It is important to understand the probable impact a long term care event could have on your assets and your family. Several insurance companies offer a number of different long term care plans, but deciding which plan and policy are right for you can take some time. When considering long term care insurance individuals should consider what type of long term care plan will meet their personal goals and objectives if a long term care event were to occur. While going through this process it is prudent to work with a knowledgeable advisor who is familiar with the features, benefits, and options available from a majority of the companies offering long term care insurance. In addition, make sure the advisor you work with represent more than one long term care insurance company in order to provide you with objective, independent advice.
The following information will assist in providing you with a set of guidelines that will allow you to determine what options are most important to you. Upon completion you should have a general roadmap for your long term care plan.
Step One: Determine Your Maximum Benefit Amount
The maximum benefit amount is the maximum amount of long term care expenses that will be covered on either a daily or monthly basis from the policy. The most common benefit offered is a daily benefit. To determine what daily benefit is most suitable for your particular situation you should begin by identifying what the average long term care costs are in the area you intend to receive benefits.
Step Two: Choose How Long You Want to Receive Benefits
Choosing how long to receive benefits from your long term care insurance policy might be the most difficult part of the planning process. You should consider your own family history when making this decision. Do you have a family member who received long term care, and if so, for how long was care needed?
The average long term care event last approximately three years. For twenty percent of long term care recipients it will last longer. Most long term care insurance policies require a minimum benefit period of 2-years. But, you can choose to receive benefits anywhere from 2 to 10 years or for your lifetime. The policy premium increases the longer the benefit period.
The maximum benefit and benefit period combine to establish your benefit pool. The benefit pool is the pool of money available to you to cover long term care expenses subject to policy limits. For example, if you select a $200 daily benefit with a 3-year benefit period your total benefit pool will be $219,000 ($200 daily benefit times 365 days times 3 years).
Step Three: Select Your Elimination Period
The elimination period (or waiting period) is the period of time you must wait once you have been certified by a licensed professional as being eligible to receive benefits. Some individuals compare this to a deductible, but instead of paying money you must wait a pre-selected period of time.
Long term care insurance policies generally offer policies with elimination periods of 0, 30, 60, 90, 180, or 365 days. The longer the waiting period the less expensive the policy premium, but during this time you will be required to pay for your own long term care expenses. In most cases a 90-day elimination period will make the most sense.
Step Four: Choose Your Inflation Option
One of the most important features of a long term care insurance policy is the inflation option. The inflation option is available to make sure your long term care insurance policy keeps pace with increases in the cost of long term care services. Across the United States the cost of long term care is increasing by five percent on average every year. However, these increases can vary by state and city.
This feature is important because in most cases you will not require care for a number of years. Most long term care insurance policies generally offer the following four options:
- Guaranteed purchase option (GPO): Provided benefits are not being received, you have the ability to purchase additional increases to the original daily benefit without having to provide evidence of insurability. This option is usually made available every two or three years depending on the policy. Additional increases will generally increase the premium of the policy. Premium increases will be based on your age at the time you choose to acquire the increase in benefits. Most policies will stop making this option available once the increase has been declined two or more times.
- Simple Interest: This option will automatically increase the original daily benefit amount by 3% or 5% every year. The percentage increase is chosen when the policy is applied for.
- Compound Interest: This option will automatically increase the current daily benefit amount by 3% or 5% percentage each year. This option is the best option for keeping pace with increase in cost of care.
The cost of each of these options varies. A policy with the Guarantee Purchase Option will cost the least initially, while a policy with 5% compounded interest will cost the most.
Step Five: Additional Features and Benefits
Each long term care insurance policy is unique in terms of the features and benefits offered. Certain carriers include some of these options as a part of the cost of the base policy, while others require additional premiums for these options. The following outlines the most common options available:
- Zero Day Home Health Care Elimination Period. Waives the elimination period for home health care if the individual has been certified by a license professional as being eligible to receive long term care benefits and begins receiving home health care.
- Nonforfeiture Benefit Long Term Care Plans: If you discontinue making premium payments once your policy has been in effect for a specified number of years (see the policy for details), this option will allow you to receive a reduced maximum benefit based on the premiums that have already been paid into the policy.
- Spouse Waiver of Premium. Provided you and your spouse (and/or domestic partner) purchase coverage at the same time, from the same company, with the same benefits, this policy will waive the premiums for both policies if one spouse/partner begins to receive care.
- Survivorship Benefit: Provided you and your spouse (and/or domestic partner) purchase coverage at the same time, from the same company, with the same benefits, this policy will waive the premiums if one insured passes away. See the policy for details, as in most cases there is a minimum number of years both policies will need to be in-force in order for premiums to be waived a surviving spouse or partner.
- Return of Premium. This option will allow for the owner and/or beneficiary of a long term care insurance policy to receive a portion or all of the long term care premiums back. The return of premium options available to the policy owner in the event the policy is surrendering during their lifetime can vary greatly based on the policy. If you choose this option make sure you understand exactly how it works. A return of premium option will usually increase policy premiums by at least three times what a policy would cost without it.
Making the Right Choices
There are many different options to consider when designing a long term care insurance plan that is suitable for you and your family. Our experience long term care insurance professionals can assist you in evaluating your needs and customizing a plan that will meet your long term care expectations. Take the first step by requesting a complimentary long term care insurance quote or by contacting us at (877) 402-2235.