It is readily evident that with the current advances in medical treatment, life is often prolonged and, unfortunately, quality-of-life does not necessarily keep pace with the medical advances. More simply stated, as our population grows older, the need for long-term care seems to be increasing, and therefore, considering Long-Term Care insurance becomes more important. There are cases, however, when Long-Term Care insurance (LTC) may come into play at a younger age. A few examples that come to mind are auto accidents, chronic diseases, or disabling accidents.
Not all LTC policies are created equal, and it is important to understand the differences and deal with an experienced and ethical broker or a qualified consultant. In my experience, most people do not deal with consultants, thus dealing with the right broker is of paramount importance.
I will list a few (but not all) of the considerations in choosing an LTC policy.
- Most, if not all, policies have a lifetime cap, which means that the totality of benefits the insured is eligible for will be for a preset and limited amount of money and/or time. The difference between the two can be significant.
- Daily (or per diem) eligibility- this means that even if you are eligible to receive payment, there is a maximum payment that you will (or in certain cases, CAN) receive per day.
- Triggering events – different companies have different eligibility standards for an insured to be eligible for payment. Generally, they revolve around Activities of Daily Living (ADL) and include Dressing, Bathing, Transferring (moving in and out of a chair or bed), Toileting, Eating and Continence. The list of factors and number of factors that must be present can differ based on the policy. It is important to note that different companies and/or their field agents can interpret the ADL requirements differently. Is the ability to shower in a handicap outfitted shower enough even though the insured cannot lift his/her leg/maintain balance getting into a bathtub? My firm has dealt with issues like this on behalf of claimants. More simply stated a person may qualify for Long-Term Care under one policy but not under another.
- As opposed to life insurance and disability insurance, the rates for Long-Term Care insurance can be increased during the term of the policy. Rate increases are generally expected with property, casualty and liability policies when they renew, I think it is important to at least try to mitigate a rate increase in LTC policies by understanding the financial strength/ratings of the company from which one seeks to purchase insurance. At a practical level, a person could theoretically have Long-Term Care insurance for a very long time, be hit with a significant rate increase, and find himself/herself neither able to afford the increased premium nor be able to purchase insurance from another company because of his/her age or (then) health status.
- Long-Term Care insurance is not disability insurance and the policies can vary dramatically. Very simply, if a person cannot work, or in other cases work in the areas in which he/she has training and experience, he/she may be eligible for disability insurance. That does not mean that he/she will not be able to take care of himself/herself. In addition, virtually every disability policy that is currently being sold does not pay benefits past the insured’s age of 65 or, in some cases, 67. The very basic understanding of Long-Term Care insurance is that the benefits should be available at whatever time or age they are needed as long as the policy is in force.
- Reimbursement depends on incurring any, some, or all of the expense. Depending on the policy, you may purchase an LTC Indemnity, Reimbursement or Disability type policy. A Reimbursement type policy, often referred to as an expense incurred policy will allow for payment based on allowed benefits the insured receives. The benefits paid are the lower of your daily or monthly allowable amount and the amount of expense incurred. For example, if the daily maximum is $300 and a spouse takes care of the other spouse without incurring expense is he/she eligible for payment? If the spouse spends $40 a day to hire someone for two hours, he/she will arguably recover $40 (the amount spent).
Unlike an expense incurred policy, in the event of a covered event with an Indemnity policy, the insured will receive the maximum per day as long as he/she incurred an expense for an allowed benefit or arguably, in the example set forth above, the $40 daily expense incurred will entitle him/her to the $300 daily maximum.
A Disability type LTC policy will entitle the insured to receive the maximum amount for any day he/she deemed to be eligible to receive benefits under the policy – irrespective of any expenses actually incurred.
Accordingly, there may be a significant difference if the cap (total) benefits are measured in dollars or time.
- LTC often allows people a nest egg to retain their wealth (as opposed to transferring wealth to trusts over which they have limited control or ability to derive economic benefit) reducing their concern that they will have to fund their medical care out of pocket – to the extent that other means are not available, e.g. Medicaid, Medicare or private insurance. (This point in and of itself should be discussed with attorneys who focus on this complex area of law. My firm does not generally focus on Elder Law but rather refer most cases to other firms.)
Taking all these factors into account, as well as the different prices for different policies creates a very complicated decision-making process, which may be mystifying or confusing to the uninitiated. There are qualified brokers, however, who are ethical and honest in selling Long-Term Care, disability and life insurance policies. I know because in my practice I deal with brokers who pretty much run the full continuum. I am not here to advertise for or promote a particular broker, but would advise anyone looking for Long-Term Care or disability insurance to conduct some due diligence into the broker or advisor. My rule of thumb is that what separates the pros from the people seeking a “quick commission” can be easily seen when gathering information as to the time, effort and energy the broker is willing to devote when there is a claim years after the policies were sold. Obviously, my law firm is not an insurance brokerage, and therefore, we refer inquiries to brokers who have the knowledge and ethics to place the client’s needs before their commissions.
This article is for informational purposes only, is not meant to dispense any legal advice, may be considered attorney advertising in certain jurisdictions, and is written to illustrate the various differences that there may be in varying policies as well as the importance to make a well-informed decision considering the many variables that should be explained by the insurance broker.