What are the different variables in a Long Term Care Policy?

Long term care insurance policies are built around the promise to pay for care needed when you meet the eligibility requirements to go on claim. However, with long term care it’s not as simple as paying for a doctor office visit as care is rendered in many different ways and in many different settings.  To meet all of these different needs, the plans are designed with flexibility to make selected parts of the plan design best work for the insured’s needs.

Long Term Care Insurance Plans are designed with the following key components set based on insured input about needs. The daily or monthly benefit; percentage of benefit available for in home care; elimination period; inflation protection level; length of total coverage; and in some cases establishing if the payments are based on daily or monthly benefit levels.  These together create the policy and dictate how benefits are paid out during the time of a claim.

The daily or monthly benefit level is one of the most key elements in designing a policy. Also, the decision to take a daily or monthly benefit is also part of what will affect these amounts of payments as well.  Generally when in a facility it is easier to live on a daily benefit basis, but during the use of home care often different amounts of care happen on different days which lends itself more to using the monthly benefit for in home care.  Home care often ends up shared between paid care givers and family and/or friends who help out some. With this you may see spikes on some days where costs for care are greater than on other days.

The costs some days could be more than the daily benefit, but when averaged for the month may fit within a monthly benefit. In order to choose the level of coverage it’s best to look at facility costs in your area, or the area where you would want to live if needing institutional care.  Also assess how much does in home care cost. With these numbers you can more easily pick a number that gets the coverage level you want. You do not have to cover all of the expenses you may incur. Some people do opt for lower levels of coverage to help pay for care but don’t worry about covering the costs fully.

The elimination period, which serves as a deductible, but is expressed in terms of the number of days services are received or since the designation care is needed is another moving target, you set as the policy gets set up. You can have one elimination period for both the institutional and at home care. You can also have separate elimination periods, where typically the at home care payments kick in more quickly than do payments for institutional care.  You can get anything from zero day elimination for home care up to 180 days elimination. Typically there are no zero elimination periods for institutional care, but the 180 days is one way to help cut the cost of the care.  Know that whatever period you pick, is a time frame in which you are paying for the care, hence my comparing it to a deductible.

Inflation Protection is another key element. Setting up a plan for a set amount of benefit today is great if you end up needing care soon. However many of us will have many years before we need to get care. To that end, you will always want to have the level of coverage grow to keep pace with the rising costs associated with the care.  Most of the carriers even require you to consider as part of the application process how you would pay for care if the cost increases with or without inflation protection. In fact to have a partnership eligible plan it must contain inflation protection in most cases.  The inflation protection will on either a simple or compound interest method increase the daily/monthly benefit limits typically annually on the anniversary date. The most I see offered is usually a 5% compound interest.  At this time, that is helping keep pace with medical inflation, which is key for this kind of care.

Length of coverage is the last key component where you have multiple choices. You can get as little as two years of coverage to as much as lifetime coverage. Two years is fairly short, unless you only seek care when you are nearing the end of life. Statistics indicate there are three points where we see spikes in the length of stay with institutional care. They come around six months, two years, and five years. Of course nobody fits right on those spikes and you can’t know ahead of time which spike is yours.  Thus, you have to look at how much care you may want to have covered by the insurer. 

In addition to standard lengths of coverage couples can get shared coverage where one can use most of the shared coverage leaving some for the other member of the couple. This is how my own policy is set up with my wife. We are both guaranteed a minimum amount of care but if one were institutionalized for many years the shared coverage allows for that coverage to kick in and ensure we both get care. This is a very useful provision in many plans and beyond that is one that is especially useful if one partner is placed into institutional care to deal with organic brain disease.

Ultimately the use of a professional agent is key to building a policy that best fits the client’s needs. A good professional agent understands the market and how the policies fit together. This allows guidance towards designing a plan that provides the benefits most important to the client, not just pushing a cookie cutter plan on all who desire coverage.

We enjoy working with clients on finding and implementing the right Long Term Care Insurance Solutions.