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Chapter
10 The Essentials
of Long-Term
Care Insurance
Importance Rating:
Long-term care insurance policies have three basic methods of
paying benefits:
1. With the reimbursement method, also known as the expense-
incurred method, you first pay the care provider, whether it
be a facility or the person(s) caring for you at home. You then
submit a copy of the receipt to the LTC insurance company
for reimbursement. Your reimbursed amount will either be the
actual amount you paid for services or your in-force “benefit
amount”—whichever is less. “Benefit amount” is explained in
number 5 below.
2. With the indemnity method, no receipts are necessary. The
benefit paid to you is the exact amount of your in-force benefit
amount, even if your long-term care expenses are less than
your benefit amount.
3. With the cash method, you are not even required to incur
expenses to receive benefits on a claim. You can collect your
full benefit amount, even if someone cares for you free of
charge.
These three methods of payment are listed in order of least to
most expensive in premium cost. They are also listed in order of
least to greatest amount of potential money you could receive from
an insurance claim. This is where the differences end. For example,
when it comes to eligibility for collecting on the policies, it’s neither
easier nor harder to become eligible for benefits based on the pay-
ment method of the policy.
Recommendation
On the surface, indemnity and cash method policies appear to
have an advantage because they allow you to make a profit on a
claim. But the reimbursement method is actually your best value
because it does the most effective job of solving the true long-term
care problem per premium dollar paid.
114 Chapter 10: Essentials of LTC Insurance
Importance Rating:
The “type” of LTC insurance policy determines where you can
receive long-term care services:
1. “Home Care Only” policies pay for care only in your home.
2. “Facility Care Only” policies pay for care only in a facility,
such as an assisted living community or nursing home.
3. “Comprehensive Long-Term Care Insurance” policies pay
for care in any setting (home and/or assisted living communi-
ties and/or nursing homes).
If a need for long-term care arises, most people want to stay
in their own home to receive care. A national survey funded
jointly by the Office of Disability, Aging and Long-Term Care Policy
and the Robert Wood Johnson Foundation revealed that, in the
absence of home care benefits provided by their LTC insurance
policy, 60% of individuals collecting on their policy could not
afford to remain in their homes and would be forced to move to a
Chapter 10: Essentials of LTC Insurance 115
Importance Rating:
Your current age will have a major impact on your LTC insurance
premium. The younger you are when you purchase coverage, the
lower your premium will be for the life of the policy.
When you purchase LTC insurance, you lock in your issue age
premium rate for the rest of your life. This means that a 50-year-old
who purchases coverage today will still be paying the 50-year-old
premium rate even when they are 75 years old.
116 Chapter 10: Essentials of LTC Insurance
Importance Rating:
Your current health not only has a direct impact on the pre-
mium, but also on your eligibility for LTC insurance.
Long-term care insurance is a health qualifying type of insurance,
meaning you must be in reasonably good health to qualify for cov-
erage. While most of the general population qualifies for coverage,
there are specific details about your health that will determine your
exact premium, including your height and weight and whether or
not you smoke.
Those in good to excellent health will likely qualify for preferred
rates. Preferred rates are generally reserved for people who are aver
Chapter 10: Essentials of LTC Insurance 117
age height and weight, are non-smokers, and have not experienced
any negative physical or mental health conditions in recent years.
A person with minor health conditions that are well-controlled,
such as arthritis without limitations, will likely qualify for coverage
but will be offered a standard premium rate. The difference between
a preferred premium rate and a standard premium rate averages
about 15%.
If you currently have significant health problems, you may have
difficulty obtaining LTC insurance. While some smaller, financially
lower-rated insurance carriers might accept your application, we
advise exercising extreme caution before purchasing coverage from
any company that does not pass the carrier evaluation process we
outline in Chapter 12: Choosing the Right Insurance Carrier.
Recommendation
All things being equal, consider your suitability for LTC insurance
while your health is good to excellent.
5. How Much Will the Policy Pay Per Day, Week, or Month?
Importance Rating:
The benefit amount is the ongoing amount of money the insur-
ance company will pay if you have a claim on the policy.
The benefit amount is the most important decision to make
in designing LTC insurance coverage. It is also the most influential
factor affecting the amount of your premium.
The benefit amount is expressed in a dollar amount per day,
week, or month. For example, if you purchased a policy with a
daily benefit amount of $150, you would collect about $4,500 per
month when you became eligible for benefits, not including infla-
tion-adjusted benefits.
Choosing the most appropriate benefit amount is imperative. It
begins with knowing the cost of care in your area and using that
information as a benchmark. Then, by defining your personal tol-
erance for risk, your personal and financial objectives, and your
budget, a customized solution is developed by selecting the proper
benefit amount for your unique situation. This process analyzes
and determines whether to purchase coverage that will pay the full
118 Chapter 10: Essentials of LTC Insurance
Importance Rating:
The maximum lifetime benefit is the factor that determines the
maximum amount of money your LTC insurance policy will pay in
dollars once you have a claim and begin to receive benefits. The
concept is similar to that of an accumulated savings account from
which you can withdraw money. Once you have a claim, you can
withdraw the daily, weekly, or monthly benefit amount explained in
number 5 above. Once your maximum lifetime benefit is reached,
the policy will pay no further benefits.
The maximum lifetime benefit is chosen when you apply for
coverage. As soon as you collect your first dollar of benefits from
the policy, it is subtracted from your maximum lifetime benefit.
You can choose a maximum lifetime benefit of as little as one year
of long-term care expenses or—on the upper end—you can choose
a maximum lifetime benefit with “no limit.” These two examples are
extremes; many in-between options exist. As you would assume, the
longer the maximum lifetime benefit, the higher the premium.
Chapter 10: Essentials of LTC Insurance 119
Importance Rating: 1
Also known as the deductible, the elimination period is similar
to deductibles with other types of insurance coverage, such as your
automobile or homeowner’s insurance. However, instead of being
defined as a dollar amount, the elimination period with LTC insur-
ance is defined in days between the time you begin to need care and
the time the policy begins to pay benefits. For example, if you need
long-term care services and you had purchased coverage with a
100-day elimination period, your elimination period would be satis-
fied and your policy would begin to pay the benefit amount on the
101st day of care.
The more days you are willing to pay for your care out of pocket
before your policy begins paying benefits, the lower your premium
rate. You can choose a variety of elimination periods ranging from
a zero-day elimination period—which would pay benefits from the
first day you need long-term care services—to elimination periods
as high as a year or longer.
The elimination period is the most practical way to save money
on your premium. An elimination period in the range of 100 days can
save a significant amount of premium dollars over a lower elimina-
tion period.
In determining the elimination period most appropriate for your
situation and how that translates into out-of-pocket dollars, consider
two important points:
1. Your personal tolerance for risk and whether or not you
believe in coinsuring a small or large amount of your potential
long-term care costs.
2. The average cost of care in your area. Use this figure to cal-
culate your out-of-pocket dollar risk for various elimination
periods by multiplying the elimination period by the average
cost of care per day in your area.
Recommendation
We have emphasized many times that true long-term care is need-
ing assistance for a period beyond 100 days. Short-term care, care
Chapter 10: Essentials of LTC Insurance 121
needed for less than 100 days, can normally be paid for without
causing significant financial hardship to the person receiving the
care or their family. In certain instances, a percentage of short-term
care may be paid for by your health insurance or Medicare. For
these reasons, always concentrate your premium dollars on cover-
ing true long-term care. This means choosing an elimination period
of 3 months or longer.
Some people view LTC insurance as a highly catastrophic
type of insurance and choose very high elimination period—
sometimes up to 2 years or longer. We caution, however, that
this strategy can cause unexpected problems: If a policy’s ben-
efits cannot be accessed until years after the need for care, a
policyholder and their family may be tempted to delay quality
caregiving that could have been received earlier. But if this is not
a concern, a high elimination period can be a practical strategy for
protecting “large dollars.”
Importance Rating:
The costs of long-term care services will definitely increase in
the coming decades. An automatic inflation protection benefit will
help hedge against these rising costs. This rider should be an essen-
tial part of virtually every LTC insurance policy.
The automatic inflation protection rider automatically raises the
benefit amount of your policy each year. This rider can help ensure
your LTC Planning objectives continue to be reached.
Long-term care insurance automatic inflation protection riders
normally offer a 5% simple or 5% compound inflation benefit. The
122 Chapter 10: Essentials of LTC Insurance
Restoration of benefits
Importance Rating: 1
This rider states that if you buy a policy with a “limited benefit
maximum” and you use a portion of your policy benefits, the benefits
in your policy will be restored if your health returns and you go with-
out care for a specified period of time (usually six months or longer).
Recommendation
The likelihood is low that a person will receive long-term care
for more than 100 days, fully recover, then later receive care again.
This rider is not a good value.
Nonforfeiture Benefit
Importance Rating: 1
This rider states that if you cancel your LTC insurance policy,
a minimal amount of paid-up insurance will remain in force to
slightly compensate you for premium payments paid to the insur-
ance company. The amount of “paid-up” coverage is usually equal
to the cumulative amount of premium you paid. For example, if your
annual premium was $3,000 and you canceled the policy after five
years, you would have paid-up coverage of $15,000. The $15,000
would be your maximum lifetime benefit. In this example, if you
needed care in the future, you could collect the benefit amount up
to a maximum of $15,000.
Recommendation
LTC insurance becomes more valuable the longer it’s in force.
Only 4% of LTC insurance policyholders cancel their policies during
the first 10 years the policies are in force. This rider is not a good
value.
Survivorship Benefit
Importance Rating:
This rider states that if a couple have coverage with the same
company and one of them passes away after the policies have been
in force for a certain number of years with no claims paid on either
124 Chapter 10: Essentials of LTC Insurance
Importance Rating: 1
This rider allows couples who are insured with the same insur-
ance company to use one another’s LTC insurance benefits. For
example, if a couple purchases “limited maximum benefit” policies
and one insured goes on claim and depletes their benefits but still
requires care, this rider allows them to access the benefits of the
other insured’s policy.
Recommendation
We recommend first considering the unlimited benefit maximum.
Following this recommendation negates the need to spend extra
money on the shared care rider.
Couples who are over age 70 and cannot afford the unlimited
benefit maximum may consider this rider a good value. If you are
over 70 and applying for coverage with your spouse, ask your LTC
Planning and Insurance expert about the feasibility of this option.
Importance Rating:
This rider, also known as the “Future Purchase Option,” allows
you to purchase additional LTC insurance in later years without
going through the health qualifying process again. This means that
if you develop a health condition that would normally exclude you
from purchasing additional coverage, this rider will allow you to
purchase a predetermined, limited amount of additional coverage
in future years.
Chapter 10: Essentials of LTC Insurance 125
Importance Rating:
At the time of your death, this rider returns to your beneficiary
all or a portion of the premium you paid. If you collect benefits from
the policy, the amount returned to your beneficiary will be reduced
by the amount you collect due to a claim(s).
Recommendation
This rider adds from 25% to 40% to the basic premium. It’s rarely
a good value unless you’re considering LTC insurance prior to age
50.
126 Chapter 10: Essentials of LTC Insurance
If I Knew Then
What I Know Now
My mother, Millie, passed away a couple of
months ago at 92 after a 12-year battle with
Alzheimer’s disease. Although she had been
very astute in planning for her financial security,
there was no way she or my sisters and I could
have anticipated what the financial and emo-
tional toll of caring for her would be. If I knew
then what I know now, there are many things I
would have done differently.
Twelve years is a long time. During that time, my
three sisters and I used a variety of approaches
to caring for Millie. From living with each of us,
to living in an assisted living facility, and finally
to needing the level of care provided in a skilled
nursing home, there were unexpected health
care needs that were emotionally and financially
overwhelming.
During the last few years, in addition to her liv-
ing in a skilled nursing facility with a one to eight
staff to patient ratio, we had to hire individual
caregivers to sit with her 24 hours a day so she
wouldn’t harm herself. The time, cost, and ever-
changing health needs of our mother extended
far beyond our means.
If I knew then what I know now, I would have
sat down with my mother and developed a plan
for her future care. If we had been aware of the
potential costs and the number of years care
could be needed, we would have been better
prepared to handle her care—both financially
and emotionally.
I don’t think it’s truly possible to anticipate all
the special needs (and associated costs) that
result from an ailing parent’s need for care.
However, if I knew then what I know now, I
would have hoped for the best but planned,
Planned, PLANNED for the worst.
— Megan Martin
Chapter 10: Essentials of LTC Insurance 127
The Essentials of
key Long-Term
points Care Insurance