Long-Term Care: Policy Features
There are many features and options to a long-term care insurance policy. The five main features are discussed below. It is important to consider how each feature could impact your overall coverage.
Type of Policy: There are three types of policies. “Nursing Home Only” provides coverage only for nursing homes. “Home Health Care Only” provides coverage only within the home. “Comprehensive” provides coverage for home health care, assisted living, and nursing homes.
Daily Benefit: The amount that an insurance company will pay is often referred to in terms of a “daily benefit”. This is the maximum that an insurance company will pay on any specific day. To get the maximum annual benefit, multiply the daily amount by 365. For example, a $120 daily benefit could be equal to $43,800/year and a $175 daily benefit could be equal to $63,875.
Benefit Period: This is the minimum length of time an insurance company will pay you benefits. The range is between one year and unlimited coverage. Unlimited coverage covers you for your lifetime, while a defined benefit period pays you for a certain time period.
Your lifetime maximum benefit (pool of money available to you) is established by multiplying your daily benefit by the benefit period. For example, if you have a 2-year benefit period and your daily benefit is $150, then you would have $109,500 ($150 x 365 x 2) available to you as a pool of money.
Inflation Protection: You can choose whether or not you want your benefits to inflate over time. In the example above, if you do not choose to inflate your benefits, you will always have $109,500 available to you, even if costs have risen dramatically.
Most people choose either a 5% “Simple Inflation” or “Compound Inflation”. Simple inflation only increases the original amount. If you had a $100 daily benefit, then it will go up $5 each year. Compound inflation grows faster because it increases the current amount ($100 grows to $105, $110.25, $115.76, $121.55, etc.) Compound inflation really starts to make a difference after 10 years.
Elimination Period: The elimination period is the number of days you must pay for your own long-term care before an insurance company will begin paying benefits. The elimination period is often referred to as a deductible. Typical elimination periods are 0, 30, 60, 90, 100, 180, and 365 days. Just like with the deductibles on your other insurance, the higher the deductible, the more you initially pay out of pocket.
While there are other options to consider, these five main features will have the greatest impact on your level of protection. The lowest premium will not always be your best scenario. Likewise, you do not want to commit to a benefit-rich policy that you can’t afford in a few years. It is crucial to design a long-term care insurance policy that balances both costs and benefits.