TRADITIONAL LONG-TERM CARE INSURANCE PLANS
Traditional Long-Term Care Insurance Defined
Traditional Long-Term Care Insurance Plans allow individuals to pay predictable premium payments to an insurance company for the promise that the insurance company will provide them with the financial support promised in the contract in the event they have a long term care services need.
Long-term care insurance benefits are typically paid to a policy owner when they are unable to do 2 out of the 6 Activities of Daily Living:
- Eating – Feeding Oneself
- Bathing – Bathing Oneself
- Getting dressed – Dressing Oneself
- Toileting – Using a toilet and perform associated personal hygiene
- Transferring
- Continence – Control of one’s bladder and/or bowel
- Traditional Long-term care policies are typically designed on a “per day” or “per month” benefit with lifetime maximums. Any money not used during a claim period is typically rolled over to another benefit period until the lifetime maximum of the policy is used.
Traditional Long-Term Care policies have several features and options to consider. These are:
- Daily/monthly benefits – the maximum daily or monthly amount a policy will provide towards the cost of long-term care services. Unused amounts are rolled-over until the maximum benefit is used.
- Maximum Benefit – The maximum benefit amount a long-term care insurance policy will provide (for example – $500,000)
- Elimination Period – The waiting period before benefits are paid. Elimination periods are generally greater than 90 days (Medicare provides some insurance coverage for 100 days for skilled nursing) and longer waiting times reduce long-term care insurance premiums.
- Inflation Rider – A provision that helps benefits keep up with the cost of care. Includes inflation-adjustments to benefits or guaranteed future purchase riders allowing policy owner to purchase more long-term care insurance in the future.
- Shared Benefit Rider – Allows a couple to share benefit between their two policies. For example, if they each have $500,000 in total maximum benefit but one partner exhausts his or her entire benefit, that partner can begin drawing on benefits from the other partner’s policy.
- Guaranteed Renewability – An insurance company cannot cancel your policy as long as you pay the policy premium. An insurance reserves the right to increase premiums but cannot do so unless all policies of that type within a particular state are increased together. An insurance company cannot increase the premium on one individual’s policy for any reason.
Benefits of a Traditional Long-Term Care Insurance Policy
- Premiums are tax deductible
- Can purchase shared care rider to reduce cost
- Higher initial benefits than hybrid plans
- Lower Cost for Pure Long-Term Care Coverage
- May be eligible for State “Partnership” plans
Disadvantages of Traditional Long-term Care Insurance
- Must be insurable as policies are underwritten
- Cannot surrender cash values of life insurance and annuities to purchase these without incurring a taxable event.