Long-term care insurance has become prohibitively expensive — but despite this, the need for coverage persists, sending many clients searching for alternative solutions. Enter short-term care insurance (STCI), an option that has begun to gain traction with clients who are unable (or unwilling) to obtain traditional long-term care insurance (LTCI) coverage.
Because about 50 percent of clients who eventually need to file a claim against their LTCI policy require less than a year's worth of care, it's no surprise that short-term care insurance is trending — for the right client, short-term care insurance can be the key to providing financial security even in the face of a critical illness.
STCI defined
STCI is a form of critical care insurance that functions much like long-term care insurance — except, as the name suggests, STCI remains in effect only for a relatively short period of time (typically one year or less).
As a result, clients who are unable to qualify for traditional long-term care coverage (over 25 percent of LTCI applications are declined, often because of age or a previously existing condition) will typically qualify for STCI because insurance companies generally do not require the types of comprehensive applications that are now commonly required to qualify for long-term care coverage.
Clients who purchase STCI usually become eligible for benefits when they need assistance performing two or more activities of daily living (ADLs), such as eating, bathing and dressing.
The policies, also known as recovery insurance, typically provide for a fixed level of daily benefits — around $100 per day is common — for a set period of time. However, most policies provide that if the actual cost of care is less than the stated daily benefit, the remaining funds can be used to pay for care even after the time period for coverage has expired.
For example, if the policy provides a daily benefit of $100 per day for 365 days, but the actual cost of care is $75 per day, the remaining $25 per day can be used to fund care on day 366 and beyond.
