The Basics Of A Long Term Care Insurance Policy Coverage

Accountancy Resources

The Basics Of A Long Term Care Insurance Policy Coverage


“Long term care” (LTC) refers to services and supports which help people with chronic medical conditions, illnesses, or disabilities on a daily basis over an extended period of time. It can be expensive and can easily exhaust your assets if you don’t plan ahead with long-term care insurance (LTCI).

Long-term care insurance helps pay for your LTC expenses and protects your funds from being used as payment for care. But exactly what long-term care expenses are covered by LTCI policies?

Covered Long Term Care Services

While some insurance companies will require you to use services from a certified home care agency or a licensed professional, other companies will allow you to hire independent or non-licensed providers or family members.

Make sure you purchase a policy that covers the types of programs, services, and facilities you’ll need and available where you live.

Relocating to another area might make a difference in your coverage and the types of services available.

Long term care insurance policies may cover the following care arrangements:

Nursing home

Nursing homes are facilities that provide a full range of rehabilitation care, skilled health care, personal care, and daily activities in a 24/7 setting. Make sure to ask whether the policy covers more than room-and-board.

Assisted living

Assisted living is commonly provided in a residence or a facility with apartment-style units that provides personal care and other individualized services available when needed.

Adult daycare services

Adult daycare services are programs outside the home that provides health, social and other support services in a supervised setting for adults who need some degree of help during the day.

Home care

Home care is care provided at home. It can be provided by licensed healthcare professionals or professional caregivers.

Home modification

Home modifications are changes or adaptations made at home such as installing ramps or grab bars to make your home safer and more accessible.

Future service options

In case new types of long-term care services are developed after you purchase the insurance, some policies have the flexibility to cover the new services. Be sure to ask the insurance company if they include this feature with their policies.

Coverage Amounts and Limits

Long-term care insurance policies pay different amounts for different services, or they may pay one rate for any service. Be sure to assess which type of policy coverage will work for you since you’ll be selecting the benefit amount and duration of the policy.

Insurers will let you know about some type of limit to the number of benefits you can receive from a policy.

To find out how useful a policy will be to you, compare the amount of your policy’s daily benefits with the average cost of care in your area. Remember; you’ll have to pay the excess costs exceeding your daily amount.

Qualifying for Benefits

Conditions that must be met or happen before you start receiving your benefits are called “benefit triggers.” Most insurers evaluate your inability to perform certain “activities of daily living” (ADLs) to determine when you can start to receive benefits.

It’s common for benefits to begin when you need help with two or three ADLs. Requiring assistance with eating, bathing, dressing, walking, using the toilet, and remaining continent are the most common ADLs that need assistance.

Mental-function tests are commonly used as benefit triggers for people with cognitive impairments. Ask your insurer whether you must require someone to perform the activity for you or with you, rather than just stand by and supervise you, in order for you to trigger benefits.

Coverage Exclusions

All policies exclude coverage for specific conditions. Ask your LTC agent about these exclusions. Certain states have outlawed companies from requiring you to have been in a hospital or nursing facility for a specific number of days before qualifying for benefits. However, some states continue to permit this exclusion and it may keep you from ever qualifying for a benefit.

There are also coverage exclusions, which are quite common, for mental disorders, drug and alcohol abuse, and self-inflicted injuries.

Make sure that Alzheimer’s disease, certain forms of cancer, and other common illnesses, aren’t mentioned as reasons not to pay benefits.

Waiting or Elimination Periods

Most policies include a waiting or elimination period, which can typically be chosen from zero up to 100 days before the insurance company begins to pay. During this period, you will be paying for care out-of-pocket. The longer the elimination period, the lesser the policy costs.

Be sure to estimate how many days you can afford to pay on your own before receiving benefits.

Get a policy that requires you to satisfy your elimination period only once during the life of the policy instead of making you wait after each new illness or need for care.

Long-term Care Benefits and Inflation

Many people purchase long-term care insurance between 10 to 30 years before they start receiving benefits. Inflation protection is an important option to consider. Indexing to inflation allows your daily benefit to keep up with the rising cost of care.

When you buy LTCI under age 70, it’s probably better to have automatic “compound” inflation protection. Compound inflation protection is the amount of your daily benefit will be increased based on the higher amount of coverage at each anniversary date of the policy.

“Simple” inflation protection increases your daily benefit by a fixed percentage of the original benefit amount. Typically, the simple option won’t keep pace with the price of services.

If you decide turn down the option several times, you may not get the option anymore and lose the ability to increase the benefit in the future. Not increasing your coverage may leave you with a policy that covers only a fraction of your cost of care. The younger you are when you buy long-term care insurance, the more important it is to buy a policy with inflation protection.