What Are The Key Policy Features And Coverage Options Of Long-Term Care Insurance Policies

Written By: Nathan Justice
Reviewed By: William Rivers
Published: June 22, 2023
Last updated: August 12, 2023

Long-term care insurance policies offer a range of coverage options and features to meet the diverse needs of consumers. These options and features can be broadly categorized into benefit periods, elimination periods, inflation protection, non-forfeiture benefits, shared care riders, and tax-qualified policies. It is essential to understand these concepts to find a policy that best suits your needs and preferences.

Benefit Period And Amount

The benefit period is the length of time the insurance policy will provide benefits for long-term care to the insured. Benefit periods can range from a short-term one or two years to indefinite lifetime coverage. Longer benefit periods result in higher premium costs, and some policies may have a maximum age limit to initiate coverage.

The benefit amount is the daily or monthly allowance the policy provides to cover long-term care expenses. This amount should be based on the anticipated cost of care in your area, taking into consideration your preferred level of care – home care, assisted living, or nursing home care. You can generally choose your benefit amount, with higher amounts leading to higher premiums.

Elimination Period

The elimination period is the waiting period before the insurance benefits begin to pay for long-term care costs. This period is typically between 30 and 180 days. During this time, the policyholder is responsible for all care expenses. Choosing a longer elimination period can help lower premium costs. It is crucial to consider how long you could afford to pay out-of-pocket for care while waiting for the policy to start paying benefits.

Some policies offer a "waiver of premium" option, which waives the policyholder’s premium payments once the elimination period has been satisfied and they are receiving benefits from the policy. This can be a helpful feature in alleviating financial stress during times of care.

Inflation Protection

Inflation protection is a feature designed to help your benefit amount keep pace with the rising cost of long-term care over time. There are several inflation protection options available, including simple interest increase, compound interest increase, and Consumer Price Index (CPI)-based adjustments.

Simple interest increases the daily benefit by a fixed percentage each year, while compound interest applies the percentage increase to the current benefit amount. CPI-based adjustments link the benefit increase to changes in the CPI for a more accurate reflection of real-life care cost increases. While inflation protection increases the policy’s premiums, it helps maintain your policy’s purchasing power in the future.

Non-Forfeiture Benefits

Non-forfeiture benefits allow policyholders to receive some level of benefits even if they cancel or lapse their policy due to non-payment of premiums. This option typically provides a reduced benefit amount or a shorter benefit period, depending on the premiums paid into the policy before lapsing. While these benefits come at an additional premium cost, they provide a safety net for policyholders who may experience financial difficulties.

Shared Care Riders

Shared care riders are a feature designed for couples, allowing partners to share each other’s policy benefits. This means that if one partner exhausts their policy benefits, they can access the remaining benefits in their partner’s policy. This allows for the flexibility of using a combined pool of benefits for both partners, rather than being limited to each individual’s policy. Shared care riders increase the premium costs for both policies but can offer greater security for couples in managing long-term care costs.

Tax-Qualified Long-Term Care Policies

Tax-qualified long-term care policies are designed to meet the standards set by the Health Insurance Portability and Accountability Act (HIPAA). These policies offer tax advantages to policyholders, including tax deductions for premiums paid and tax-free benefits. To qualify for these tax benefits, the policy must meet specific requirements, such as covering only medically necessary long-term care services and having a "guaranteed renewable" clause in the contract. While tax-qualified policies may have slightly higher premiums, the tax benefits can make them an attractive choice for many consumers.

Conclusion: Choosing the Right Long-Term Care Insurance Policy

In conclusion, long-term care insurance policies offer various features and coverage options to meet individual needs. Understanding key aspects such as benefit periods, elimination periods, inflation protection, non-forfeiture benefits, shared care riders, and tax-qualified status is crucial for selecting the right policy.

Consider the length and amount of benefits that align with your anticipated care needs. Evaluate the elimination period and your ability to cover care costs during that waiting period. Explore inflation protection options to ensure your policy keeps pace with rising care expenses. Assess the availability of non-forfeiture benefits for added security. Couples should consider shared care riders to maximize benefits. Lastly, weigh the advantages of tax-qualified policies against potential premium differences.

By carefully evaluating these factors and seeking professional guidance, you can make an informed decision when choosing a long-term care insurance policy. This will provide financial protection and peace of mind for you and your loved ones in the face of potential long-term care needs.

Discover the latest trends in long-term care insurance, including hybrid policies, technological advancements, and more, in this blog.

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Nathan Justice manages community outreach programs and forums that help many senior citizens. He completed a counseling program at the University of Maryland’s Department of Psychology.
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