As the price tag for long-term care insurance continues to rise, many clients have simply been priced out of the market for this class of coverage. Unfortunately, the need to plan for the costs of long-term care remains as important today as ever—and the consequences for failing to do so can be financially devastating. Insurance carriers have kept pace with the times and have begun to offer new products that can bridge the gap for clients who wish to secure some form of protection—or make their current long-term care coverage more effective. Short-term care insurance can, in the right circumstances, mean the difference between financial security and financial ruin in the face of debilitating illness.
What Is STCI?
Short-term care insurance (STCI) is essentially a form of critical care insurance that functions much like long-term care insurance—except, as the name suggests, STCI remains in effect only for a relatively short period of time (typically 12 months or less). Clients who purchase STCI usually become eligible for benefits when they need assistance performing two or more activities of daily living (ADLs), such as eating, bathing and dressing.
The policies, also known as recovery insurance, typically provide for a fixed level of daily benefits—around $140 per day is common—for a set period of time. However, most policies provide that if the actual cost of care is less than the stated daily benefit, the remaining funds can be used to pay for care even after the time period for coverage has expired. (For example, if the policy provides a daily benefit of $100 per day for 365 days, but the actual cost of care is $75 per day, the remaining $25 per day can be used to fund care on day 366 and beyond).
The policy’s cost varies, of course, based on the level of benefits and length of time selected, as well as upon the age and health status of the client. However, for STCI policies, insurance companies generally do not require the types of comprehensive applications that are now commonly required in order to qualify for long-term care coverage.
Is STCI Right for Your Client?
In general, STCI provides an attractive option for those who cannot afford or qualify for traditional long-term care insurance policies. Because many illnesses that require institutionalization in a nursing home or home health care (common services that are covered by STCI) are resolved within a one-year period, in many cases STCI provides a much more effective option for providing the level of care that is actually needed.
STCI can, however, also be used to fill the gaps that are inherent to most traditional long-term care insurance policies, which may impose waiting periods upwards of 90 days before the client actually becomes eligible to receive the LTCI daily benefit. In this case, a STCI policy can be used to ensure that benefits are funded during the LTCI waiting period.
STCI policies can also be useful for clients who have family members available to help with home health care, but anticipate the need for a home health aide to provide additional assistance. In these cases, STCI will step in to cover the cost of the home health aid—an expense that is generally not covered by a traditional health insurance policy.
While long-term care insurance may provide the most comprehensive level of long-term coverage for your clients, the cost can be prohibitive—and, in many cases, STCI can cover the actual cost of care much more efficiently, and at a lower cost, than a traditional LTCI policy.
Originally published on National Underwriter Advanced Markets. National Underwriter Advanced Markets is the premier resource for financial planners, wealth managers, and advanced markets professionals who provide clients with expert financial and retirement planning advice.
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