An Introduction to Long Term Care Insurance Policy Design

Once it has been determined that someone is health-eligible to purchase long term care (LTC) insurance,  plan design begins.

Although plan designs and available riders do vary somewhat between insurers, here are the primary design considerations:

• Monthly benefit – this is the first consideration. Taking a look at the cost of care and the insured’s financials, a decision is made as to how much to self-insure.  Remember that any unused monthly benefit normally carries forward, so experts recommend short and fat policies vs. long and thin policies.  That’s because with a short, fat policy much more benefit would be collected if a lot of care wasn’t needed and the claim didn’t last for many years.
• Elimination period – this refers to the number of days to wait before policy benefits start. With some policies, receipts for covered care out-of-pocket expenses must be shown during the elimination period.  This is similar to a deductible, such as is required for car insurance. Other policies define the elimination period as simply a waiting period, and will not require receipts for care during that time period. If a spouse, family members, or friends initially helped out with care at home, a policyholder wouldn’t need to show care receipts.

Remember, tax-qualified policies require that the need for care last at least 90 days for care to be covered.  So a 6-week recovery from an accident would not be covered even if someone had a 30 day elimination period on their LTC insurance policy.

• Inflation – a policy with a high monthly benefit purchased today by a 55-year-old won’t look as attractive at claim time (typically 25+ years away) if inflation protection is not built-in. Including some form of inflation protection is important for most policies.
• Benefit period – this is the number of years that the policy will pay for covered care once medical eligibility is met. If less of the specified monthly benefit is used when on claim, the policy would extend beyond the benefit period.
• What’s the chassis? Traditional long term care insurance is still the gold standard for coverage. However, there are other options, such as asset-based or hybrid policies that may be more attractive to some people.  Whether premium funding is from cash flow, or from asset reposition can impact the recommended type of policy.

This simple overview of LTC insurance plan design is not intended to cover every design consideration.  A Long Term Care Insurance Specialist is the best person to assist in plan design to ensure the right policy is created for your unique situation.