Long-Term Care Insurance - Provisions

Inflation Protection
With health care costs rising to new heights every year, buying a policy without inflation protection is probably buying a policy that won't cover much of your expenses. There are two main kinds of inflation protection: the right to add coverage at a later date; and automatic coverage increases that adjust for COLA (cost-of-living-adjustments)

Non-Forfeiture Benefit
Policies with this benefit will continue to pay for your care even if you stop paying premiums. This policy feature can add 10 percent to 100 percent to your premium.

Free-Look Clause
This provision lets you cancel your policy within a certain number of days after you've signed and paid for it. Applicants need to check with their state insurance commission to find out how many days are allowed- typical is 10, 20 or 30 days.

Waiver of Premium
This waiver allows the policy owner after a specified period of time of receiving benefits under the policy, to apply to have their premium payments waived until they are no longer receiving covered care or the lifetime maximum benefit has been paid.

Practice Question:
Which provision of a "qualified" long-term care policy is required under HIPAA?
A. Inflation protection
B. Surrender value
C. Guaranteed renewable
D. Fixed benefit

Answer: C
Under the Health Insurance Portability and Accountability Act (HIPAA), for policies issued after January 1, 1997- the contract must be "guaranteed renewable" in order to maintain federal "qualified" status.

Limits for a "Qualified Policy"
In order for a policy to receive favorable tax treatment, it must conform to certain standards & guidelines as set forth by the Internal Revenue Code and HIPAA. They must contain language to address the following:

  • Policy must be Guaranteed Renewable
  • Prohibitions on limits and exclusions
  • Policy replacement
  • Policy conversion
  • Cannot require prior hospital stay for benefits
  • Contract cannot only provide skilled nursing care coverage
  • Requirement to offer inflation-adjusted benefits
  • Proper marketing standards
  • Suitability of the recommended purchase
  • Must be a two-year incontestable clause for misrepresentation
Taxation of Premiums and Benefits
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