This is the second in a three part series covering the benefit selections that all long term care (LTC) insurance carriers require. The first installment focused on the selection of your maximum monthly benefit. This post, Part 2, will cover selecting your benefit period. Part 3 will address the selection of your elimination (deductible) period.
Your benefit period is the number of days or years that you would like the insurance company to pay you your maximum monthly benefit. You may select two to ten years, or an unlimited number of years.
Take a look at how the math works.
Let’s assume you select a maximum monthly benefit of $5000 with a benefit period of five years. Multiply $5000 by the number of months in five years (60), and you get the value of your policy, $300,000. Simply put, with long term care (LTC) insurance, you are buying access to a chunk of money, with a value that can be represented by the following calculation; “monthly benefit x benefit period.”
You can’t use your pool of money ($300,000 in this instance) up any faster than 60 months. However, it can last longer in the event that on any given month the cost of your care is less than $5000. For example if your care cost $3000 on any given month the insurance company would pay you $3000 and the difference would remain in your account, extending how long your “chunk” of money lasts beyond 5 years.
If you choose and unlimited policy there is no “pool” or “chunk” of money because the insurance company will pay you up to your maximum monthly benefit for as long as you need it.
My recommendation is to purchase a 5 year policy. This is based on recent statistics of the average stay/length of time care is needed
- Home Health Care (4.5 years)
- Assisted Living (18 months)
- Adult Day Care (2.4 years)
- Nursing Home (average of 4.9 years with women at 5.7 years and men at 4.2 years)
Next we will cover the elimination/deductible period.
This will be the first in a three part series covering the benefit selections that all long term care (LTC) insurance carriers require. This post will cover selecting your maximum monthly benefit. Part 2 will address the selection of your benefit period with the final installment will focus on the selection of your elimination (deductible) period.
The first required benefits selection in designing your policy is your maximum daily or maximum monthly benefit. This benefit represents the maximum amount of money you will be paid by the insurance company once you have qualified for benefits and satisfied your elimination (deductible) period.
I suggest considering a maximum monthly benefit as it protects you in the event that on any given day you incur costs exceding the limits on the maximum daily benefit. The scenarios below will illustrate the advantage of a maximum monthly benefit.
Scenario 1: You have a maximum daily benefit of $170 per day. On Monday the cost of your care is $300. Because you have a limit on what is paid daily ($170) you would be required to pay the difference between the $170 and $300. You would be paying $130 out of pocket for that day’s care.
Scenario 2: You have a maximum monthly benefit of $5,100 (an average of $170/day). As in Scenario 1, on Monday the cost of your care is $300. Because you have no limit on what is paid daily (just a total amount that can be used during the month of $5100), you would have no out of pocket for that day’s care, it would simply be deducted from your monthly total. By having a maximum monthly benefit, your policy will pay the cost of your care on any given day, up to your maximum monthly benefit.
When it comes to selecting the amount for the maximum monthly benefit, look at the actual cost of care in your area, based on today’s dollars. To find out what these costs are, go to http://www.ltcconnects.com/state_offering/index.php and click on your state.
As a general rule, choosing a maximum monthly benefit that will pay somewhere around 75% of your state’s average, is a good starting point.
No matter where you live, your state’s insurance department has approved a minimum of 20 different insurance companies to sell their long term care (LTC) product to its state’s residents. So how do you choose the company that will meet your needs and requirements? There are five major areas I suggest you consider before deciding on an LTC insurance provider;
- How long has the company been in business? I suggest you select an insurance company that has been in business at least 75 years.
- How long has the company offered LTC Insurance? I would look for a company that has offered an LTC insurance product for at least 15 years.
- Have they ever raised premiums on existing policyholders? If the answer is yes, keep looking for another company. The best companies have never raised premiums on their policies that are in-force.
- How are they rated? Look for a company with an A+ or better rating from the major independent credit rating companies which include A.M. Best, Standard and Poor’s, and Moody’s.
- How do their rates compare?An independant LTC Insurance agent can provide you with a comparison of equal benefits between several providers. The company you select should offer competitive rates on identical benefits (always make sure you are comparing apples to apples in any rate comparison).
All of these questions can be answered by your state insurance department or a long term care insurance specialist.
Generally speaking, the younger (and likely healthier) you are, the lower your long term care insurance premiums will be. Every year you have a birthday, if you have not yet purchased a policy your premium would be higher. The older you get, the percentage of that increase becomes increasingly greater to the point where it can become cost prohibitive. If you were to purchase a policy at age 40 and pay the premium until age 85, it would cost you less over the course of your life than if you were to purchase the same policy at age 55, also paying the premium until age 85.
All insurance companies have at least two, to as many as five, underwriting categories which are categories for which an individual can qualify based on health. One of the most significant factors that effects your premium more than anything else is in which category you qualify during the underwriting process. The younger you are, the more likely it will be you will have good health and therefore qualify for paying the lowest premium based on a preferred underwriting category.
Besides age and health, the third determining factor to consider is the insurance company’s product. Every three years (on average) insurance companies come out with a “new generation” of products that can be 20-25% higher in cost than the product it is replacing. Insurance companies do this in order to remain competitive, keep up with inflation, and protect their existing policy holders (the best insurance companies have never raised premiums on their existing policy holders). Think of it in terms of an automobile…The car company comes out with a new model year of the same car, with usually only slight variations on later models, but charge more.
The best way to decide when and if long term care insurance is right for you is to get the facts from a independent broker so that you can look at all companies that provide long term care insurance in your state. Make sure that you are comparing apples to apples with regards to the benefits so that you can make an informed decision on the plan that offers the best value at the lowest premium.
