Long Term Care Insurance: Key Policy Provisions

Mrs. GoTo and I received our long term care insurance policies last week.  The policy was part of a large portfolio of documents that the agent delivered to me.  I immediately opened up the policy document to review what I consider to be the key provisions.  I thought I would share these with you to give you something to think about when considering purchasing long term care insurance for yourself:

1.  Elimination Period: 100 days.  This is not so important now because I am still working and have short term disability insurance.  When I am retired, this is the period of time during which I will have to self-fund my own long term care.

2.  Benefit Period: Five years.  This is the maximum period of time that I can receive benefits under the policy.  Statistically, this should cover everything I might need.  If I need long term care for more than five years, I will have to self fund and/or use Medicare/Medicaid benefits.

3.  Benefit Amount: $150/day and $273,750 lifetime.  This is for all covered care services.  In addition, the policy provides a $275 benefit for needs assessment and a $750 benefit for training of an informal caregiver (e.g., a family member).

4.  Covered Services: Nursing home/hospice facility (skilled, intermediate, and custodial); assisted living facility; home care; community care; respite care (21 days/year).  The key here is the home care, meaning that I can live at home and still receive long term care benefits.  “Respite care” is when I might need a temporary period of help 24/7 (in or outside the home) in case of illness or short term disability.

5.  Compound Inflation Protection Rider: This is another very important provision that automatically increases the benefit amount by 5% at the end of each year of the policy, without an increase in premium.  Obviously, the cost of long term care will continue to rise with inflation and I need a benefit amount that rises with it.  This rider is also necessary to take advantage of the long term care partnership rules if adopted by your state.   If your long term care policy qualifies for the long term care partnership program, you are allowed to keep more of your assets when becoming eligible for government long term care benefits.  Unfortunately, adding compound inflation protection is expensive.  In fact, the premium for this rider is larger than the base premium.

6.  Indemnity Rider: This is something else that is so helpful.  With an indemnity-type long term care policy, you are paid the full daily benefit regardless of the actual charges incurred.  For example, if I am  “chronically ill” and receiving long term care at home (even if mostly from a family member), I will receive the full $150/day benefit, as long as part of the home care involves a non-family member, such as a paid homemaker or private aide service.

7.  Benefit Eligibility: This is the operative policy language that defines when you are receiving “long term care” for which benefits are payable.  In my policy, it requires that I be “chronically ill.”  I am “chronically ill” when I am unable (for a period of 90 days) to perform two “activities of daily living” without substantial assistance.  “Activities of daily living” are bathing, dressing, transferring (in or out of a bed or chair), using the bathroom, continence, and eating.

Of course, there are lots of other policy terms that are important (including the premium amount) but these are the most significant in my view.  What about your policy?

Here is the how and why of our decision to buy long term care insurance.

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My Related Posts:

1. Predicting the Costs of Long Term Care