More and more consumers are concerned about planning for long-term care, often due to a personal experience with a loved one who needed care. Ask these five questions to get started and you’ll have a good idea of how to structure the policy.
1. How long can you afford to cover expenses out of pocket?
Most insurance companies use the same condition to qualify for benefits; that is unable to perform two of the six Activities of Daily Living (ADL). Once the eligibility is established, the elimination period is applied.
Think of the elimination period as the deductible. As the deductible increases the premium decreases. Long-term care policies usually include an elimination period such as 90 or 180 days. The client with easy access to cash who can afford to pay care expenses out of pocket could benefit from a policy with a longer elimination period and lower premium.
Fulfilling the elimination period may vary from company to company. A calendar day elimination period is just what you would expect. A policy with a 90 calendar day elimination period will begin to pay benefits for covered expenses 90 days from the diagnosis date. Another definition is service-day elimination period counting the number of days covered care was provided to satisfy the elimination period.
2. Where do you expect care to be provided?
Today’s long-term care insurance policies often cover care provided at home as well as within an institution like assisted living and nursing home. Adult day care and respite care for caregivers are also common. LTCi policies issued several years ago often cover only nursing home care. Where care is delivered has changed significantly over time. In fact, home care is far and away the most common type of claim.
Some products may allow for nursing home only care, or cover assisted living and nursing home care but not home care. This is often in order to reduce premium. Eliminating home care as a covered expense is an option but only for the well-informed client.
3. How long will the benefit continue?
Lifetime benefits are rather uncommon today and come with a high price tag. Typically, a policy will have a stated benefit period of three to five years. Longer benefit periods come with a higher premium. Here are some facts from Genworth that may help the client decide on the benefit period.
- More than 40 percent of claims last less than one year.
- For claims that last more than one year, the average claim lasts four years.
- 15 percent of claims last more than five years.
Many carriers will extend the benefit period until the benefit pool of money is exhausted.
4. How much benefit can you afford?
Taking a cue from the responses to the first three questions will help decide the amount of benefit. Understanding the budgetary constraints coupled with preferences for benefit period, elimination period and covered care options will give your DIS representative all the information needed to prepare some quotes at different premium levels. Once you review the quotes, we’re happy to walk you through the details to help you choose what you will recommend to your client.
5. Are you concerned about future premium increases?
Unfortunately, long-term care insurance carries the notoriety of increasing premiums when incomes are fixed. It’s a concern may clients will have, even if not expressed. The latest data from the Society of Actuaries Think Tank for Long-Term Care Insurance indicates that traditional LTCi policies on the market today have only a 10 percent change of future rate increases. If in the unlikely event that an increase is needed, projected rates of increase are estimated at eight to 10 percent. A far cry from the double digit increases of the past. Carriers have learned much about claims and how to price products in a low interest rate environment.
Call your DIS representative for more information about these considerations and other questions you may want to talk over with the client before you present a recommendation. You might ask for more detail on the differences between calendar-day and service-day elimination periods. Even if LTCi is not your specialty, you can be confident having the very important long-term care conversation when DIS is behind you. If you’re not comfortable selling LTCi, consider using our LTCi Delegate (co-selling service).
Also, download our latest client handout on Filial Responsibility here.