When purchasing a long term care insurance policy most people think of the daily benefit they will receive from their policy. This is common because when articles or surveys are published most of them report the daily cost of things like home healthcare and nursing home facilities. There is a significant benefit to knowing that nursing home care may cost $200 per day where you live, and you have a long term care policy that offers $200 of daily benefit.
What many people aren’t aware of is some long term care insurance policies offer a monthly benefit option instead of a daily benefit option. Instead of having a $200 daily benefit you would have a $6,000 monthly benefit. At first glance the daily benefit and monthly benefit would appear to be the same, but in reality they are quite different.
A long term care insurance policy with a daily benefit allows the insured to access benefits up to the maximum daily benefit amount chosen. If on any given day expenses exceed the daily benefit limits the insured will be required to pay for those long term care expenses out-of-pocket. For example, if you have a policy with a $200 daily benefit and you incur long term care expenses of $260, then you would be required to pay $60 for that day.
Conversely, a monthly benefit policy pays benefits based on long term care expenses occurring in a 30-day period. Provided your long term care expenses over a 30-day period do not exceed your maximum monthly benefit amount you won’t incur any out-of-pocket expenses. So, you can have a day where you incur $260 of long term care expenses without having to pay anything.
When Does It Make Sense to have a Monthly Benefit Policy?
In our opinion, a monthly benefit policy is most advantageous for individuals in a home healthcare setting. The reason this makes sense is because in a home healthcare setting your long term care costs are variable versus if you were in a nursing home where the costs are essentially fixed. If you are fortunate enough to receive long term care at home, you will likely incur additional expenses for equipment and retrofitting your home to accommodate your needs. The cost of these upgrades alone could be much greater than what would be reimbursable under a daily benefit policy. In addition, you may have greater needs on certain days of the month than others. The last thing you need to worry about is whether or not the expenses for that day are going to exceed your maximum daily benefit.
The need for a monthly benefit is reduce when you receive nursing home care. Most nursing home facilities have a daily rate. In these situations the benefits of having a monthly benefit policy is minimal, but the policy will still cover the expenses incurred.
Are There Any Negatives to having a Monthly Benefit Long Term Care Insurance Policy?
The only real negative when considering a monthly benefit long term care insurance policy is the benefit pool available to pay for long term care expenses are usually slightly less than if you purchase a daily benefit policy. Let’s say you’re comparing a $200 daily benefit to a $6,000 monthly benefit policy with a 3-year benefit period. A monthly benefit policy assumes all months are 30-days. With the daily benefit policy you would have a benefit pool of $219,000 (365 days time 3 years equal 1,095 days times $200 daily benefit). The monthly benefit policy would have a benefit pool of $216,000 (12 months times 3 years equals 36 months times $6,000 monthly benefit).
Over the past several years long term care insurance companies have recognized the need to offer to different benefit options for home care versus nursing home care. In these cases, some companies now offer polices with the option to receive a monthly benefit while receiving home care, and a daily benefit when receiving nursing home care.
As with any financial decision it is important to evaluate your goals and objectives, and design a policy that accomplishes them.