If you are interested in hybrid long-term care life insurance, learn how to tell if a policy will meet your needs. I will show you the 5 things to review in every hybrid policy so you may better determine if a policy is right for your needs.
What are the 5 Things to Review?
Now there are 5 important parts that make up every Hybrid LTC-Life insurance policy. To understand each one better, we are going to use a Nationwide’s CareMatters illustration. So let’s begin by breaking down each of the 5 parts.
1. The LTC Benefit Amount (Your Total Coverage Amount)
The LTC benefit amount represents your total long-term care coverage amount. It’s generally your first area of concern and should be the first thing you review for in any quote or illustration presented to you. It is the initial amount available for your long-term care expenses.
Let’s consider the illustration for Nationwide’s CareMatters. This will help you to see how to properly review this important part.
Illustrated benefit amounts are for a 60 year old male with a $100,000 premium deposit. Click for a closer view.
When you look at the “LTC Benefit Amount” here’s what you should see:
- Nationwide’s CareMatters will provide a long-term care benefit of $291,542.58
This is the total coverage the 60 year old male would get for his $100,000 deposit. This is the most important point to find in any quote presented to you as it will let you know how much coverage you will get for your money.
Maximum Monthly Benefits
Although a policy displays a total benefit amount, hybrid policies set maximum monthly limits on your benefit payments. Your total LTC benefit amount or coverage is not paid out in a lump sum. Rather, benefits are paid up to the maximum monthly limit set in your policy.
Again let’s consider the illustration above:
- Nationwide’s illustration offers up to $4000 in long-term care benefits each month
Why is this important to know?
Well let’s say the average cost of nursing home care in your state is $4,500 a month. You would not be able to fully cover your long-term care expenses every month if you chose the Nationwide policy.
Your monthly benefit would fall short of expenses by $500. In addition, you wouldn’t be able to access more benefit dollars until the next month because you 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.
2. Benefit Period (How Long Your Coverage Will Last)
The second thing to review, the benefit period, tells you how long your coverage will last. It is the duration of time you receive your LTC benefit 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:
From the illustration above, Nationwide will give the maximum monthly LTC benefits for a period of 6 years. So Nationwide will provide a maximum of $4,000 a month for 6 years.
Therefore if your nursing home care, for example, cost exactly $4,000 a month, you could afford to stay there for a full 6 years.
3. Inflation Protection ( Your Protection Against Future Cost Increases)
Inflation protection is a policy option that increases your benefits to protect against future cost increases in long-term care services. Inflation protection can increase policy benefits 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|
Again let’s look at our illustration:
Illustrated inflation options (underlined in red) Nationwide. Click for a closer view.
Nationwide’s CareMatters was illustrated with a 3% simple interest inflation option.
Now I often tell my clients:
“A dollar yesterday is not a dollar today. Simply put, what a dollar may have bought you twenty years ago for example, it may not buy you today.”– Michael Chapman
When you are considering a long-term care insurance policy, it is best for you to consider that you may purchase a policy today at age 60 that you may not need until 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 inflation protection in your policy. An offer with 3% compound interest would be better than Nationwide’s 3% simple interest. However, just make sure you get some form of inflation protection.
Let’s take a look at another point of concern, the elimination period.
4. Elimination Period (How Long You Wait to Get Access to Benefits)
The elimination period (also called waiting period or deductible period) is the amount of days you have to wait before your benefits start. During this time you must pay for covered services put-of-pocket before the insurance company begins to make payments.
Common Elimination Periods
The most common elimination periods you see with Hybrid Long-term Care Life insurance 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 Health Care 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.
From there, your elimination period must be met. For this to happen, you must be receiving qualified long-term care services stated under the Licensed Health Care Practitioner’s customized plan of care. So if your elimination period is 90 days, you must be receiving these services for 90 days.
Let’s look at our illustration:
Illustrated elimination periods (underlined in red) from Nationwide. Click for a closer view.
Nationwide offers a 90 day elimination period.
Let’s say the daily cost of a nursing home in your area is $150 a day. Based on the Nationwide CareMatters policy, you would have to pay $13,500 before your policy will pay out benefits. In addition, you are not reimbursed for expenses paid during the elimination period.
Therefore, it is important for you to be mindful of the elimination period as it relates to out-of-pocket expenses.
5. Premium Payment Options (How Often You Pay For Your Policy)
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.
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.
There are, however, other areas you may consider that play a role in the quality of a hybrid Long-term Care insurance policy. Here are some examples:
- Couples Discounts – 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.
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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Update as of May 13th, 2019:
Nationwide CareMatters has been revised and is now CareMatters II. The illustration of the CareMatters product used in this post is no longer valid. The 5 things to review in every policy still holds true nonetheless. Click here to see an unbiased Review of Nationwide’s CareMatters II or visit our Resources page.