The financial threat of long-term nursing care costs may be the most significant threat that your clients face. With costs between $50,000 to $100,000 per year for care and the complexity of federal entitlement programs, insurance solutions are becoming more attractive to clients and planners.
An uninsured long-term care stay can destroy your clients estate and rob them of their hope and dignity.
Before presenting long term care as a solution to your clients situation, it is extremely important to have a good understanding of many of the provisions found in a typical policy, and how those may differ among carriers.
"Traditional" long-term care insurance is health insurance designed to pay for nursing and nursing care-related expenses. This insurance generally reimburses a policyholder or a designated care provider for nursing care expenses. Modern policies will pay for services such as nursing facility care, home health care, assisted living facility care, adult day care as well as some benefits for hospice and respite care.
Within the universe of long-term care insurance there are indemnity plans and per-diem plans available on the market today. Indemnity plans will reimburse a policyholder for expenses within policy limits whereas a per-diem plan will pay a stated dollar amount per day regardless of actual expenses.
So, lets take a look at traditional long-term care policy provisions so that you might better understand the basic construction of these contracts. When recommending a contract to your clients it is crucial that you understand when, how much, and under what conditions your client will be paid.
This is not as simple as the old life insurance sale. If you do a poor job for your client he or she may ask you to visit them at the nursing home to explain to their children why the inheritance is going to the nursing home–even though you sold them a policy. You, as well as your clients will have to live with the results of a poor job.
Benefit Amounts. The policy benefit amount is the amount of money, expressed either on a daily or monthly basis, that is available to the insured. An example might be $150 per day or $4,000 per month. The benefit may be the same amount or may be different for home care than for in-facility care
Benefit Period. The benefit period is the period of time that the company will pay benefits under the contract.
Benefit periods are expressed in either days or years, such as 1,095 days or 3 years. The benefit period may either be the same or different for the various benefits such as 4 years for in-facility care and 2 years for home care.
Policy Maximum. The policy maximum is the amount of benefit that the company must pay on your behalf while you are on-claim. If, for example, the insured had a $100 per day policy with a 3 year benefit period, the policy maximum would be $109,500.
What if the insured only accessed $50 per day in benefits for home care for 3 years? The company would generally continue to pay benefits until it had exhausted the $109,500 policy maximum. Be very careful in reading this section of the policy because some companies treat this a little differently from others.
As with the benefit periods, there may be different pots of funds for both in-facility care and home care. A policy might have $109,500 available for in-facility care and $54,750 for home care. Most policies will offer a combined single limit for both. Again, a very important difference from one contract to another.
Elimination Period. The elimination period can be thought of as the deductible or waiting period. This is the period of time that the insured is otherwise eligible for benefits but has chosen to pay for his or her care.
This is a place where policies can vary greatly. You should really understand the contractual provisions pertaining to this benefit. The elimination period is a place where many policyholders exercise selective memory at claim time. They remember wanting to lower the premium, but not that they agreed to pay for the first 60 days of care.
Benefit Triggers. The policy benefit triggers are really the heart of a LTC policy. This single provision tells your client under what conditions he or she will receive benefits.
The three major triggers are activities of daily living (ADLs), cognitive impairment and, if you have a non-qualified policy, physical necessity.
A claim would be triggered by the insureds inability to perform two or three of the generally accepted activities of daily living: Bathing, Continence, Dressing, Eating, Toileting, and Transferring. Social workers and medical personnel have devised standardized tests to check each of these activities.
A cognitive impairment is a decrease or loss of mental capacity or onset of dementia. The most infamous example of a specific dementia is, of course, Alzheimers disease. Again, standardized tests have been devised to determine a condition and the severity.
Physical necessity, as a benefit trigger, might seem redundant. If someone is exhibiting ADL deficiencies or cognitive impairment, doesnt this indicate a physical necessity? Maybe in some cases and maybe not.
It is argued that although the standardized testing for ADL and cognitive impairments are pretty good, they may sometimes fail and leave no room for common sense. If someone is "almost" qualified for benefits under either of the other two triggers, the physical necessity clause may just push it over to the clients benefit. When in doubt, benefit the client.
Having defined the three basic benefit triggers, it is important to understand how they may differ from one carrier to the next. One policy might say that an insured is qualified for benefits if he or she requires "human assistance" in performing 2 or more ADLs. Look at the definition of human assistance. Does it say "substantial?" Does it say "stand-by" assistance is OK? Remember, the more strict the language, the lower the probability of a claim being paid.
