accept the increases each year. The cost is greater than if you simply purchase a policy with an automatic guaranteed and built-in inflation adjustment right up front. This is a great example of penny-wise, pound-foolish.

 

• CPI = Consumer Price Index
  Best Use if for people over 70. Another method is tying your policy increases to the Consumer Price Index, CPI. With the CPI option you still need to purchase more coverage every year or two at your new attained age. It's possible to be paying more for your policy than by using the CAIP method.

#3 Advanced Features

 

Group plans usually offer only the basic features of a long-term care policy. A few of the many advanced features available with individual market plans are:

• Restoration of Benefits
• Spousal/Partner Survivorship Benefits
• Joint Waiver of Premiums
• Shortened Paid-Up Provisions

 

 

Confused?

 

Call us today at 800-500-5695 to get a free consultation so we can tailor a policy specifically for your needs.

 

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