Common Features of Traditional Long-Term Care Policies
Long-term care (LTC) policies are financial tools designed to cover expenses associated with long-term care services. These services are often necessary for individuals who are unable to perform basic activities of daily living (ADLs) due to chronic illness, disability, or cognitive impairment. Traditional long-term care insurance policies have several common features that are essential for potential policyholders to understand.
This article provides an overview of features commonly found with Traditional Long-Term Care Policies. This list is not exhaustive and policies issued by companies may deviate from the descriptions provided. It is important to review your own policies for complete descriptions and rules regarding these policies.
Benefit Triggers: What Makes You Eligible for Insurance Benefits
Benefit triggers are the conditions that must be met before the policyholder can start receiving benefits from their long-term care insurance policy. The most common benefit triggers include:
- Activities of Daily Living (ADLs): Most policies require that the insured be unable to perform at least two of six ADLs. These activities typically include bathing, dressing, eating, transferring (e.g., from bed to chair), toileting, and maintaining continence.
- Cognitive Impairment: Coverage is often triggered if the insured is diagnosed with a severe cognitive impairment, such as Alzheimer’s disease or another form of dementia, that necessitates supervision for their safety.
Elimination Period: How Long You Have to Wait to Receive the Benefits
The elimination period, also known as the waiting period, is the length of time the policyholder must wait after qualifying for benefits before the insurance company begins to pay for covered services. Common elimination periods range from 30 to 90 days, but some policies may have shorter or longer periods. The elimination period acts as a deductible, meaning the insured must cover their care costs out-of-pocket during this time.
There are two types of elimination period:
- Calendar Day: Calendar Day measures days from the 1st instance of care needed. Every day after that counts towards your elimination period whether you need care or not.
- Service Day: Service Day only counts days that you use eligible care toward your deductible.
If you receive care every day of the week, the two elimination periods would be satisfied at the same time.
Calendar Day Elimination Period
Service Day Elimination Period
Coverage Options: What The Policy Will Pay For
Traditional long-term care policies typically offer coverage for a wide range of services and care settings, including:
- In-Home Care: This includes services provided by home health aides, nurses, and therapists in the policyholder’s home.
- Assisted Living Facilities: Coverage for care provided in assisted living facilities, which offer housing, personal care, and health services.
- Nursing Homes: Policies often cover the cost of care in nursing homes, which provide 24-hour medical care and supervision.
- Adult Day Care: Some policies include coverage for adult day care centers, which provide care and social activities during the day for individuals who need supervision.
- Respite Care: Coverage for temporary relief to primary caregivers, allowing them to take a break from their caregiving duties.
Benefit Amount: How Much Will The Policy Pay
The benefit amount is the maximum daily, weekly, or monthly amount (most common) the policy will pay for covered services. Policyholders can choose from different benefit levels based on their anticipated needs and budget. Some policies, though not as many lately, pay these benefits over a lifetime but more commonly now the total lifetime benefit is specified. This means the policy will pay the benefits up to a lifetime maximum and then stop.
For example, a policy might provide a monthly benefit of $7,500 with a lifetime benefit of $270,000. The policy would likely say it covers $7,500 for 36 months ($7,500 x 36 months = $270,000 lifetime pool).
If you use less than the $7,500 per month, the policy could last longer than 36 months.
The policy will never pay more than the monthly amount in any given period.
Reimbursement vs Indemnity
When you receive eligible services, the insurance company will provide your benefits one of two ways: reimbursement or indemnity.
- Reimbursement provides benefits only up to the actual costs you actually incur.
- Indemnity pays you the full benefit amount regardless of what costs you actually incur.
Inflation Adjustments: Do Your Benefits Increase Over Time
Inflation protection is an important feature that helps ensure that the benefits of the policy keep pace with the rising cost of care. There are several types of inflation protection:
- Simple Inflation Protection: Benefits increase by a fixed percentage (e.g., 3% or 5%) each year based on the initial benefit amount.
- Compound Inflation Protection: Benefits increase by a compounded percentage each year, offering more significant growth over time.
Simple vs Compound Inflation
Other Features
Partnership Programs: Partnership Long-Term Care policies are policies that meet certain state requirements for benefit levels and in turn protect some or all of your remaining assets if you exhaust the long-term care policy benefits. If you exhaust the policy benefits and are seeking coverage for Medicaid, you will not have to spend down your assets fully to the level the state normally requires. There are two types of partnership programs out there:
- Total Asset Protection: Provides full protection of your assets if you exhaust the policy benefits.
- Dollar for Dollar: Dollar for Dollar protects your assets only up to the dollar level of the policy benefits.
Waiver of Premium Benefits: If you satisfy the elimination period, your premiums may be waived.
Survivorship Benefits: If you satisfy certain requirements and your spouse dies, the surviving spouse’s premiums may be waived for the remainder of their life.
Shared Coverage: If one spouse exhausts the full benefits of their policy, they may be able to access unused benefits of their spouse’s policy allowing them to share a bigger pool of benefits between them if one spouse has a longer long-term care event.