Understanding long term care insurance terminology is often the cause of great confusion and frustration for advisors as well as consumers.
Much of the benefits terminology was derived from the long term disability industry, where it also bewildered applicants. Today, many LTC policies use simpler and more understandable concepts, but assessing the terms carefully is still essential, because terms differ between contracts and they may involve tradeoffs from traditional comprehensive LTC insurance.
The definitions of elimination period (EP) and benefit period (BP) are examples.
Elimination period provisions. The EP is essentially a deductible, defined as a period during which policy owners are responsible for their LTC expenses before the LTC benefit payments start. Typically, the EP options are 30-, 60-, 90-, or 180-day periods. Agents and brokers must be able to communicate to consumers how these definitions differ among products offered, and how the definitions can significantly impact what benefits may be payable at claim time and how those benefits are paid.
There are typically two types of EPs–service-day and calendar-day.
With a service-day EP, each day the insured receives a covered service and incurs an expense for which a bill is rendered (e.g., home care or assisted living care) counts as one day towards satisfying the EP. This provision stipulates that a day may only be counted toward meeting the deductible when both services were rendered and covered charges were incurred on that day. But if home care is needed only 2 or 3 times weekly, satisfying a 90-service-day EP could take 6 months or longer, costing the claimant sizeable layouts of personal money.
By contrast, a “calendar-day” EP does not require that charges be incurred or that services be rendered to satisfy the elimination period. As long as the LTC policy benefit is triggered by the insured needing assistance on any given calendar day with at least 2 of 6 activities of daily living (ADLs), and that condition is expected to last at least 90 days, each calendar day counts as satisfying one day of the deductible, even when no services are provided or expenses incurred on that day.
There’s more. Some LTC policies with “service-day” EPs have a “1=7″ provision either built in to the core benefits or offered for an extra premium. Here, if one day of covered services is provided during a calendar week, 7 days are counted towards satisfying the EP, even if no services are rendered during the remaining 6 days. As a result, this provision can shorten the EP considerably, appreciably reducing the policyholder’s out-of pocket costs.
Service-day EPs may also offer a zero-day EP for home care that further reduces or minimizes the personal claim costs. Depending on the product, this type of EP may be built in to the core benefits or added on for an extra premium.
Benefit period provisions. Also called the “maximum benefit limit,” the BP represents the minimum number of years that LTC coverage is provided–typically ranging from 2 to 10 years or even lifetime. The number of years selected is used to define the “total pool of money” available for covered LTC services.
BPs are defined in terms of a daily amount, generally ranging from $100 to $500 per day in $10 increments, or a monthly benefit, typically offered in increments of $100 ranging from about $3,000 to $15,000. It is essential for customers to have a clear understanding of how the daily and monthly benefit options may impact claims.
Table 1 illustrates the differences. The monthly benefit design produces a slightly smaller total pool of money than the daily benefit design. This is so even though premiums for the monthly benefit design are generally slightly higher.