A long-term care insurance policy contains so many moving parts that it can be difficult to see how the whole thing works, much less compare it to competing policies.
To shorten your learning curve, we’ve enlisted the expertise of Jesse Slome, executive director of the American Association for Long-Term Care Insurance, and the National Association of Insurance Commissioners’ publication, “A Shopper’s Guide to Long-Term Care Insurance” to guide you through the anatomy of a long-term care contract.
Maximum benefit amount and period
These are the three major adjustment knobs on a long-term care policy.
Your maximum monthly benefit sets the maximum amount your policy will pay per month once you trigger benefits. This figure may also be quoted as your daily or weekly benefit amount.
The benefit period is the maximum number of months or years that you can receive benefits.
The total benefit amount represents your total amount of coverage. For example, if your policy has a maximum monthly benefit of $5,000 and your benefit period is four years, your total benefit amount will be $240,000 ($5,000 x 48 months = $240,000).
You set these three variables when you purchase your policy. “Increase any of these knobs and your premiums will go up; decrease any and your premiums will drop,” says Slome.
Think of the elimination period, or waiting period, as a deductible. It refers to the number of calendar days you will pay for your own long-term care before drawing benefits.
You also select your own elimination period, which can run anywhere from zero to 100 days or more. “Increase your waiting period to decrease your premiums,” Slome suggests.
Select the “shared care” option to cover more than one person: a husband and wife, two partners or two or more related adults.
Shared care establishes a third pool of money from which either covered party may draw. In one version, this pool represents the total benefit amount for both parties. In another, it creates a separate pool identical to the total benefit amount of each individual policy from which either party may draw after exhausting their own policy without affecting the total benefit amount of the other.
Most states now offer long-term care partnership plans designed to help protect your assets against a Medicaid eligibility requirement.
To qualify as a partnership plan, a policy must include inflation protection and a unique Medicaid offset: every dollar paid in benefits on your long-term care policy is a dollar of assets you are allowed to keep should you need to “spend down” your income to qualify for Medicaid.
“It benefits your spouse the most because you’re not dooming them to poverty just so you can qualify for Medicaid,” says Slome.
Partnership plans are optional, so look for a yes or check mark next to “partnership qualified” on policy quotes. If you move to another state that offers a partnership plan, it may or may not offer reciprocity.
Long-term care inflation protection comes in two flavors. Simple interest increases your benefit by the same dollar amount each year; compound interest throws in the benefits of compounding.
You may purchase inflation protection for the life of the policy or for a certain period, such as 10 or 20 years. It’s required on partnership-qualified policies and optional on nonpartnership policies.
While inflation protection can add 25 to 40 percent to your premium, the cost of nursing home care has been rising at an annual rate of 5 percent for the past several years, according to the NAIC. Many states now require insurers to offer long-term care inflation protection. If you turn it down, you may be asked to sign a waiver to that effect.
The “cash benefit” option allows you to receive up to 35 percent of your home health care maximum monthly benefit upfront in cash to use without restriction.
There’s often no elimination period involved with cash benefits. That means cash will be available from the first day you become eligible for long-term care insurance benefits.