Types of Policies
Overview
First, insurance premiums are regulated, so no one individual insurance agent can tell you that they are giving you a better deal than another assuming all the parameters are equal in the policy – thus the premium will be the same. Any premium differences will be due to your health rating / underwriting classification, gender, spousal or partner discounts, any association or workforce discount and riders that are added to the policy. Please note that most all of these long-term care policies cover for home care, home health aides, adult day care, assisted living facilities, memory-care units, nursing homes, etc.
With over 28 years of experience and thousands of clients nationwide, a long-term care specialist like Rich Schwab will ask you many questions about your health, family history, and future or current retirement plans. This information will help determine the amount of benefit you would need to meet your concerns and financial budget. Rich can then research the best coverage at the best value as he has access to most all of the top long-term care insurers in the industry.
Long-Term Care Insurance (Traditional)
These plans have been around since the late 1980’s and are still a popular and affordable option for those looking to address and protect themselves from the financial, emotional and physical burdens of one needing long term care.
Unlike other forms of insurance where you may change coverage or insurance carriers from year-to-year, with long-term care insurance (including hybrids following this section) you normally buy long-term care insurance only once. This is because premiums are based on one’s age and your health at the time you apply as there are no pre-existing condition limitations once accepted. It rarely pays to switch companies. That's why it's imperative to work with an independent broker such as Rich who can compare coverage from different insurers to begin with.
There are four principal ways that a person can design a traditional long-term care insurance policy – along with Rich’s help as your long- term care specialist. Please note that there are various other ancillary riders/options that can be chosen within the design, but let’s stick to the main features that one designs in a traditional long-term care policy.
The first way is length of coverage (which will translate to a total pool of money) allows an applicant to select a period of time once care begins. Insurance carriers offer varying lengths of coverage ranging from 2 years through unlimited length of coverage (lifetime).
The second way one designs coverage is the monthly or daily benefit option. Most coverages will offer a range from $50 daily / $1500 month up to $400 day / $12,000 month to start coverage.
A third option allows one to include inflation protection built into the coverage to grow the daily/monthly benefit over time to keep up with the increasing costs of long-term care. Premium will generally remain the same if automatic increases are built into the coverage. Some policies offer opportunities to buy more insurance, sometimes without evidence of insurability, as long as you are not receiving benefits (on claim) at the time and then the premium can increase if you one chooses to either buy more inflation coverage or has an inflation option that grows the benefit based on an indices such as the consumer price index (CPI) growing. All said there are usually several inflation options that increase your benefits but not your premium. Qualified State-approved Partnership policies generally require some type of automatic inflation benefit built into coverage. See more on “Partnership” policies later.
The fourth principle way one designs a policy is what is referred to as an elimination period. Think of it like a deductible where it goes by days not dollars for the deductible. It is a waiting period (by days) before benefits begin once a claim based on needing long term care is made. Most carriers have elimination periods that range from 0-days (a rider offered for home care benefits) to 90 /100 days for facility care as that somewhat allows policyholders to coordinate with their regular insurance (pre-Medicare) or Medicare coverage which can cover for up to a short period of time in a skilled or rehabilitative nursing environment. The longer an elimination period, the less expensive the premium for coverage is all other factors being equal.
So, whether one needs long-term care due to a physical limitation or one based on a cognitive impairment, these are some of the basic factors that go into designing of long term care policies.
Proper long-term care planning involves averages, actuarial data, client experiences, family history, a little bit of gut, one’s financial situation and one’s health and age – those factors can impact design and thus cost of the policy.
Lastly, traditional long-term care insurance plans offer many additional options / riders including shared spousal/partner benefits, several inflation or benefit increase options, case management, return of premium options, survivorship benefits, dual waiver of premium at the time of claim, cash benefits.
Although no specialist should ever tell you that your premiums can never change, the premiums are intended to remain level based on your age at the time of application, along with your health, family history, and other factors, including the total amount of benefits you have in your coverage. However, all traditional long-term care policies have the language that rates for existing policyholders can change on a class basis across that State for those policyholders with the same policies series number. Policies are priced based on updated underwriting standards as well as other actuarial data. Plus, many states have rate stability laws in place. Find your state by clicking here.
Premiums can be tax-deductible for some people. For those who own a business, premiums can be a tax-deductible business expense. Click here for more information on tax benefits. Benefits received are not taxable up to age-based amounts with all tax-qualified policies as they meet IRS regulations (Section 7702B).
Moreover, there are many types of traditional policies which can be issued as qualifying long- term care partnership plans (see link on this website for Partnership plans). In 40+ States, Partnership Long-Term Care Insurance provides dollar-for-dollar asset protection. Learn more about the partnership program by clicking here.
Hybrid or Linked Benefit Policies
Single premium or premium-driven asset-based or "hybrid" policies (life insurance with riders for long-term care) may have the same premium, but the benefit levels will differ. Underwriting and options will also vary from company to company. Some companies offer annuity-based policies with riders for long-term care as well. These generally will have less stringent underwriting.
A real hybrid Long-Term Care Insurance policy includes a 7702(b) rider. This means the policy meets the standard long-term care insurance guidelines. An accelerated death-benefit or chronic illness 101(g) rider cannot legally be marketed as Long-Term Care Insurance since the policy does not meet federal guidelines. Although these policies will accelerate an existing death benefit if you require long-term care, it will only return the death benefit and not provide any additional long-term care benefit. Often, these policies will require you to be terminal to qualify for the long-term care benefit.
Hybrid plans have received an abundant amount of media attention in the last several years for providing a way to leverage an existing asset (money you already have) to plan for long-term care expenses. They are popular because most offer level premiums (your rate can never change) or a one-time lump sum and if you never use it for long-term care, there is cash value and/or death benefit.
Long-Term Care Hybrid such as Linked Benefit policies offer an Accelerated Death Benefit (ADB). Once you qualify for long term care by the benefit triggers, you receive money from the death benefit first followed by benefits from an EOB – extension of benefits to give you more long term care benefits after that. This extends your long-term care benefits beyond the death benefit. This extension could be as much as an unlimited amount of money. If you do not have an unlimited benefit, the policyholder will have a pool of money to pay for care depending on the policy design.
Some hybrid policies pay claims based on a cash benefit rather than a reimbursement approach of actual expenses. Most insurance companies will also offer an assignment of claims which will assign the benefits to the provider, so the provider bills the insurance company and the insurance company pays the provider.
Inflation options are also available. This grows your long-term care benefits to meet the higher future costs of care. Some policies offer a residual death benefit. Your heirs / beneficiaries would receive a smaller death benefit even if you exhausted the primary death benefit in an extended long-term care situation.
Benefits received either as long-term care benefits or a death benefit, generally come to you tax-free as it meets the federal guidelines for tax-qualified Long-Term Care Insurance (Section 7702B). Always, consult with tax advisor on as it relates to tax questions.
There is also the option of making use of a 1035 tax-free exchange if you have an existing life insurance policy with cash value or an annuity to fund one of the plans that include long-term care benefits. A life insurance policy with a chronic illness rider can also provide a limited benefit to pay for extended care but should not be described as a long-term care policy as it does not meet the guidelines as they fall into a classification of Section 101g.
If you get diagnosed with a qualifying chronic illness and meet benefit triggers, the insurance company will give you access to your death benefit before death. Once the death benefit is exhausted, you have no remaining benefit for care, nor do you have any residual death benefit.
Benefit triggers for care usually require the policyholder to have no potential for recovery or be deemed terminal – in other words, it must be chronic in nature. Qualified Long-Term Care Insurance policies do not have these requirements.