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

Related Articles
  1. Financial Advisor

    Taking The Surprise Out Of Long-Term Care

    Don't be caught unprepared - find out what to look for in LTC insurance policies.
  2. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  3. Financial Advisor

    Long-Term Care Policies: Why They're Worth It

    Long-term care insurance can be a godsend for those who need it for an extended period of time. Read on for more about this long-term care option.
  4. Financial Advisor

    Considerations For Long-Term Care Coverage

    Medical and financial health determine whether long-term care insurance will pay off.
  5. Insurance

    The Bad News About Long-Term Care

    The costs of long-term care continue to increase and most retirees can't afford to pay out of pocket for these services for an extended period.
  6. Retirement

    How to Choose the Best Long-Term Care Insurance

    Here's how to find and select a policy that provides the best coverage for you.
  7. Insurance

    How to Choose Permanent Life Insurance Policies

    When does it makes sense to buy a guaranteed rather than a non-guaranteed life insurance policy?
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center