What Are The 5 Things to Review In Every Hybrid Long-term Care Policy
When trying to shop for a car or a house there are certain things you may give pay attention to. For example, you might closely examine the exterior or the interior of the car or house. Likewise, when shopping for a Hybrid Long-Term Care Insurance policy, there are certain things you should definitely look at.
This then begs the question, “What exactly should you look at in a Hybrid Long-Term Care Insurance policy and what questions should you ask?”
When you are considering or reviewing a Hybrid Long-Term Care Insurance policy, there are 5 questions you should ask right out the gate:
- How Much Long-Term Care Coverage Do I Get?
- How Long Will My Coverage Last?
- What Happens If The Cost of Long-Term Care Services Goes Up In The Future?
- How Long Do I Have To Wait To Access My Benefits?
- What Are The Premium Requirements?
These 5 questions will give you a basic understanding of what you are getting in any Hybrid Long-Term Care Insurance policy. It will also be a starting point for you when you are trying to compare two or policies.
In addition, and more importantly, this will also help you determine if a policy will meet your needs. Therefore, by answering the 5 questions, I will go over the 5 things you should review in every hybrid policy. This will make you more equipped to determine if a policy is right for you.
To answer each question and to get a better understanding, we are going to use a Nationwide’s CareMatters II illustration. Now here are the answers to each of the 5 questions and what we will cover:
How Much LTC Coverage Do I Get? – The LTC Benefit Amount
To answer this question, we look at the Long-Term Care Benefit Amount. The LTC benefit amount represents your total long-term care coverage amount. It is the initial amount available to you for your long-term care expenses. Typically, this should be your first area of concern and the first thing you look for in any quote presented to you.
Now let’s consider the Nationwide’s CareMatters II illustration below. The illustration below reflects benefits for a 60 year old married male with a $100,000 premium deposit.
Now when you look at the“Total Long-Term Care Benefit,” you should see Nationwide’s CareMatters II will provide a long-term care benefit of $387,106. (I highlighted the area for your convenience)
This is the total coverage given for the $100,000 deposit. Here is the most important part to find in any quote presented to you. It will let you know how much coverage you will get for your money.
Maximum Monthly Benefits
Now although the illustration displays a total LTC benefit amount, the benefit is not paid out in one lump sum. Rather, benefits are paid out up to the maximum monthly limit set in your policy.
Again let’s consider the illustration.
According to this illustration, Nationwide will pay up to $4,987 in long-term care benefits each month.
Why is this important to know?
Well, let’s say the cost of home healthcare in your area is $5,200 a month. You would not be able to fully cover your first month of long-term care expenses with your benefits.
Simply put, your monthly LTC benefits would fall short of your expenses by $203. Also, you wouldn’t be able to access more LTC benefits until the following month because you’ve reached your maximum monthly benefit limit.
Therefore always make sure the total LTC benefit amount and maximum monthly benefit amount are the right amount of coverage for your needs. Look at the Cost Of Long-Term Care In Your State to help determine how much benefits you will need in your policy.
On to the next question!
How Long Will My Coverage Last? – Benefit Period
The second thing to review in a hybrid policy is the Benefit Period. The Benefit Period tells you how long your coverage will last. It is the duration of time you receive your LTC benefits if the maximum monthly benefit is taken continuously.
When considering a hybrid policy, it is generally a good rule of thumb to get a Benefit Period of 6 years.
The average duration of a long-term care event is 3 years. However, 1 in 5 Americans turning 65 today will need long-term care longer than 5 years.– U.S. Department of Health and Human Services
Therefore it is better to be safe than sorry! Now let’s consider our illustration:
Based on the illustration above, Nationwide will pay the maximum monthly LTC benefit for a period of 6 years. Hence, receiving the maximum monthly LTC benefit of $4,987 a month would only last for 6 years. After that, you would have exhausted your long-term care benefits.
Typically, most Hybrid Long-Term Care Insurance policies offer a benefit period as high as 7 or 8 years. Only one carrier offers a lifetime benefit period. That company is OneAmerica. OneAmerica’s Asset Care is the only hybrid LTC product that provides a lifetime benefit period resulting in unlimited LTC benefits.
Now that we’ve discussed coverage and how long it lasts, what happens if the cost of care goes up in the future?
What Happens If The Cost Of LTC Services Goes Up In The Future?- Inflation Protection
The costs of long-term care services today are not guaranteed into the future. Therefore, you need a policy that addresses rising costs. Inflation protection is a policy option that increases your benefits to protect against future cost increases in long-term care services.
Policy benefits increase using two methods: simple or compound adjustment. If the increase is simple, the benefit amount increases by the same dollar amount each year. However, if the increase is compounded, the dollar amount of the benefit increase goes up each year.
Here is an example of simple vs compound inflation increase:
|Rate of Inflation||Year 1||Year 5||Year 10|
|Rate of Inflation||Year 1||Year 5||Year 10|
Now let’s turn to our illustration:
This illustration reflects a 3% compound interest Inflation Protection option. Therefore, if you look at the Total Long-Term Care benefit, you will notice it also shows the benefit amount at age 80.
While the Total Long-Term Care Benefit at Day 1 is $387,106, at Age 80 it is $699,157. That increase is due to the Inflation Protection option.
Now I often tell my clients that a dollar today is not always a dollar tomorrow. Simply put, what a dollar may buy you today it may not buy you 20 years from now. Hence, when you are considering a Hybrid Long-Term Care Insurance policy, it is important to realize that you are buying a policy today you may not need until at least age 80!
The cost of long-term care is projected to grow over the next 20 years. Imagine that the 2004 national annual median cost of a private room in a nursing home was about $65,000. Today that price has almost doubled as the national annual median cost is $100,000 a year!
Hence, it is in your best interest to consider an Inflation Protection option in your policy. The 3% compound interest option I find to be an industry standard and the option most carriers offer.
Let’s take a look at another question you should be asking.
How Long Do I Have To Wait To Access My Benefits? – Elimination Period
It is important to know if you ever went on claims how long it would take before you receive benefits. This waiting period or deductible period is commonly called your Elimination Period. It is the amount of days you have to wait before your benefits start.
During this time you must pay for covered services out-of-pocket before the insurance company begins to make payments. In some cases however, a hybrid policy may have a 0-day Elimination Period. Such cases are typically carrier specific.
Common Elimination Periods
The most common elimination periods you see with Hybrid Long-term Care insurance policies are 60 or 90 days after you start receiving long-term care services.
The process for claims requires you to first receive certification from a licensed healthcare practitioner stating you are “chronically ill.” This certifies that you have a severe cognitive impairment or you cannot perform 2 out of 6 Activities of Daily Living.
Next is where we see your elimination period being met. This typically begins with you receiving qualified long-term care services stated under your doctor’s customized plan of care.
However, you are not receiving benefits during this time. If your policy requires a 90-day Elimination Period, you must wait the 90 days before your benefits kick-in. Therefore, it is important for you to be mindful of the elimination period as it relates to out-of-pocket expenses.
Look at a summary of the eligibility requirements listed below for Nationwide’s CareMatters II:
What Are The Premium Requirements? – Premium Payment Options
Now we did not save the best for last as all these questions are important. However, this is somewhat of the million dollar question as it relates to how much does your policy cost.
Policies today (most not all) give you the option to place single or flexible premiums into a hybrid Long-term care insurance policy.
There is no good in considering a policy that does not work with your budget or financial needs.
When considering our illustration, Nationwide offers both single and flexible premium payments. For example, they allow you to pay a single premium or a 5 or 10 pay premium option.
Typically, when funding a hybrid policy with $100,000 for example, a single premium option will provide more LTC benefits than the policy’s 10 pay option.
Therefore consider your premium payment options and what works best for you when picking a hybrid policy.
Additional Factors You May Consider In A Hybrid LTC Policy
There are other areas you may want to consider in a Hybrid Long-term Care insurance policy. Although they may not be as important the 5 categories listed above, they can have an affect on your decisions. Here are the additional factors:
Look for companies that offer discounts to married couples. Some carriers also offer a couples discount even if only one spouse selects that policy.
Return of Premium (R.O.P.) Options
If return of your premium is important to you, ask how much of your money you can get back before choosing a hybrid long-term care insurance policy. Some policies offer more returns than others and some have a vesting schedule as well.
A company may offer joint policies for married indviduals that provide joint benefits. OneAmerica’s Asset Care is the only hybrid LTC product that offers joint policies.
These are the 5 things to review that are most important when looking at any hybrid long-term care life insurance quote, illustration, or policy Consider these points first due to their importance.
Before you place a portion of your savings into any hybrid policy, make sure you are comfortable with all 5 parts in any given policy!
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