Learn about LTCi Policy Features
Types of Long Term Care Insurance Policies
Tax Qualified Policies
Non-Tax Qualified Plans
Qualifying For Benefits (going on claim)
Activities of Daily Living Home
Health Care Facility Care Coverage in Nursing Home or
Assisted Living
Inflation Protection
Elimination Period
Policy Maximum or Pool of Money
Shared Benefit Coverage for Couples
Waiver of Premium
Return of PremiumBenefit
Survivorship Benefit
Nonforfeiture (lapse protection) Benefit
Types of Long Term Care Insurance Policies
There are three main categories of LTCi policies reimbursement,
indemnity and cash. Assume you have a $200 daily benefit. Reimbursement
pays for only the covered service. If you spend $70 on a provider, you
get $70 in reimbursement. The other $130 remains in your pool of
benefits. As long as you have a documented service, indemnity will pay
you the full $200 even if you spend only $70. A cash policy will pay you
the full $200 regardless of whether or not any services are provided.
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Congress passed legislation effective in 1997 giving a tax break to
people who purchase long term care insurance that meets certain federal
standards. These tax-qualified plans use a stricter eligibility standard
than standards established in California for long term care insurance
plans (non-tax qualified plans). Policies that are labeled as “Federally
Tax Qualified” use federal standards for paying benefits (i.e. you must
be unable to perform 2 of the following 6 ADLs without substantial
assistance from another person for at least 90 days: bathing, dressing,
continence, toileting, transferring, eating or when you need help
because of severe cognitive impairment). Some or all of the premiums for
tax-qualified plans may be tax deductible as a medical expense. Benefits
received from a tax-qualified plan are not taxable as income.
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Eligibility standards to pay benefits require you be impaired in 2
out of 7 ADLs (the same 6 ADLs as listed for the tax-qualified plan plus
ambulating or when you need help because of cognitive impairment). You
also don’t require the certification that you will need care for at
least 90 days. The premiums for these plans are not tax deductible.
Benefits paid from the non-tax qualified plans have not been taxed as
income, however it is not clear under federal law if the benefit
payments are taxable as income.
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Qualifying For Benefits (going on claim)
For tax-qualified plans which make up the majority of those sold
today the triggers to qualify for benefits are:
1) If the insured person is unable to perform at least two
activities of daily living for a period expected to last at least 90
days due to a loss of functional capability; or
2) If the insured person requires supervision due to a severe cognitaive
imparement such as Alzheimer’s or Senile Dementia.
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Bathing, continence, dressing, eating, toileting and transferring
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Most of the newer long term care insurance plans sold in the past 10
years offer home health care. Make sure your plan does and that it will
pay 100% of you daily or monthly benefit amount. Also make sure you
long term care policy will pay for custodial and skilled home health
care. There are some policies that will just pay for skilled care.
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Facility Care Coverage in Nursing Home or Assisted Living
All long term care insurance policies will cover facility care at
either a daily or monthly rate in nursing home and assisted living
facilities and the benefits cover room and board, skilled or custodial
care in a facility. Benefit Period The benefit period is how long
benefits will last and that depends the number of years of coverage you
may choose. Most companies will offer plans of 2,3,4,5,6,10 years, or
unlimited (lifetime) coverage. 92% of all long term care claims lasted
3 years or less.
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Inflation protection is the most important long term care insurance
rider because it increases your benefit with time and protects you
purchasing power. There are several types of inflation options available
depending on the insurance carrier but the three most common are
compound inflation, simple inflation and future purchase options.
Compound and simple inflation riders are typically either 3% or 5%.
Future purchase options allow you to increase your current benefit by a
set amount say 15% every five years (the amount and frequency varies by
carrier). You are allowed to accept each offer without submitting
evidence of insurability. The rate for the benefit added is typically at
your attained age at the time of purchase. This option allows you to
increase your benefit in the future when your financial situation allows
it and address the inflation issue without the significant increase in
rates typically associated with adding a compound or simple inflation
rider.
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The elimination period is the time period of time that must pass
after you have qualified for benefits before the policy will start to
pay benefits. Most companies offer a 0, 20, 30, 60, 90, or 180 day
elimination period. The longer the elimination period the lower your
premium will be. Elimination periods can be defined by calendar days or
service days. Calendar days is the preferred method as you will not have
to be incurring services and in turn costs to meet the elimination
period as you would with a service day definition.
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Policy Maximum or Pool of Money
Your policy will list a policy maximum value in dollars and that is
the amount of liability the insurance company is on the hook for. Some
long term care insurance policies call it a "pool of money." A pool of
money long term care insurance policy will let you stretch the benefits
years if you do not take out the maximum daily or monthly amount. For
example a $100/day policy for 3 years value or pool of money is
$109,500. If you religiously pulled out $100 a day each and every day
you would exhaust the policy. However, if you pulled out less say
$50/day your policy will not last just 3 years, but 6 years because you
were pulling out half the maximum amount.
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Shared Benefit Coverage for Couples
This optional rider allows couples to share each other's benefits.
If one spouse needs long term care and runs out of money in their
policy, they then can dip into their spouse's policy and start to use
their benefits.
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When you need long term care the last things you need to worry about
is paying the premium for your policy. Most of the top companies will
waive your premium once you go on claim and start receiving benefit.
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This benefit is a rider that some companies offer that will return
all or a portion of the long term care insurance premiums paid back to
your beneficiary at your death. There are different options available
with this rider depending on the company so be sure to ask questions and
look at several companies.
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This long term care insurance rider is for couples and depending on
the option when either 7 or 10 years passes if not claims had been paid
when one spouses dies then the other spouse has full benefits and never
has to pay premiums again.
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Nonforfeiture (lapse protection)
Benefit If your coverage terminates due to non-payment of premium on
or after the third anniversary and before your benefits have been
exhausted, the nonforfeiture benefit will provide a limited paid-up
benefit.
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