Long Term Care Insurance Policies

Finance | Mark J. Ackerman | Nov 17, 2015

Long term care insurance is different from traditional medical care that is covered by an individual’s health insurance policy or Medicare, which is designed to rehabilitate or correct certain medical problems. Conversely, long term care insurance is intended to provide services to assist a person to maintain their level of functioning. Long term care services generally include, but are not limited to the following:

·         Help with daily, at home, activities, such as bathing and dressing.

·         Respite care (a family member who is a health care provider.)

·         Home health care

·         Adult day care

·         Care in a nursing home.

Individuals with physical illness or disabilities often need hands-on assistance with “Activities of Daily Living” (ADL). ADLs will generally include, but be limited to the following kinds of activities. Generally, assistance in two or more areas triggers a long term insurance policy claim:

·         Bathing

·         Toileting

·         Eating

·         Dressing

·         Transferring

·         Continence

Persons with cognitive impairments generally need supervised protection or verbal reminders to accomplish everyday activities. In a discussion of long term care insurance, there are certain terms that should be understood.

Skilled care – This is care that requires skilled medical personnel, such as licensed therapists or registered nurses. This level of care is generally provided 24 hours a day, ordered by a physician and involves a treatment plan. This type of care can take place at home or in a nursing home.

Personal care – Custodial care to assist a person in performing ADLs. This type of care is generally not as intensive as skilled care. It can be performed in many settings, which include adult day care centers, nursing homes, and/or at home.

Tax-qualified long term care insurance – In 1996, Congress passed a law called the “Health Insurance Portability and Accountability Act.” The IRS code was amended to add certain language to permit the deduction of all or part of the premium, depending on the taxpayer’s age at the end of the tax year. The deductible amount is added to the taxpayer’s other deductible medical expenses.

A Qualified Long Term Care Insurance Contract, as defined by the IRS must meet the following criteria:

The only insurance protection provided under such contract is coverage of qualified long term services.

Such contract does not pay or reimburse expenses incurred for services or items to the extent that such expenses are reimbursable under Title XVIII of the Social Security Act or would be so reimbursable but for the application of a deduction or co-insurance amount.

Such a contract is guaranteed renewable.

Such contract does not provide for a cash surrender value or other money that can be paid, assigned, or pledged as collated for a loan, or borrowed other than permitted in #5 below or the special rules under the IRS Code which would permit a refund on the death of the insured, or on complete surrender of the contract provided such refund does not exceed the aggregate provisions paid under the contract.

All refunds of premiums, and all policyholder dividends, or similar amounts, under such contract, are applied to a reduction in future premiums on to income future benefits.

Meets other requirements of the IRS Code relating to consumer protection provisions.

There are basically five types of long term care policies:

Individual policies

Policies from an employer giving its employees an opportunity to enroll in a group long term care insurance plan.

Many associations allow companies agents to offer long term care insurance to their members.

Some life insurance companies offer access to the life insurance death benefit and cash value under certain specified conditions prior to death, such as terminal illness, nursing home confinement, or for long term care. This is often referred to as “accidental benefit” provision. Long term care benefits can be offered as a feature of an individual or group life insurance policy.

Residents of New York, as well as residents of some other states, have programs designed to assist persons with the financial consequences of spending down to Medicaid eligibility standards. These programs, generally called “partnerships”, allow persons to purchase certain qualified long term care insurance policies from insurance companies and receive full or partial protection against the normal Medicaid spend down of assets.

There are many things to consider when receiving a long term care contact:

The policy should be reviewed to confirm whether the policy pays for all levels of care (skilled or non-skilled) in any setting.

The policy should be reviewed to see if there is a home health care clause. This benefit will provide the insured with the opportunity to stay out of a nursing home. The most valuable home health care benefit will pay the same level of benefit for home care as it does for nursing home care.

Individuals who require assisted living generally only need help with one or two ADLs as opposed to those who require nursing care who typically need help with three to four ADLs. If assisted living benefits are desirable, the policy should provide assisted living benefits at a percentage of the nursing home benefits.

A Guaranteed Revocable Clause guarantees that the contract cannot be canceled as long as the premiums are paid, even if the insurance company stops selling long term care policies.

The policy describes how often a benefit is payable. Benefits can be payable on a daily, weekly, monthly, annual or other bases. The policy may offer a choice of periodic benefit amounts as they relate to types of services provided.

Indemnity policies provide a guaranteed amount each day the benefit is payable regardless of the actual change of services. A reimbursement policy will only pay for the actual room and board changes that are incurred.

With the average nursing home stay being approximately two and half years, each individual must determine the duration of time for which they want required benefits paid. A policy generally limits the maximum benefits payable over the length of the policy’s duration.

The elimination period provision indicates the number of days that the insured will have to wait until the issued policy begins to pay benefits.

Certain policies will cover cognitive impairment, which includes Alzheimer’s disease. Such policies, however, will generally not cover other types of natural conditions. All Qualified Long Term Care Insurance Contracts will cover severe cognitive impairment that causes the individual to be a threat to themselves or others.

In many policies, when the insured has received benefits for a period of time, premiums are not required to be paid.

Inflation protection clause is determined by using one of two methods. The first generally referred to be as a “Future Purchase Option” allows the insured to purchase extra coverage at certain intervals. The second is commonly called a “contingent non-forfeiture provision” which will pay benefits like that of the shortened benefit period described above but only after the premium increases beyond a certain predetermined point based on the insured age at the time of policy purchase.

Some policies will cover the insured for all conditions disclosed on the application as of the effective date of the policy. Other policies will define a waiting period for pre-existing conditions.

A non-forfeiture Option will guarantee the return of a specified percentage of premiums paid if benefits under the policy are not used after being in force for a defined number of years. This option can increase the premiums as much as 30%. However, there are other non-forfeiture options that might be desirable to the insured.

Generally, most long-term care policies cover hospice care.

This provision would provide the primary caregiver with funds that the primary caregiver can take a break from providing care.

Other considerations: Various long-term care insurance policies will have different features.

Before making a decision on to which policy to choose, take into consideration the following:

  • Ask questions and satisfy your concerns
  • Compare products
  • Compare outlines of coverage
  • Understand the policy

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