CLTC
Duane Lipham is a Certified Long-Term Care (CLTC) consultant who writes extensively on long-term...read more
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Financing Long Term Care
Are Tax-Qualified LTCI Policies Consumer Friendly?
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Comments (6)
When the long-term care insurance (LTCI) industry was in its early stages, the policy features and design differed considerably from what we commonly see offered to consumers today.
At the time, LTCI was a relatively new segment of the insurance industry, so there was little history that could be drawn from for reliable sources regarding pricing, underwriting procedures and policy design. As a result, it was kind of like the Wild West in that each carrier typically had their own unique offerings that could be completely different from other LTCI companies. You can imagine how confusing and difficult it was for the average consumer to compare those policies.
A big change took place in 1996 when Congress passed the Health Insurance Portability and Accountability Act (HIPAA). Essentially, Congress recognized that without some federal guidelines, the LTCI industry was headed for trouble. This legislation helped standardize LTCI policies while providing several consumer-friendly features at the same time. These guidelines also helped bring more rate stability to the LTCI marketplace.
Here is a short list of some of the outstanding consumer-friendly features that can be found in tax-qualified LTCI policies these days:
- Elimination of a “medical necessity” benefit trigger. In the past, policyholders who had Alzheimer’s or dementia but had no other obvious need for medical care sometimes did not qualify for benefits under this kind of benefit trigger. Modern tax-qualified policies generally contain two benefit triggers, both of which protect consumers to a greater degree. The first is for policyholders who need assistance with at least two activities of daily living (ADLs) for at least a period of 90 days. The second is for those who have Alzheimer’s or dementia to the degree that they could be a danger to themselves or others if left alone.
- Tax-qualified policies must be guaranteed renewable. This means that insurers cannot cancel or refuse to renew a policy because of age, claims history, or health deterioration, as long as you continue to pay the required premium.
- Policies must include an inflation protection option, and insurance agents must offer and explain this option in their presentation.
- Policies must also include an unintentional lapse provision that permits a policyholder who misses a premium payment because of a cognitive or physical impairment to reinstate the policy up to 5 months later.
- HIPAA also established that LTCI insurers must not practice post-claim underwriting. This is a procedure where the policy is awarded with little or no initial underwriting until the first claim is actually made on the policy. This obviously allows too much room for abuse on the part of the insurer to possibly deny coverage by being overly strict on underwriting when the actual claim is made.
So—are tax-qualified LTCI policies consumer-friendly? The answer is a resounding “yes!” In fact, these are just a few of the consumer friendly aspects of modern tax-qualified policies. So in addition to their obvious inherent tax benefits these policies also come with many attractive policy design features for modern consumers.
Until next time...Duane
Duane Lipham is a Certified Long-Term Care (CLTC) consultant. You can get more free information, news and articles regarding long-term care and aging at The Long Term Care Consumer Guide Web site and The Long Term Care Review Blog. |
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Posted in Financing Long Term Care: Duane Lipham, Long-term Care Insurance (LTCI)
duane, i have been reading your blog for the past few months and i have known i needed long-term care insurance, but just found the entire process so intimidating. i just wanted to thank you for explaining things in real words that everyone can understand.
Thank you for the kind words. LTCI can appear to be very confusing because of the multitude of options and the fact that the policy design is so different from other forms of insurance.
But as you can see, I am a fan of keeping things simple and focusing on the five foundational benefit choices that can have the most direct impact on your care. Once you have done that, 90% of your work is done in my opinion.
My mom has Alzheimer’s and we are now paying a fortune for her care at a great facility - definitely worth the money, but still hard on the family. I just started looking into long term care insurance because I’d hate for my children to have to deal with what we are dealing with financially. I’ll definitely be looking out for the policies that have provisions for this. glad to hear things are changing.
Hi, JosieM, if Alzheimer’s is in your family’s medical history I recommend that you consider a benefit period that is as long as you can afford. Three year benefit periods work well for most LTC situations, but Alzheimer’s can stretch on for awhile longer. So having a five year or even longer benefit period would be a wise choice as long as it is affordable.
A lot of LTC companies offer both daily and monthly benefits. The monthly benefits are a higher premium then the daily but when you calculate 365 days to the daily benefit compared to 12 months to the monthly you get more money over the year for the daily benefit. Why is the monthly benefit a higher premium for less money and what is the benefit of going with the monthly or daily benefit?
This is a very good question, Regina. With some policies, the monthly home healthcare benefit is equal to 31 times the daily benefit (regardless of how many days there are in the given month.) With other policies, the monthly home healthcare benefits is equal to the number of days in that particular month times the daily benefit. In either case, over the course of a year, the monthly home healthcare benefit would pay at least as much as the daily benefit times 365.
I, personally, don’t think it’s worth spending a lot of extra premium for a monthly home healthcare benefit versus a daily benefit.
Some in the insurance industry think that there are great advantages to a monthly benefit, because a monthly home healthcare benefit would pay more each month, if, on certain days of the month your care cost less than the daily benefit and on other days your care cost more than your daily benefit. However, it’s rare to have large fluctuations in the costs of receiving personal care at home. That is why I rarely advise my clients to spend the extra premium for the monthly home healthcare benefit. I recommend instead that they simply increase their daily benefit. For example, for about the same premium, I’d rather have a daily benefit of $150, than a monthly benefit of $4,200.