Stand-alone Long-Term Care Insurance (LTCI) policies that are not combined with life insurance or an annuity are known as Traditional Long-Term Care Policies. Traditional Policy is one of the options in choosing a long-term care insurance policy. They typically cover the cost of the following:
- Skilled nursing care
- Assisted living services, including meals, health monitoring, and help with daily activities in special residential settings
- Community programs, such as Adult day care services
- Help at home with activities of daily living (ADL)
- Homemaker assistance services, such as preparing meals and cleaning
Those services are typically not covered either by health insurance or by Medicare. If you are entitled to Medicaid, it will cover them, but with essential limitations.
Benefits: How they are defined and paid
Normally, there are two ways to qualify for LTCI benefits – the insured must have either cognitive or physical impairment:
- Cognitive impairment – deterioration of intellectual capacity affecting judgment, memory, or orientation (Alzheimer disease, Parkinson disease, dementia, etc.)
- Physical or functional impairment – Need assistance with one or several activities of daily living (ADL) including bathing, eating, toileting, dressing, maintaining continence, and transferring.
In order to receive benefits, the insured must require help with at least two of the listed above ADL. Benefits for cognitive impairment are paid immediately upon diagnosis.
Benefits are defined as:
- The maximum amount of money paid per day or per month, AND
- Length of time over which the policy will pay for LTC services
As a rule, if the amount is less than allowed for a given period, the unused amount can be used by extending the number of years benefits are payable. This concept is known as a pool of money (see below). Notice that the maximum amount of money insurance pays per day or per month depends on a particular setting (nursing home, adult day care, etc.).
Premiums for Traditional Long-Term Care Policies
For Traditional Long-Term Care Policies, premiums are based on the insured’s age at the time the insurance policy was issued. The younger you are, the lower the policy’s premium – because you’re more likely to pay premiums longer before you’ll start to collect the benefits. It is recommended to start LTC research when you are in your 40s and 50s. Consider the following:
- Percent of LTC sales for age 45-54: 22%
- Percent of LTC sales for age 55-64: 56%
- Percent of LTC sales for age 65-74: 17%
Not only is the premium lower, but it’s also more likely that your application will be accepted when you are young. Twenty five percent of all applications between ages 60 and 69 failed underwriting and were not accepted.
Typically, all LTCI policies are issued as guaranteed renewable, i.e.:
- The policy cannot be canceled or non-renewed because of the insured age or health
- Premiums cannot be increased, except on a class basis
Because LTCI policy is maintained for the long term, its annual premium is set at the time the policy was bought and is expected to remain stable. Nevertheless, many insurance companies raised their premiums over the past few years based of their negative claims experience. With the updated premiums, it is less likely that the insurance premiums will rise in the future.
Designing Your Policy
There are many design elements that have an impact on your policy benefits, as well as on its premium. You’ll need to make several key decisions.
Choose one of the following policy coverages:
- Comprehensive Policy – covers services in all settings, i.e. skilled nursing facilities, assisted living facilities, adult day care, and home care
- Non-comprehensive Policy – covers either an institutional setting (facility-only policy), or care in the patient’s home (home care-only policy), but NOT BOTH.
Daily (or monthly) benefit amount
This is the maximum amount of benefits that your policy will pay on daily or monthly basis. Estimate how much coverage you need, and check prices for various types of care in your area. Most people select the maximum daily amount in the $100-$199 range.
- 35.5% of all sold policies have maximum benefit $100-$149 per day
- 35% of all sold policies have maximum benefit $150-$199 per day
This is the minimum number of years your policy will last. In order to reduce costs, select a benefit period at least 3 years but not more than 10 years.
Here are percentages of policies sold in 2011 with a particular benefit period:
- 11.5% have benefit period less than 3 years
- 33.8% have benefit period 3 years
- 25.5% have benefit period 4 years
- 20% have benefit period 5 years
- 5.5% have benefit period 6 to 10 years
- 1.7% have lifetime coverage – the most expensive option
Multiplying daily benefit by your benefit period gives you the total benefit, also known as the pool of money.
That is basically a deductible you agree to pay before the policy will start to pay benefits. The longer deductible, the lower the premium. In choosing the deductible period, be sure you know how the elimination period is defined. Most policies count ONLY the days you actually receive and pay for care.
Most people choose 90-day facility elimination period (also known as waiting period). Of policies sold in 2011, 92% chose this option. It fits right with the 100 days of limited support Medicare provides for the skilled nursing facility (SNF). The typical home care does not have the elimination period.
For LTC, because of its long-term nature, the inflation protection is quite important. There are several options available:
- Automatic annual increase based on a fixed rate, typically 3-5%
- Automatic annual increase based on a variable rate, typically Consumer Price Index (CPI)
- Future purchase option for people who didn’t select one of the automatic options. It allows you to gradually increase your coverage over time without additional medical screening.
Sharing a policy with a spouse or partner
Shared-policy option allows two people to link policy benefits. There is a common pool of benefits that either spouse or partner can use. The premium of such policy is less expensive than two individual unlinked policies.
Watch for Exclusions
Familiarize yourself with policy exclusions for pre-existing conditions. Policies will usually NOT cover pre-existing conditions for the first 6 months to a year.
“Return of Premium” Rider
Some companies may allow you to buy the “Return of Premium” rider. It allows you, if the policy was not used over a period of time (say,10 years), to get back a portion of the premiums. Therefore, you will get a partial return in the case if you never used the LTC policy.
Medicaid is the major source of LTC financing, but most states require you to spend down assets (to as little as $2,000-$3,000) before Medicaid will finance LTC.
About half the states now have what is known as Partnership Program. By purchasing a “Partnership-approved” LTCI policy, you can protect some of your retirement savings, and still qualify for Medicaid. For every dollar in your policy benefits, you can shield an equal amount of your assets (not income!) and still be eligible for Medicaid to pay your LTC bills. In other words, the rule of Medicaid spending down is waived.
Let Liberty Medicare Help You Choose
Liberty Medicare is here to help you in all stages of comparing, selecting and enrolling in the best and most suitable Long-Term Care Plan for you.
All our services are absolutely free to you. We’ll help you:
- Find all plans available to you and compare their benefits
- Determine your eligibility (particularly if medical underwriting is required)
- Find the least expensive plan for your needs
If you are looking for Long-Term Care coverage let us help you. To view real quotes from Long-Term Care providers, please fill out our Long-Term Care Quote form, or give us a call at 877-657-7477.