Long-term care insurance (LTCi) is a way to transfer the risk of a long-term care need from your client to the insurance company. The big questions then become how much risk your clients want to transfer, and how much it costs to do so.

Because there are a lot of moving pieces, it can seem like a complicated product. And while there are many subtle differences between the products themselves, the same basic components are always used when determining what benefits to show a client, and how to tailor a policy to fit into a budget.

When should you look at traditional LTCi, versus a different funding option?

  • LTCi offers the most bang for your buck when it comes to covering an LTCi need. Since it’s not life insurance, it doesn’t have cash value or a face amount. It’s best for clients who want the freedom to tailor the policy the way they want.
  • For clients that can’t afford a single or limited payment option.
  • For clients who want shared care and full benefit increase options.
  • For clients that would benefit from the tax break offered by LTCi (usually older clients or worksite clients).

What does LTCi cover?

Generally, LTCi policies are designed to provide benefits when someone is unable to care for themselves due to the effects of aging or a disabling chronic illness. Coverage is usually provided at home, in an adult day care facility, in an assisted living facility, or in a nursing home. Some policies will offer benefits for informal caregivers (family members or friends that aren’t licensed or aren’t from a home care agency), but those benefits are usually paid at a percentage of the full benefit available.

 

Benefits are triggered when the client is certified by a licensed health care professional (such as their doctor) to be unable to perform 2 of the activities of daily living (bathing, dressing, eating, transferring, toileting, continence) for a period expected to last 90 days or longer, or when the person is diagnosed with a severe cognitive impairment (such as Alzheimer’s requiring supervision).

 

LTCi is not designed to cover short-term, acute illnesses that the client will most likely recover from.

 

Age, health, gender and residence:

None of us are getting any younger, and most of us aren’t getting any healthier. LTCi carriers charge more the older a client is, and charge more for health conditions that might make a person more likely to need care. Unlike life insurance, that looks at how likely a condition is to shorten your life, LTCi is looking for conditions that don’t cause mortality, but that might require you to need more care. Also unlike life insurance, most LTCi products don’t have a rate class just for non-tobacco users. Use our health pre-qualification form before you meet with your client to allow you get an accurate feel for the most likely rate class. Most of our carriers will write up to age 79. Some carriers will write as young as age 18, but others won’t offer coverage under age 30 or 40.

In 2012, the LTCi industry began charging more for females than males. Although there are exceptions, a single female will usually pay significantly more than a single male of the same age and rate class. (This does not apply to worksite policies).

The state the client lives in can also contribute to price, as well as whether or not the person is married or has a live-in partner. The Long-Term Care Needs Analysis can help you get a feel for the cost of LTCi.

 

Benefits:

Aside from age and health, over which you have no control, the next factors to look at are benefits. There are four main benefit factors that have a bearing on how much the person will have in benefits at claim time, and how much the premium will be. The benefits available will vary by state.

Benefit period: This is how long the policy will pay benefits, if the client uses the maximum benefit every month. Benefit periods are generally available from two years to five or six years, depending on carrier. For couples, there is also the opportunity to add shared care, which allows the clients to dip into each other’s policies.

Monthly benefit: This is the maximum amount (before any increases) that the policy will pay out each month. Most often, clients do not pick a monthly amount that will cover the entire cost of LTCi. To see average costs in an area, we recommend accessing our Cost of Care information. Sometimes clients will choose a smaller monthly benefit amount, to be used along with care being provided by a family member. Other times, they are looking for more comprehensive care and will choose a larger monthly benefit amount.

The majority of policies today are reimbursement policies. They will only reimburse for the amount of care the client received, even if that amount is less than the monthly benefit. If your client has $4,500/month, for example, but only uses $4,000 in June, the remaining $500 will stay in the policy, extending the benefit period. The lower the monthly benefit, the lower the cost of the policy will be. A policy with a monthly benefit of $3,000 will cost half as much as a policy with a monthly benefit of $6,000, for example.

Benefit increase options: Clients buy LTCi for the future. They are healthy when they pass underwriting, and most likely they will hold the policy for many years before they are eligible to access benefits. During the time they have the policy the cost of care will most likely also continue to rise.

There is a wide range of benefit increase options designed to help clients’ policies offset the inflating costs of care. Some require the client to pay additional premiums each time they add benefits, without needing to go through additional health underwriting. These are most commonly referred to as guaranteed or future purchase options (GPO or FPO). They cost less at younger ages, but costs can significantly increase at older ages.

Another option is to select a level pay benefit increase. These are automatic increases to the policy each year, but with premiums designed to stay level. The increases start on the policies first anniversary, and continue while the client is on claim.

Carriers are coming out with innovative new options to combat the low interest rate environment and still offset the rising cost of care. It is important to include a benefit increase option for the majority of clients.

Elimination period: The elimination period is sometimes referred to as a waiting period. It is the number of days that need to be satisfied before the client will receive benefits. The most common elimination period is 90 days, although there are additional options available, including having no elimination period to satisfy for home care benefits. Most carriers offer 30 days, 90 days, 180 days and 365 days.

Some policies have service-day elimination periods—a day only counts toward the elimination period if a paid service is received that day. Other policies have calendar-day elimination periods. Usually one paid day is required to start the elimination period, and then every day counts after that—regardless of whether paid services are used.

Shorter elimination periods cost more than longer elimination periods.

 

Premiums for LTCi are generally paid for the life of the policy, and are waived when the client is on claim. The policy is guaranteed to stay in force as long as premiums are paid, but the carrier can raise premiums in some situations. To raise premiums, the carrier must file with the state they wish to raise premiums in, and must raise them for everyone in the same class. They are not allowed to just raise rates on your client’s policy and not on anyone else’s. Today’s policies are priced conservatively to avoid rate increases if possible. For more information on rate increases, see History of LTCi and Rate Increases.

The state the client lives in can also contribute to price, as well as whether or not the person is married or has a live-in partner. The Long-Term Care Needs Analysis can help you get a feel for the cost of LTCi.

Contact the LTCi team for more information.