How to consider a long-term care insurance offer [Column]

Sometimes we are consulted by clients who hold long-term care insurance contracts where premiums have risen substantially and the client would like to know how to handle the increased premium notice. Briefly, the question becomes, is it worth it to continue under different terms or should the policy be permitted to lapse. There are some other options, a few of which are discussed here.

Typically, the letter from the long-term care insurance company presents the case in the following terms. The insured could (1) pay an increased premium and maintain the same level of coverage or (2) make some changes to coverage and retain the same or similar rate. Other possibilities include increasing the “elimination period,” reducing the term of coverage or cashing out either on the premiums paid or the current value of the policy.

It might be added that this discussion concerns the typical traditional LTC insurance contract. There are hybrid products now available combining, for instance, long-term care insurance and life insurance or long-term care insurance and annuity which are not discussed here. Also, sometimes employees are able to obtain long-term care insurance under special terms that relate to their employment. This discussion is for the individual or couple who purchased the insurance on their own, in many cases several years ago.

Is it worth it in the individual case to continue? Here are some considerations.

You need to know the terms.

• What Is the “Elimination Period?” The elimination period under a long term care insurance policy is the time that must elapse after the policyholder would otherwise be entitled to benefits but before benefits will actually be paid. A longer elimination period results in a period when other sources typically must be found to pay. These could be Medicare or private pay, for instance. I have had clients who died during a long elimination period after having paid into a policy for several years. So there is a tradeoff. It happens infrequently. However, if one of your options is a longer elimination period your premium would reduce but you bear a risk of loss for some longer period of time.

• What Are “Qualified Long Term Care Services?” Read the definition in the policy. A good qualified long term care services definition might say “necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services and maintenance of personal care services which are required by a Chronically Ill Individual and are provided pursuant to a plan of care prescribed by a Licensed Health Care Practitioner…” A chronically ill Individual is someone who is unable to perform, without substantial assistance from another individual at least two activities of daily living (bathing, continence, dressing, eating, toileting, transferring … or a person who requires substantial supervision to protect from threats to health and safety due to “severe cognitive impairment.”   The Plan of Care requirement is important. Basically it is a prescription by a licensed health care practitioner (typically a physician) describing the care needed and how to be offered.

• What is the Daily Benefit Amount? Note the daily benefit and compare it to likely cost of care. If the daily benefit amount is too low we have used the expression you can “go broke slower.” A few points to note — you want to review the “daily benefit amount” both in a facility (which might be nursing home and assisted living/personal care or possibly just nursing home) and for HCBC which stands for Home and Community Based Services, that is, at home care or other residential environment.

• What is the Benefit Period? The correspondence might suggest reducing the benefit period. Some early policies provided the daily benefit for “lifetime.” These are very unlikely to be seen today and if you did see one it could be expected to be prohibitively expensive. You could have, for instance, a two-year, three-year, or five-year benefit period. Take the number of days and multiply by the maximum daily benefit. You may not use all of the daily amount and, depending on the policy, if you do not, you might have more than expected.

• What is the Financial Condition of the Company Making the Offer? If the company is in difficult financial straits it may in some cases make sense to accept the buyout offer for the value of the policy or the total premium contributions.

Janet Colliton is a Certified Elder Law Attorney by the National Elder Law Foundation and a member of the Pennsylvania Association of Elder Law Attorneys.  She limits her practice to elder law, life care, special needs and retirement planning, Medicaid, estate planning and estate administration and guardianships and is located at 790 East Market St., Ste. 250, West Chester, PA  19382, 610-436-6674, colliton@collitonlaw.com.  She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.