In prior articles we’ve discussed the Four Basic Components of Long Term Care Insurance. These components include the daily or monthly benefit, benefit period, inflation protection, and elimination period. All long term care insurance policies require the insured to define each feature. For some, this can be a confusing task, but there is a lot of information available to assist in narrowing down the decision making process.
In fact, most insurance companies publish cost of care surveys on an annual basis. The cost of care survey provides individuals with information regarding what it would cost to receive long term care services in a specific region of a state. These surveys will typically include the average annual increase in the cost of care for specific types of long term care services. These surveys can assist individuals in determining exactly what daily or monthly benefit they should consider, along with what type of inflation protection they should include on their policy.
The most difficult part of designing a long term care insurance policy is choosing the proper benefit period. The benefit period is generally defined as the period of time the insured would be eligible to receive daily or monthly benefits. For example, if an insured selects a $200 daily benefit with a 3-year benefit period, the insured would have access to $200 per day for a period of 3-years to reimburse for long term care expenses upon becoming eligible to receive benefits. What makes selecting a benefit period so challenging is that nobody really knows how long they will require long term care services.
Most policies offer benefit periods of 2 thru 10 years and lifetime or unlimited benefits. The longer the benefit period the higher the premium for coverage. The obvious reason for this is the longer the benefit period the more benefits you will have access to in the future. To put this into perspective the combination of the daily benefit amount and the benefit period defines our benefit pool. The benefit pool is the amount of money that would be accessible to cover long term care expenses subject to the policy constraints. For example, using our example from above with a $200 daily benefit and 3-year benefit period, the insured would have access to a benefit pool of $219,000 ($200 daily benefit times 1095 days (3 years times 365 days)). If we increase the benefit period to 5-years the insured would have access to a benefit pool of $365,000. Depending on the chosen inflation option this benefit pool will likely increase over time in order to keep up with increases in the cost of long term care services.
According to the American Association for Long-Term Care Insurance (AALTCI) Special Report On Long-Term care Insurance Protection study conducted by Milliman, Inc. the possibility of having a long term care insurance claim that exceeds three or four years is relatively low. Based on this study the possibility of having a claim that lasts more than years was 13.1%, 7.6% for a claim lasting more than 4-years, and 4.5% for claims lasting more than 5-years.
Certain other personal considerations can also help influence the decision when selecting a benefit period. For instance, if there is a family history of a cognitive impairment, such as Alzheimer’s disease, you may want to consider a policy with a longer benefit period. When it comes to the four basic components of a long term care insurance policy the benefit period is the one component that will truly be an unknown. At the end of the day it is more important to have some level of long term care insurance coverage rather than none at all. Most people would rather outlive their coverage than to have never had any coverage at all. In a perfect world everybody could afford a policy with lifetime benefits. To learn more about how different benefit periods can affect the premiums of a long term care insurance policy please complete our long term care insurance quote request or contact us at (877) 402-2235.