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Long Term Care Insurance, along with Veterans Benefits, are the two primary items I look for when going on the treasure hunt to figure out how someone will pay for Senior Living. Unfortunately, only about 4 percent of residents in Senior Living have Long Term Care Insurance. But when it is present, Long Term Care Insurance is always a blessing.
The first thing to know about Long Term Care Insurance is that every policy is different, and there are no standardized terms. When someone tells me they have Long Term Care insurance, I have to ask the terms. About half of the time, the relative who calls me doesn’t know the terms and has to go search for the policy.
Often the policy itself is nowhere to be found, but someone, usually a relative handling finances, has seen the premium charges on the bank statements, so that’s the only way anyone is aware of it. When the policy is lost, you have to ask the company for a copy of the policy. This takes a month and has to be accompanied by a copy of the financial power of attorney because financial companies take security seriously.
Be forewarned that dealing with insurance companies is a pain in the rear, and it may take hours of waiting on hold to get answers. Unfortunately, the agent who sold you the policy in the first place is rarely to be found, since most often the policy was purchased 20 or 30 years ago and the agent has long since retired. So customer service is not the insurance company’s priority.
The second thing to know is the insurance terms used in the policy. It may take a close reading of the two or three dozen defined terms in the policy to figure out all the specifics.
Now I want to discuss the money terms, the ones people are most interested in.
- Daily Benefit Amount
- This relates to how much the policy will pay. If the daily benefit were $100, then that’s about $3,000 per month.
- Benefit Period
- Many policies in the early days of Long Term Care Insurance were lifetime benefits, meaning that once triggered, benefits would be paid for the rest of the insured’s life. Unfortunately for insurance companies, this unlimited benefit proved much more costly than anticipated. For the past twenty years or so they have capped the amount of time they will pay for benefits. Most policies these days are limited to a two-year, three-year, or five-year maximum duration.
- Maximum Lifetime Benefit
- This is generally equal to the daily benefit amount multiplied by the benefit period. A $100 daily benefit amount for a three-year benefit period would have about $109,500 in Maximum Lifetime Benefits.
- Exclusion Period
- Essentially this is the policy deductible. The policy benefits won’t kick in until after the delay defined by the Exclusion Period. A favorable policy’s Exclusion Period is 30 days, and the least favorable Exclusion Period is 100 days. To calculate your deductible, multiply the exclusion period days times the daily benefit.
- Inflation Rider
- This has various names, but essentially it increases your daily benefit annually by around 5% to protect from inflation. Most policies don’t have the Inflation Rider because it increased the policy cost by about 50%. But when you do have the inflation rider, you are golden. Over 20 years the compound increase from a 5% inflation rider would increase the daily benefit by 265%.
The next thing to know when dealing with Long Term Care Insurance is when benefits are triggered. The short answer is they are triggered when the covered person needs help with two out of six activities of daily living. Most policies these days also have a separate provision for severe cognitive decline. The 6 activities of daily living are dressing, bathing, eating, transferring, toileting and incontinence.
Strangely, medication management is not an official activity of daily living for purposes of Long Term Care Insurance. Benefits may be triggered when, for instance, someone has limited mobility and needs help moving about, help in the shower, or getting to the toilet.
To trigger the benefits, the insurance company usually sends out a nurse to do a medical assessment. When approved, long term care benefits are reimbursed to the insured person and are not paid directly to the long term care facility. The long term care facility must generally fill out a monthly form certifying that the insured is receiving the required care.
PAYING FOR HOME CARE
Some Long Term Care Insurance will pay for home care. Frequently this has a lower daily benefit than for long term care. This home care benefit can also be received when an insured is in an Independent Living community. But Independent Living apartment costs are never covered, as one of the common terms of a Long Term Care Insurance Policy is that a facility must be licensed.
I would guess that probably 80% of Assisted Living residents would qualify for benefits under long term care policy standards, and probably close to 100%of residents in a Memory Care or Skilled Nursing would qualify.
There can be unfortunate surprises in long term care policies. Sometimes I see policies where the terms have been changed, such as when the insurance company bargained with the Senior to do away with the Inflation Rider in exchange for not increasing the policy premium. Or when a policy has expired because a senior with cognitive decline stopped paying the premiums altogether.
In other cases, there may be pleasant surprises, such as when one spouse’s unused benefits may transfer to the other spouse. The lesson here is that every policy is different. And while I have gone over some basic points common to most Long Term Care Insurance policies, a close reading of your policy is essential.
As ever, if you need assistance finding Assisted Living, Independent Living, or Memory Care in the Austin, Texas area, please call me at (512) 630-7133.