Long-term care insurance has become prohibitively expensive — but despite this, the need for coverage persists, sending many clients searching for alternative solutions. Enter short-term care insurance (STCI), an option that has begun to gain traction with clients who are unable (or unwilling) to obtain traditional long-term care insurance (LTCI) coverage.
Because about 50 percent of clients who eventually need to file a claim against their LTCI policy require less than a year’s worth of care, it’s no surprise that short-term care insurance is trending — for the right client, short-term care insurance can be the key to providing financial security even in the face of a critical illness.
STCI is 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 one year or less).
As a result, clients who are unable to qualify for traditional long-term care coverage (over 25 percent of LTCI applications are declined, often because of age or a previously existing condition) will typically qualify for STCI because insurance companies generally do not require the types of comprehensive applications that are now commonly required to qualify for long-term care coverage.
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 $100 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 based upon the level of benefits and length of time selected, as well as upon the age and health status of the client.
Finding the right fit for STCI
As mentioned above, STCI can provide a valuable alternative for clients who are otherwise unable to qualify for traditional long-term care insurance, and it is significantly less expensive than long-term care coverage.
STCI can also be useful to fill the waiting period gap for clients with traditional long-term care or Medicare coverage. Traditional long-term care coverage and Medicare each impose a waiting period before coverage kicks in, which creates a coverage gap that STCI can step in to fill.
STCI can also be combined with unpaid care from family and friends in order to provide supplemental care through the use of a home health aide, because home health care is often not covered through general health insurance.
Whether or not short-term care insurance is the right fit for your client will depend on the client’s individual needs — but this coverage option has been growing rapidly, and is one that will likely be of interest to a growing group of clients in the coming years.
Originally published on Tax Facts Online, the premier resource providing practical, actionable and affordable coverage of the taxation of insurance, employee benefits, small business and individuals.
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