Designing your own Long Term Care Policy
When the two major questions, affordability and health have been answered you can move on to designing a long term care policy. Here is where we begin to help you tailor a long term care policy that meets your needs and affords you the coverage you're after. By breaking down the steps it will be easier to understand all the options that are available for long term care insurance.
Personal Questions
| 1. |
Date of Birth: Your age will affect your long term care policy premium. Long term care premiums are less expensive at younger ages. Some carriers will also offer limited pay plans with rate guarantees. |
| 2. |
Assets/Net worth: You will need to have an idea of what your assets are and your net worth. This information will help you determine the maximum long term care premium you can afford. |
| 3. |
Medical History/Medications: Pre-existing medical conditions and medications do not necessarily exclude you from coverage. Medical History is important in determining who is likely to insure you and at what cost. Long term care insurers look for three criteria in underwriting evaluations, Control of the condition, severity, and
stability (Click on "Do I Qualify?) |
Policy Evaluation
Daily Benefit: The daily benefit is the dollar amount ($50 to $300 per day) your policy will pay out per day for your care. Before you
choose a daily benefit amount you should check the cost of services where you plan on receiving them.
Use our average cost of care map.
Long Term Care policies pay a maximum dollar amount for each day you receive covered services. When you decide to purchase a long term care policy, you determine the value of the policy and length of time your benefits will last. For example, if you buy a policy that pays $300 per day for 750 days, the policy value is $225,000. It is calculated by multiplying $300 (Daily Benefit) times 750 days. Some long term care companies pay your daily benefit for an unlimited amount of time. However, no long term care company offers guarantees to cover all costs without some limitations.
You draw daily benefits from your pool of money
to pay for the services you need.
A Pool of Money works like this: A percentage or all of your daily benefit can be used for home health care, assisted living, and adult day care. Most long term care policies are based on actual cost.
Thus, if the cost of your daily care was only $120, and your benefit is $150, the remaining $30 stays in your pool. Another provision of pooled benefit provides an indemnity dollar amount, which is fixed no matter what the cost of care. Home care benefits may also be calculated on a weekly or monthly dollar amount that may be used for one or more covered services. This gives you greater control over how your long term care dollars are spent.
Inflation Protection Options
(Click on)
" Inside the Inflation Factor Calculator"
5% Simple - Daily benefit increases based on
the initial daily benefit amount on an equal basis. Equal increase doubles your daily benefit or pool of money every 20 years.
5% Compound - Daily benefit increases on a compounded basis. Compounding doubles your daily benefit or pool of money every 14 years.
CPI Inflation Riders (Consumer Price Index) is determined by the consumer price index; premium is adjusted by current age at the time of the inflation adjustment. Companies allow you to refuse this option up to four times and if you do elect this feature you do not have to prove insurability as long as you are not on claim.
Note: Be careful as some long term care companies may have you believe that this is true inflation protection
when in fact it is not. This can be the most misunderstood policy feature that could have a detrimental affect on your policy as well as be a more expensive long-term inflation option.
Deferred Options Inflation Riders: Allows you to purchase more long term care insurance without proving insurability as long as you are not on claim. This feature can be
in addition to a compound or simple inflation rider. Premium will be adjusted at the age of exercising this feature. Long term care companies may offer a specific amount such as $10 or allow you to purchase the benefit increase rider (simple or compound) at a later date.
Elimination Days - (Deductible Period)
0 20 30
60 90 180
These are the number of days that you pay for covered services before the policy pays. Policies with longer deductibles have lower premiums. The length of the deductible you should consider depends on the assets you have available to pay for services during the deductible period. Look for long term care policies that offer a one-time-only elimination period and a lifetime accumulation feature.
There are three ways long term care companies count off days of the elimination period.
| 1. |
Actual days that services are received.
|
| 2. |
All calendar days beginning with the start of services provided that you receive care at least one day a week.
|
| 3. |
Begins the day you are eligible and includes all calendar days regardless of care received.
|
Always look for a long term care policy that does not have a time limit on the accumulation period. Some long term care carriers require you to accumulate your one-time only elimination in 180 days or 730 days.
Maximum Benefit: Your long term care policy can cover you for various amounts of time, ranging from 750 days to unlimited lifetime coverage. This is usually equivalent to a pool of money (see diagram above), rather then a fixed period of time.
Maximum Benefit Example:
| Years
= |
Days
x |
Daily Benefits = |
Maximum Benefits |
|
2 |
730 |
$150 |
$109,500 |
| 2.1 |
750 |
$150 |
$112,500 |
| 3 |
1095 |
$150 |
$164,250 |
| 4 |
1460 |
$150 |
$219,000 |
| 4.1 |
1500 |
$150 |
$225,000 |
| 5 |
1825 |
$150 |
$273,750 |
| 6 |
2190 |
$150 |
$328,500 |
Note: Some long term care carriers use 750 days and 1500 days as multipliers as well.
You can reduce your long term care premium cost by understanding that you are buying money. At the same time you can stretch your pool by being creative. Here is an
example:
Mr. Johnson, age 55 and married, looks at purchasing a long term care policy through his company that offers the following
benefits:
90-Day elimination period, 1500-day benefit period (4.1 years), $ 150 a day for all benefits, with 5% compound inflation option. His benefit pool is $225,000. His premium is $988.
Mr. Davis, same age also married, looks at purchasing a long term care policy through his company that offers the following
benefits:
90-Day elimination period, 750-day benefit period (2.1 years) $ 300 a day nursing home, $150 for assisted living, $150 for Home care and adult day care, with 5% compound inflation option. His benefit pool is $225,000. His individual long term care premium is $960.
The second option is a much stronger long term care plan at a lower cost. The advantage for Mr. Davis is that the pool of money grows on the highest daily benefit, in this case $300 per day. It also gives better protection on the most expensive form of care, the nursing home. If Mr. Davis's care in a nursing home were only $150 a day, both pools would last the same length of time.
Those are the basic questions you will need to be able to answer and make decisions on. Here are some additional considerations.
- Some long term care companies give preferred rates if you have a good medical history.
- There may be a spousal discount if your spouse applies.
- Definitions and terms may vary from company to company. Make sure you understand the terms and definitions. Read and understand the fine print.
- The rules for eligibility to collect benefits may vary from company to company. Make sure you understand the requirements.
- Do not be afraid to ask questions. There are no silly or dumb questions.
- Take your time making your decision, but do make a decision!
The LTC Info Center team has always been about serving the best interests of our clients first. We work hard to make sure we have the right long term care policy fit for every person. We go the extra mile to make sure that you have the long term coverage you need, want, and can afford.
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