Perhaps you or a loved one has recently recognized the need for long-term care insurance. This type of insurance is not just “nursing home” coverage but is insurance that helps assure you of continued independence and protects your personal assets. Long-term care insurance helps to pay for care for an extended period of time, whether that be in a nursing facility, rehabilitation facility, or providing in-home assistance to those who need help with Activities of Daily Living (ADLs).
To ensure any policy is effective, it is made up of guidelines to benefit the policyholder, including:
- Insures against future long-term care expenses;
- Requires an annual premium;
- Does not have any cash value or death benefit; and
- Has premiums that can increase in the future.
A long-term care insurance policy functions a lot like a homeowner’s policy. You pay your premiums each year, and if you have a claim, you file the claim. But if you never have a claim, you never collect any benefits from the policy.
Policy Structure
Typically, a long-term care insurance policy begins with a strict health underwriting process. In order to qualify for coverage, you need to be in reasonably good health for the company to offer you a policy. For example, if you have received a diagnosis of Dementia or Alzheimer’s, many companies will not offer you a policy.
The policy coverage is usually quoted as a daily benefit for a specified number of years, for example, $150/day for up to 3 years. Then this benefit is then translated into a total pool of funds equaling $165,000.
An annual premium must be paid to renew coverage each year. The insurance company may also give you the option to pay the premium semi-annually, quarterly, or monthly. If you do not pay the premium, the policy will lapse and be canceled by the insurance company (although many modern policies allow for a 6-month grace period for an unintentional lapse if due to cognitive or physical impairment).
It’s also critical to understand that long-term care insurance is a lot like health insurance in that the annual premiums can increase in the future. If the premium increases, the insurance company will generally offer you the option to pay the increased premium to keep the existing coverage or continue paying the same premium you were accustomed to paying, but your benefits under the policy will be reduced.
When Can I Use My Benefits?
Long-term care benefits are triggered under the policy once you meet the policy criteria. Older policies were strict “nursing home” only policies, but most modern policies cover in-home care, assisted living care, skilled nursing facilities, or long-term care facilities. Some policies may reduce the daily benefit of in-home care or assisted living care vs. long-term care facilities.
For most policies, the first step to triggering coverage is a physician’s assessment that shows the following:
- You need assistance with two or more Activities of Daily Living; or
- You have severe cognitive impairment.
Similar to a health insurance deductible, most policies have an applicable “elimination period” during which you must pay for any care out of pocket before the policy will start paying for your care. Generally, the elimination period is either 30, 60, or 90 days, but you, as the policyholder, can usually choose your elimination period when you establish your policy. Some policies will waive the elimination period for in-home care.
Can I Customize My Policy?
Many long-term care insurance providers allow you to tailor your policy with additional benefits or policy riders if there are certain things you want to be covered. A few examples include:
- Bed Reservation Coverage: Many nursing homes have waiting lists for beds. If you are in a nursing home and then must be hospitalized, a long-term care insurance policy that has “bed reservation” coverage will continue to pay for your nursing home bed for up to a specified number of days so that your nursing home bed is not given away to a new resident while you are in the hospital.
- Home Modification Coverage: Some policies will provide coverage for home modifications, like a ramp if you are still residing in your home.
- Respite Care Coverage: Some policies will cover a specified number of days of respite care—temporary care in an assisted living facility or nursing home to give your in-home caregivers a break or allow them to take a vacation.
- Return of Premium Rider: This type of policy rider provides that upon your death, the premiums that you paid for the policy (usually reduced by any benefits paid under the policy) will be refunded to your estate or to a named beneficiary.
- Inflation Rider: This type of policy rider increases the benefit amount annually in an effort to keep up with the rising costs of care. Some inflation riders are based on simple interest, while others are based on compound interest. The method of calculation can make a dramatic difference to your benefits in the long run.
We Can Help You Develop a Long-Term Care Plan
Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.
We’ve helped many clients take an interdisciplinary approach to their long-term care planning by exploring both legal and financial options. Usually, a well-rounded long-term care plan will involve a combination of legal, health care, and financial tools to meet your goals and maximize your protection. To get started, register for an upcoming seminar to learn more or call our office at 919-587-8364.
