If you own long-term care insurance (LTCI) or are thinking about purchasing coverage it is important to understand how the policy works and what it covers. Adult children should also be familiar with the details of their parents’ coverage because they will likely be involved with coordinating LTCI benefits when the time comes. By understanding the details of the policy you will be better equipped to get the most out of your coverage when it is needed.
What type of care is covered?
The earliest forms of LTCI (issued more than two decades ago) were considered “nursing home” policies, which covered skilled nursing services received in a nursing facility. Long-term care delivered at home or in an assisted living facility were not covered expenses.
Eventually policies began covering care in assisted living facilities and sometimes at-home care, but often at a discounted amount. For example, the policy might cover care in an assisted living facility at fifty-percent of the benefit amount that would be paid for care received in a skilled nursing facility.
Most policies issued within the last five – ten years are more comprehensive, providing the same amount of coverage regardless of where care is received. These policies may also cover expenses like adult day care and respite care.
LTCi Benefit Amount
The benefit amount is usually a daily or monthly amount, and the total lifetime benefit amount is expressed in years. For example, a policy might provide a daily benefit of $200 for three years. This amounts to a total lifetime benefit of $219,000. ($200 x 365 x 3) This does not mean that the policy must be used within three years, but rather that the policy holder has the equivalent of three years of coverage over their lifetime. However, a policy will not pay more than the stated benefit amount in any given day or month. Therefore, using the example above, the policy would not, for instance, pay out $300 for any one day of coverage.
Many policies include an “inflation rider” which increases the benefit amount annually to help ensure that the coverage amount reflects the increased cost of care over time. The formula used to determine the increase can vary from one policy to another. If your policy includes an inflation rider, you should know the current coverage amount, as opposed to the originally stated coverage amount. If this information is not clear, contact the insurance company and ask about the current benefit.
Coverage Elimination Period
Most LTCI policies have an elimination period. This is similar to a deductible, but is measured in days, not dollars. A policyholder chooses the elimination period (from zero to 180+ days) at the time of application. A longer elimination period lowers the premium, and vice versa. A policy’s elimination period can be based on days of care or calendar days. For example, a policy with a 90-day elimination period would specify if that means ninety calendar days (beginning with the first day of care), or ninety days of care. In some cases there could be a substantial difference in time between the two if there is a break in care within the 90-day period. Additionally, a policy could have different elimination periods for different care settings.
If you are thinking about buying coverage and want to keep your premiums lower, or if you want to lower premiums on your existing coverage, consider extending the elimination period. You may decide that you are willing, and able, to pay out of pocket for a certain amount of time but want to cap your exposure for all care beyond that.
For additional information about LTCI policies, be sure to see Part II of this series next week. Also be sure to request a Long-Term Care Insurance Buyers Guide from your state’s insurance department.
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