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Feature: Shorter-term long term care policies make planning essential

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These tough economic times have impacted almost everyone. With baby boomers approaching retirement in unprecedented numbers, for some it has meant postponing retirement a few years, and for others indefinitely.

Those who are still able to purchase long term care insurance often have stringent budgets, making LTC planning quite challenging. As a result, they have limited choices when purchasing coverage that will at least offset some of the high costs of LTC.

Some try to manage this by electing shorter benefit periods of two or three years and/or longer deductibles (i.e., elimination periods) of 90 or 100 days. They hope to maximize their benefits this way, while keeping premiums affordable.

But it is not that simple. Policyholders with shortened benefit periods and limited pools of money may one day face serious problems if they need LTC that exceeds their benefits and available pool of money.

For them, advanced planning is imperative.

For the LTC advisor, that means careful and judicious review of the proposed LTC policy’s provisions is necessary long before an illness or the need for care appears on the horizon. Since financial and estate planning needs change with the economy as well as with an individual’s personal circumstances, constant professional monitoring of those provisions is essential, particularly when families elect shorter-term LTC policies.

Following are three examples based on the actual experiences of our clients. Their names and identifying details have been changed. Their stories indicate that shorter-term LTC policies do provide valuable coverage, but clients, families and advisors need to be aware of all policy features in order to maximize benefits.

James and Fay: This New York City couple purchased LTC insurance in 1996 at the ages of 68 and 61 respectively. They selected a shorter-term policy that had a $150 daily benefit for both home- and facility-based care, a three-year benefit period, a 90-service-day deductible, and a 5% simple inflation adjustment.

When Fay passed away suddenly from a stroke, James continued to live in their resident co-op apartment and his home for 40 years. But by August of 2009, his arthritis had progressed to a point where he could no longer live alone. Daughter Kim lived in a nearby suburb, so she could visit and assist her father. Kim and her husband did have a home large enough to enable her father to move in, but Kim knew her father’s care was likely to become more than she could provide as she was also managing her own home and her family’s needs.

Here is where the shorter-term LTC policy came into play. Kim located the policy and contacted the claims department to find out what benefits were available and to determine whether her father was eligible for them. The company helped with gathering information and providing support to initiate claim. Her father’s arthritis was progressive, and he required assistance with bathing, dressing and mobility, so he clearly met the benefit eligible criteria.

But Kim was confused about how to make the benefits do the most good for her father. So she sought the assistance of a geriatric care coordinator. The geriatric professional provided insight to her father’s possible long-range care needs and also suggested alternatives to maximize her father’s benefits while continuing to maintain a quality level of care.

In the end, Kim’s decision to seek professional help enabled Kim to preserve her father’s pool of money and at the same time lengthen the period during which he could receive benefits under the shorter-term LTC policy that was purchased so many years before.

Dinah and Phil: This couple also purchased a shorter-term LTC policy. This one included a 90 “service day” deductible in order to keep the premiums affordable. When Phil was diagnosed with Parkinson’s disease 13 years later, Dinah was initially able to manage Phil’s care with the help of family and friends but later needed extra help with bathing and dressing him.

Dinah contacted Pam, their broker, who reviewed their policy and provided them with a comprehensive analysis of coverage. The broker found that the 5% simple inflation rider had grown to $240 per day, up from $150 in1996, when the policy was issued, and the original $164,250 pool of money had grown to $262,800.

Dinah was reassured by the prospect of having access to those additional benefits, but she was concerned that the policy’s 90 “service day” deductible required her to wait 90 days to secure the help of a licensed home health aide through an approved agency. Dinah needed additional help with Phil immediately. For her, the thought of waiting 90 days for coverage to kick in was extremely upsetting.

This is where policy review really helped. Pam, the broker, pointed out that the policy also had a provision stating that when one day of covered services was provided in a calendar week, the full 7 days would be counted towards satisfying the deductible. This piece of information allowed Dinah to engage a licensed home health aide for one four-hour shift weekly to comply with the policy provisions, while engaging the services of trained “unlicensed aides” for the remaining days needed to satisfy the deductible, at less than half the cost.

The arrangement significantly reduced the couple’s out-of-pocket expenses, while satisfying the deductible more expeditiously under the couple’s shorter-term LTC policy.

Bill and Vera: This couple purchased shorter-term LTC insurance in 1989 with a $5000/month benefit, a 60-day elimination period (i.e., deductible), a three-year benefit period and both 5% compound inflation and shared care rider options.

In 2004, Bill died suddenly in an auto accident, so he never needed to use his LTC benefits. By 2009, Vera was 80 and still fairly active. But she was beginning to wonder about who would care for her. On the advice of her son, she engaged the services of a claims advocate to analyze and explain the benefits currently available from the couple’s LTC insurance.

The claims advocate advised them that under the terms of the shared care rider, Vera was entitled to the total pool of money that had accumulated on Bill’s policy when he passed away. These additional benefits significantly increased Vera’s LTC insurance pool of money. With the advocate’s clarification of the policy provisions, Vera and her family felt confident that, should she need extended LTC assistance, the policy would provide the protection she needed and not place her or her family in financial jeopardy.

All three of these couples selected shorter-term policies that contained limited benefits, and when the care was actually needed, they benefited greatly by seeking professional guidance in interpreting the changes that had taken place since they purchased their policy many years earlier as well as the related policy features.

By seeking professional guidance, each family obtained the information needed to modify and integrate their financial and estate plans to meet their current needs–despite the “shorter-term” nature of their coverage.

Planning ahead for unanticipated changes can make a world of difference to a family with LTC needs and LTC policies. Enlisting the services of a care coordinator and claims advocate who can explain the nuances of LTC policies and offer possible ways to maximize benefits without exceeding the family budget or sacrificing quality of care can prove to be a very wise decision, particularly in these tough economic times.

Vivian P. Gallo, CLU, CSA, AEP, CLTC, is a long term care insurance specialist and certified senior advisor at Choices for Long Term Care, Hartsdale, N.Y. Her e-mail address is [email protected].


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