Should I Buy Long-term Care Insurance?
Since Medicare does not provide coverage for the high costs of long-term care in an institution or at home, the best option for our clients is to purchase, if they qualify, a long-term care policy from a well known insurance company. The advantages include more choices for the elder and family and preservation of the client’s. As long as the premiums are paid, the company cannot deny coverage.
The disadvantages include the high cost of the policy resulting in high policy lapses, your client must be healthy, and that premiums are not guaranteed and may go up.
The most common sources for long-term care insurance are either a private insurance company issuing an individual policy or on a group basis offered through employers. Currently, there are only 1,800 companies offering this as a benefit to their employees and in almost all cases the employee pays 100% of the cost.
Clients may want to consider the purchase of long-term insurance between ages 45 and 60, as the premiums are much lower, rather than wait until retirement.
The National Association of Insurance Commissioners provides a buyer’s guide to the public, which explains long-term care insurance called “A Shopper’s Guide to Long-Term Care Insurance”. In order to receive a copy call the National Association of Insurance Commissioners (816)-842-3600 or visit their website at www.naic.org.
Long-term care policies cover both skilled and nonskilled care. The three primary levels of care usually covered are skilled, intermediate and custodial (long term care).
Skilled care typically covers skilled nursing, restorative or therapeutic services. A trained professional under the supervision of a physician provides the care on a daily basis. Intermediate care generally consists of routine nursing services with intermittent availability of skilled nursing, restorative or therapeutic services. Custodial care (nonskilled) refers to personal care where the primary focus is assistance with the activities of daily living, such as eating, walking, dressing and bathing.
Most policies offered today (and recommended by the author) are called comprehensive policies since they provide benefits whether you are in a nursing home, assisted living facility or at home. There are older policies sold that provide benefits only in the home (home care policy) or in a nursing home (nursing home policy).
The policy should use “activities of daily living” (ADL’s) to determine when care is covered by the policy. These are known as “benefit triggers” since they are the terms used to describe the way the company decides to pay benefits. Companies may use different triggers for home health coverage than for nursing home care.
Benefits are paid when the policyholder cannot carry out two of the six activities of daily living. The six ADL’s are eating, toileting, transferring, bathing, dressing and continence.
Long-term care policies offer a number of provisions and options. The policyholder and advisor should understand the provisions included in the policy while keeping in mind the more features or benefits the policy offers, the more expensive it will be.
The major variables affecting the cost to the insured include the type of coverage, benefit amount, benefit period, the elimination period, age of the insured, type of inflation rider, and waiver of premium and restoration of benefits.
Benefit Amount – The policy normally pays a certain amount for each day of benefit usually expressed as $100 or $150 per day. Premiums increase as the per-day amount increases.
Benefit Period – The benefit is the length of time during which the company will provide the benefits. It is normally expressed in number of days or years (for example $100 benefit per day for three years) or through the insured person’s lifetime. It can, however, be expressed as a “pool of money”. Policies that specify the number of days of service have an advantage over policies expressed in years since the days can be spread out over an indefinite period.
Elimination Period – The elimination period is the required length of waiting time that the insured must cover the costs before receiving benefits. Many companies offer a minimum elimination period of thirty, sixty or ninety days. Some companies offer a 0-day elimination period. Premium costs decrease as the waiting period increases.
Inflation Rider – Some policies automatically increase benefits by a certain percentage annually without increasing premiums: others base increases on changes in the consumer price index. The policy may also offer future purchase options that allow the insured to purchase extra coverage at defined intervals such as every one to three years. Although inflation riders may double the cost of the insurance it is the authors’ recommendation that policies include this rider.
Wavier of Premium – There are two types, waiver of premium and dual waver of premium. Most (but not all) policies waive the premium while the policy is on claim status. Dual waiver of premium waives premiums for both spouses if either one becomes entitled to benefits.
Restoration of Benefits – Allows you to keep the maximum amount of your original benefit even after your policy has paid your benefits. You must go for a stated period without getting long term care services before your benefit goes back to the amount you first bought. But be careful, this option is the most misunderstood and misrepresented by a nonqualified insurance agent.
Tax Qualified Long – Term Care Insurance
In 1996, Congress added section 7702B and modified section 213 of the Internal Revenue Code to clarify the tax treatment of benefits and premiums relating to long-term care services insurance contracts. As a result, almost all the policies sold today are qualified long-term care insurance. In addition, long-term care policies issued before January 1, 1997 were granted qualified status.
Qualified contracts offer certain important tax advantages. Amounts paid under qualified long-term care insurance are excluded from income.
A qualified long-term care insurance contract must be guaranteed renewable, cannot provide any cash surrender value and must contain certain consumer protection provisions relating to prohibitions on limitations and exclusions, preexisting conditions, unintentional lapses and better disclosure requirements.
The contract must cover only qualified long-term care services. Qualified long-term care services (including maintenance or personal care services, therapeutic, curing, treating, and rehabilitating) are those services required by a chronically ill individual and that are provided under a plan of care prescribed by a health care practitioner (physician, registered professional nurse, or licensed social worker).
The health care practitioner must certify that within the preceding 12-month period, the chronically ill person was unable to perform without substantial assistance from another individual (either hands-on assistance, or standby assistance) at least two of the activities of daily living (ADLs) for at least 90 days due to a loss of functional capacity, or that due to severe cognitive impairment (e.g. Alzheimer’s or similar forms of irreversible dementia) the individual requires substantial supervision (continual supervision) to protect the individual from threats to health and safety (such as may result from wandering).
Since Medicare does not provide coverage for the high costs of long-term care in an institution or at home, the best option for our clients is to purchase, if they qualify, a long-term care policy from a well known insurance company. The advantages include more choices for the elder and family and preservation of the client’s. As long as the premiums are paid, the company cannot deny coverage.
The disadvantages include the high cost of the policy resulting in high policy lapses, your client must be healthy, and that premiums are not guaranteed and may go up.
The most common sources for long-term care insurance are either a private insurance company issuing an individual policy or on a group basis offered through employers. Currently, there are only 1,800 companies offering this as a benefit to their employees and in almost all cases the employee pays 100% of the cost.
Clients may want to consider the purchase of long-term insurance between ages 45 and 60, as the premiums are much lower, rather than wait until retirement.
The National Association of Insurance Commissioners provides a buyer’s guide to the public, which explains long-term care insurance called “A Shopper’s Guide to Long-Term Care Insurance”. In order to receive a copy call the National Association of Insurance Commissioners (816)-842-3600 or visit their website at www.naic.org.
Long-term care policies cover both skilled and nonskilled care. The three primary levels of care usually covered are skilled, intermediate and custodial (long term care).
Skilled care typically covers skilled nursing, restorative or therapeutic services. A trained professional under the supervision of a physician provides the care on a daily basis. Intermediate care generally consists of routine nursing services with intermittent availability of skilled nursing, restorative or therapeutic services. Custodial care (nonskilled) refers to personal care where the primary focus is assistance with the activities of daily living, such as eating, walking, dressing and bathing.
Most policies offered today (and recommended by the author) are called comprehensive policies since they provide benefits whether you are in a nursing home, assisted living facility or at home. There are older policies sold that provide benefits only in the home (home care policy) or in a nursing home (nursing home policy).
The policy should use “activities of daily living” (ADL’s) to determine when care is covered by the policy. These are known as “benefit triggers” since they are the terms used to describe the way the company decides to pay benefits. Companies may use different triggers for home health coverage than for nursing home care.
Benefits are paid when the policyholder cannot carry out two of the six activities of daily living. The six ADL’s are eating, toileting, transferring, bathing, dressing and continence.
Long-term care policies offer a number of provisions and options. The policyholder and advisor should understand the provisions included in the policy while keeping in mind the more features or benefits the policy offers, the more expensive it will be.
The major variables affecting the cost to the insured include the type of coverage, benefit amount, benefit period, the elimination period, age of the insured, type of inflation rider, and waiver of premium and restoration of benefits.
Benefit Amount – The policy normally pays a certain amount for each day of benefit usually expressed as $100 or $150 per day. Premiums increase as the per-day amount increases.
Benefit Period – The benefit is the length of time during which the company will provide the benefits. It is normally expressed in number of days or years (for example $100 benefit per day for three years) or through the insured person’s lifetime. It can, however, be expressed as a “pool of money”. Policies that specify the number of days of service have an advantage over policies expressed in years since the days can be spread out over an indefinite period.
Elimination Period – The elimination period is the required length of waiting time that the insured must cover the costs before receiving benefits. Many companies offer a minimum elimination period of thirty, sixty or ninety days. Some companies offer a 0-day elimination period. Premium costs decrease as the waiting period increases.
Inflation Rider – Some policies automatically increase benefits by a certain percentage annually without increasing premiums: others base increases on changes in the consumer price index. The policy may also offer future purchase options that allow the insured to purchase extra coverage at defined intervals such as every one to three years. Although inflation riders may double the cost of the insurance it is the authors’ recommendation that policies include this rider.
Wavier of Premium – There are two types, waiver of premium and dual waver of premium. Most (but not all) policies waive the premium while the policy is on claim status. Dual waiver of premium waives premiums for both spouses if either one becomes entitled to benefits.
Restoration of Benefits – Allows you to keep the maximum amount of your original benefit even after your policy has paid your benefits. You must go for a stated period without getting long term care services before your benefit goes back to the amount you first bought. But be careful, this option is the most misunderstood and misrepresented by a nonqualified insurance agent.
Tax Qualified Long – Term Care Insurance
In 1996, Congress added section 7702B and modified section 213 of the Internal Revenue Code to clarify the tax treatment of benefits and premiums relating to long-term care services insurance contracts. As a result, almost all the policies sold today are qualified long-term care insurance. In addition, long-term care policies issued before January 1, 1997 were granted qualified status.
Qualified contracts offer certain important tax advantages. Amounts paid under qualified long-term care insurance are excluded from income.
A qualified long-term care insurance contract must be guaranteed renewable, cannot provide any cash surrender value and must contain certain consumer protection provisions relating to prohibitions on limitations and exclusions, preexisting conditions, unintentional lapses and better disclosure requirements.
The contract must cover only qualified long-term care services. Qualified long-term care services (including maintenance or personal care services, therapeutic, curing, treating, and rehabilitating) are those services required by a chronically ill individual and that are provided under a plan of care prescribed by a health care practitioner (physician, registered professional nurse, or licensed social worker).
The health care practitioner must certify that within the preceding 12-month period, the chronically ill person was unable to perform without substantial assistance from another individual (either hands-on assistance, or standby assistance) at least two of the activities of daily living (ADLs) for at least 90 days due to a loss of functional capacity, or that due to severe cognitive impairment (e.g. Alzheimer’s or similar forms of irreversible dementia) the individual requires substantial supervision (continual supervision) to protect the individual from threats to health and safety (such as may result from wandering).
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