There are only five basic elements to understand when you consider the purchase of a long term care insurance policy. These elements will help consumers design a policy that provides meaningful protection, whether they need care and make a claim soon after purchase or decades in the future.
- Daily Benefit – The daily benefit is the limit that the policy will guarantee to pay you for covered services once your claim is approved. Most insurance companies define the value of a LTC insurance policy by multiplying the daily facility benefit by the number of days in the benefit period. A policy with a $200 daily facility benefit, and a three-year benefit period (3 years x 365 days = 1,095 days), is worth $200 x 1,095, or $219,000. This is often called the pool of money.
- Inflation Protection – Today’s cost of care is only a benchmark, because the cost of care will inevitably increase. Purchasing a policy with inflation protection is, therefore, very important. Baby boomers may not make a claim against their LTC insurance benefits for 30 years. Five percent compound inflation protection is the best inflation protection available, and is highly recommended. A policyholder must self-insure (pay for) any shortfall between an insurance policy’s benefit and the actual care cost.
- Elimination Period – The elimination period is similar to a deductible; it’s the number of days before the policy starts paying a benefit.
- Benefit Period – The benefit period is the number of years that the policy will pay, once the elimination period has been satisfied.
- Return of Premium – What happens when LTC insurance premiums are paid for years, and a policy is never used? You can purchase a policy with a return of premium provision. Return of premium terms vary among contracts. A traditional return of premium rider refunds, at death, total premiums less claims, and some return premium regardless of claims. Knowing that premium payments can be refunded is reassuring to many consumers.