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How to Decipher a Long-Term Care Insurance Policy

Congratulations, you had the foresight to purchase long-term care insurance. You understood this may mean paying premiums for many years in order to transfer the risk that you might need to utilize the policy’s benefits, because the cost of absorbing this potential risk is greater than you want to take on.

Do you understand the features included in your policy and how to access them if needed? What levels of care are covered? What are the dollar values and limits of your coverage? When/how might you be eligible to receive benefits? Will/can your benefits be adjusted? This article will address those questions so you can better understand your policy before you might need it. (For more, see: Long-Term Care Insurance: Who Needs It?)

Levels and Types of Care

Your policy should spell out the levels of benefits covered for skilled nursing care and personal/custodial care (both levels of care are required in many states). The policy will specify which care settings are covered, from nursing homes and assisted living facilities to care provided at home. Your policy may also cover care received in an adult day care center.

Amounts of Coverage

The amount and duration of benefits often drive the relative cost of the policy, and you likely explored different options when deciding how much you were willing to pay for your initial premium. The policy will specify the amount of coverage you selected as your daily benefit (typical options range from $100 to $350 per day). How long can you receive benefits? Policies usually specify a limitation on the duration of benefits in terms of dollar amount per year or over your lifetime.  They may alternatively spell out a time limit during which you can receive benefits.

Eligibility to Receive Coverage

Typically, your eligibility to receive benefits will be based on your inability to perform two or three “activities of daily living.” In such situations, you would require assistance bathing, dressing, toileting, eating, continence or transferring from bed to chair. Cognitive impairment may or may not be covered and prior hospitalization may be required before you can qualify for benefits. Often times, you will be asked to provide a doctor’s certification that you require assistance. (For more, see: How to Choose the Best Long-term Care Insurance.)

Your policy will specify an elimination or waiting period before the insurance company will pay for your care. This period typically ranges from 30 to 100 days and during this time, you will be responsible for paying for your care. Your policy may also specify a waiting period to be imposed for pre-existing conditions before coverage begins.

Adjustments to Benefit Levels

Your policy may include an inflation rider that automatically adjusts the dollar amount of your coverage for inflation to protect the value of your insurance as costs of care rise. Inflation protection is usually a feature that you would have selected when you purchased the policy and the rate may be calculated as a simple or compound rate. Your policy may allow you to purchase additional coverage after a period of time and it could be a good idea to familiarize yourself with the availability of this feature.

Other Benefits

Your policy may have been issued as an individual policy or as a shared policy with your spouse. A shared rider allows you and your spouse to share a pool of benefits at an additional cost. Long-term care policies can include other benefits, such as a waiver of premium once you are collecting benefits, return of premium (subject to specific conditions) or a death benefit (payable to a specified beneficiary upon death of the insured).

As you can see, benefits and features of long-term care policies can differ significantly, and we highly recommend to clients that they strive to understand their coverage long before they need to access their benefits. It may also be a good idea to discuss your coverage with your adult children, since they might be involved in future decision making about your health care. (For more from this author, see: What Happens When You're Executor of Your Parents' Estate.)


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