Understanding LTC Policy Coverage Limits
Many people choose to purchase a long-term care (“LTC”) policy to help cover the high costs of in-home health care and nursing care. To help you understand long-term care insurance, here are key terms and benefits. The terminology below is most applicable to traditional long-term care policies but may be found in hybrid policies as well. To learn more about different types of long-term care policies, check out our blog here.
For most long-term care policies, insured individuals may become eligible to start receiving benefits after they qualify for one of the triggering events below:
1. Need substantial assistance to perform at least two of the following Activities of Daily Living (ADLs):
- Continence (control of bladder and bowel functions)
- Toileting (moving on and off the toilet)
- Transferring (moving in or out of a bed, chair, or wheelchair)
2. Need substantial assistance for impairments related to a cognitive impairment, which is usually memory problems diagnosed by a physician.
Most LTC policies outline what they will pay and when they will pay in the coverage limits section of the policy. Using the sample policy below, we will discuss eight components of a LTC policy.
SAMPLE LTC POLICY COVERAGE LIMITS
Daily LTC Benefit
$325 per day
Stay at Home Benefit
Respite Care Benefit
$300 per day
Care Advisory Services Benefit
$2,500 per calendar year
3% compounded annually
This sample is not a coverage recommendation and is provided for illustration purposes only.
Elimination Period: This is a “waiting period” where the insured’s benefits will not be paid until a requisite number of days has passed. Elimination periods typically vary from 30-days to 6 months. In the sample above, the insured must wait 90 days after their triggering event to receive benefits from their LTC policy. Costs during the first 90 days are covered: out-of-pocket or with other medical insurance.
Benefit Period: LTC insurance will pay benefits for a defined term as stated in the contract. In our example, this policy offers benefits for up to up to 5 years of coverage.
Daily LTC Benefit: This is the amount the policy will pay per day for the insured’s LTC services, which normally includes nursing home, assisted living, home health care, hospice care, respite care, or adult day care. In our example above, the insured has daily benefits of $325. Policies differ in how they distribute those benefits. Reimbursement policies will pay the insured or the LTC provider the actual cost of the care provided, up to the daily benefit limit. Indemnity policies will pay insured individuals the full cash value of the daily benefit, regardless of the cost of care provided.
Policy Limit: Most policies have a maximum amount the insurer will pay out for each insured person. This number is usually equal to the daily LTC benefit for the whole benefit period. Our sample has a policy limit of $593,125 (= $325 x 365 days x 5 years).
Stay At Home Lifetime Benefit: Insurance will pay for select Stay At Home expenses, such as home mobility modifications, emergency medical response, medical equipment, caregiver training, and home safety checks. The sample policy above covers $10,000 maximum for these costs over the life of the policy.
Respite Care Benefit: Some policies will fund respite care, which is short-term care designed to provide temporary relief for the primary caregiver. Some respite care benefits may cover temporary home health care while the primary caregiver runs errands. Our example above covers $300 per day for these services.
Care Advisory Services Benefit: Many insurance policies will pay for care planning, which includes assessing, coordinating, and monitoring the insured individual’s LTC needs and services provided. As our sample above provides $2,500 per calendar year, these services are often covered on a calendar year basis.
Inflation Protection: Since healthcare costs will continue to rise, many policies offer inflation protection where the Daily LTC Benefit, Lifetime Benefit, or other benefits may be compounded each year. In our example above, the monetary benefits are raised 3% annually. For instance, in 10 years the Daily LTC Benefit above would cover $436.77 daily.
For many, a long-term care insurance policy is a beneficial part of a solid financial plan, protecting savings and estate values from being depleted by expensive long-term care. Your financial advisor and insurance professional will help you build a policy with appropriate coverage to best protect you and your family from the financial strain of long-term care. Contact your financial advisor to find out more.