Basic considerations of a stand-alone long-term care policy
By Steve Savant
Ash Brokerage Corporation
Few advisors address extended care scenarios with their prospects and clients. So just in case you need a refresher course or an entry-level boot camp of key considerations, I’ve outlined the fundamentals of extended care coverage.
Some years ago, I spent six Saturdays in a row visiting a nursing home in Scottsdale, Arizona. The facilities were upscale, and the members appeared to be enjoying life. It seemed to me like a country club for geriatrics.
In stark contrast, I participated in a rather strange retirement seminar, where we hosted a tour for seniors. Part of that tour included a state-run faculty. I don’t want to cast a negative aspersion on the state facility, but the overwhelming reaction from our seminar participants was unenthusiastic to say the least.
After the seminar tour, the host met with his seminar prospects. A few prospects wanted help with their retirement portfolio. Some wanted help with their Social Security benefits. But almost all of them wanted to discuss long-term care (LTC) options. Touring that state facility was emotional, disconcerting and, most importantly, motivational.
Assessing the need for LTC insurance is an important part of any risk management program or retirement model. The heavy economic burden of paying for such extended care should be measured against one's financial resources. But even if you have the financial wherewithal, is it a sound economic move to pay extended care services with liquid assets? After all, the economic leverage of purchasing LTC protection using a stand-alone or linked benefit policy is generally a better deal.
Most retirement advisors who deal with seniors appear to focus on generating income for their retirement portfolios. Some advisors augment their practice with Social Security planning. Few address extended care scenarios with their prospects and clients. So just in case you need a refresher course or an entry-level boot camp of key considerations, I’ve outlined the fundamentals of extended care coverage.
A quick preamble: When you consider that the number-one threat to retirement is living too long, then the odds increase that you’ll need, at the very least, assisted home care. And even if that care is for a short period of time, consider the effects it will that have on your estate and any legacy you may wish to leave to your heirs or charitable organizations. The decision to purchase LTC insurance, either individually or under a group plan, needs to be made while you are still healthy. Once a disabling condition occurs, it’s generally too late to act. Common elements in LTC insurance policies: qualified LTC policies
If a LTC policy meets certain criteria established by the federal government, the premiums for the policy are considered “medical care” and thus qualify for the medical expense itemized deduction. Federal law limits the amount of qualified LTC premiums that may be deducted each year. (The discussion here concerns federal income tax law; state or local income tax law may vary.)
Amount of the benefit
A policy will generally specify the maximum dollar benefit payable. You may want to go on your own tour of local nursing homes to determine the amount needed per month, the total maximum benefit payout and the facilities. You have to ask yourself: "Can I imagine myself living in this facility? And how are the services billed to match up to my policy?"
LTC benefits are generally paid in one of two ways: reimbursement or indemnification. The reimbursement method pays the lesser of the actual expenses incurred or the dollar limit specified in the policy. The indemnity method pays the entire daily benefit as long as the insured requires and is receiving LTC services.
Inflation or cost of living protection is necessary to protect the policy benefits from declining due to increases in health care costs. Since costs inevitably increase, a policy without a provision for inflation may be outdated in a few years. Though an additional charge is incurred for this protection, the ability to grow the benefit pool over the life of the policy is a value added feature.
Almost all LTC policies sold today are guaranteed renewable; they cannot be canceled as long as you pay the premiums on time and as long as you have told the truth about your health on the application.
Waiver of premium
Some policies will waive future premiums after you have been in the nursing home for a specified number of days (e.g. 90 days). Policy definitions are important, so read the fine print. Place of care
Does the policy require that the nursing home be licensed or otherwise certified by the state to provide skilled or intermediate nursing care? Does the facility meet certain record keeping requirements? Accounting issues may be a policy benefit issue, depending on the contract language.
Plan of care
A plan of care is part of the health care claims process. It is the result of an assessment prepared by the insured’s physician and a multi-disciplinary team, including practical nurses, social workers and other health care professionals. The plan outlines the appropriate level of care needed to assist the insured in performing the activities of daily living.
Level of care
There are three generally recognized levels of care in an institutional setting:
- Skilled care: Daily nursing and rehabilitation care under the supervision of skilled medical personnel and based on a physician’s orders.
- Intermediate care: The same as skilled care, except it requires only intermittent or occasional nursing and rehabilitative care.
- Custodial care: Help in one’s daily activities, including eating, getting up, bathing, dressing, use of toilet, etc. Persons performing the assistance may not need to be medically skilled, but the care is usually based upon the physician’s certification that the care is needed.
Deductible or waiting period
Most LTC policies require you to wait for a specified number of days (generally ranging between zero and 120 days) before the insurance company will begin to pay benefits. The longer the waiting period, the less the cost of the policy; the shorter the waiting period, the greater the cost of the policy. This is a critical cost containment issue. Liquid cash reserves in the bank or HSA account can mitigate the premium outlay for a LTC policy.
Selecting the right stand-alone LTC solution can be affordable if you coordinate the base policy with the right policy riders. Awareness, education on benefit selections, and research can help you design the solution for your client and your own family. Professional LTC guidance is extremely important in selecting the solution and insurance company that can best serve your needs.
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