Designing A Long Term Care Policy
The more you understand your client’s needs, the better we can assist you. Before you request a quote, it’s best to have an idea of how you want to design your policy proposal for your client. Here is a rough guide to the policy design
Basic Long Term Care Policy Provisions:
These are the basic elements to consider in the structure of any long term care insurance policy:
Age is the single largest element in determining the premium. This factor creates a substantial additional cost if one waits to purchase long term care protection. Of lesser importance but still significant are spousal discounts, health discounts, and group discounts. Some companies also have special premium rates for those with relatively significant health problems. The other premium factors are explained below.
This is a dollar amount, and can be a daily benefit or a monthly benefit. It is often calculated by looking at the costs of care in a particular geo- graphic area and deciding whether the insurance should cover most or all of that cost. The higher the benefit, the more expensive the policy will be.
The number of days or the dollar amount that the policy will pay. The longer the policy pays, the more expensive the policy will be.
This is like a “deductible,” or the amount of days or dollars you would have to pay for your own care before the policy started to pay benefits. Days can be defined either as calendar days or as days of service. The shorter the elimination period is, the more expensive the policy will be.
Pool of Money
Most reimbursement policies contain a total dollar benefit similar to a bank account balance, which can be spent even if the period of care lasts beyond the benefit period, until the benefit reduces to zero. This concept is called “pool of money.”
The purpose of these riders is to ensure that the benefits in the policy will match the costs of care many years into the future. Nursing care costs have risen between 3% and 5% per year for the last twenty years, sometimes more. It’s essential to include an inflation rider in virtually every policy. There are now many choices, but the traditional rider is 5% compound increase. This rider doubles the benefit every 14.4 years and quadruples it every 28.8 years. To keep premiums reasonable, we often recommend a 3% compound inflation rider. All carriers have multiple options.
For couples, the surviving policyholder does not have to pay premiums once the partner dies. Usually, this rider only kicks in after ten years and only applies in the absence of former claims.
For couples, this rider enables each to extend the benefit period. There are two main methods: (a) to take some of your partner’s benefit period if you need it, or (b) to have a separate benefit pool that either partner can draw upon.
Restoration of Benefits
The full benefit period restores after the policyholder has received care but has recovered and no longer needs benefits for at least 180 days. This benefit sounds great but historically few claims have been paid.
Almost all policies sold today are tax-qualified policies where the premiums paid are considered a tax-deductible medical expense. The IRS rules vary between individuals, the self-employed, partnerships, limited liability companies, S-Corporations, and C-Corporations. With C- Corporations, both the employer and the employee receive major tax advantages.
A growing number of states, including California and New York, offer partnership policies with the added benefit of asset protection and extended care at little or no extra cost. Policyholders can qualify for MediCal or Medicaid benefits under certain conditions and at the same time safeguard some or all of their assets for their heirs.
The insurance company assists, normally through a third party, in deciding what care is needed by the client. This can be done by an assessment in the client’s home and the development of a plan of care agreed to by all parties. The scope of this benefit varies by insurance company.
Alternate Plan of Care
The insurance company at its option can cover future care services not specifically covered under the policy. This clause is not in all policies but could potentially be very important, as we don’t know what types of delivery of care will be available thirty or forty years from now.
Waiver of Premium
Premiums are normally no longer payable once a policyholder has begun to receive benefits.
Some policies will partially pay for care received outside the United States and some will not.