Understanding Long Term Care Policy Design
How are Insurance Companies Rated?
A Look inside Group Policies
Buying from a Long-Term Care Specialist versus a Financial Planner
Is it Better to buy LTC insurance from a Local Agent?
Can I buy Long-Term Care "Direct" and save money?
What happens if I have to make a claim
A Look Inside Group Policies
Group insurance for long-term care is becoming more and more common. People assume that "group" automatically means a better policy at a lower price. For long-term care insurance, nothing could be farther from the truth. Certain drawbacks are quite common in these policies. If you are in relatively good health, then there is a very good chance that you can purchase a superior individual policy at a lower price than your group plan. Why is this case? Good question.
Firstly, recognize that there has never been an Insurance company created under the Sun that gives away anything for free. Understanding this little truth, you should also know that many groups offer a form of "guaranteed issue", which means that few people are refused some type of coverage. Now, in order to pay for these normally uninsurable people (generally estimated to be between 7% - 12% of all applicants), and in order to retain some level of profitability for the Group, insurance companies have to make modifications to their policy benefits and/or adjustments to their premium rates.
It is for these very reasons that frequently, if you were to do a true "apples to apples" comparison between your group offering and compare that to an individual plan, a healthy person can normally purchase a better policy at the same or even lower price on the open market! So, make sure you compare!
The ‘inside scoop’: Take a closer look at that group policy to see if any of these benefit reductions apply:
#1 Reduced percentage payouts for Assisted Living, as well as Home Care.
When the ‘initial daily benefit’ is referred to in LTC policies, it’s common to use the Nursing Home Daily benefit as the benchmark. Thus, a policy value of $150 per day means that if you are using a Nursing Facility, you will have up to $150 per day in reimbursement available.
However, in Group plans, very frequently the Assisted Living reimbursement level has been reduced to a lesser amount, typically 70% of the Nursing Home Benefit.
Worse yet, the Home Care is often reduced to either 60% or 50% of the original Nursing Home value.
Given that many statistics have shown that you may have a much greater chance of first using Home Care or Assisted Living care, and a lesser chance of using a Nursing Facility in your lifetime, it should come as no surprise that this is one of the best ways to limit the anticipated payout from a Group Plan.
#2 Does your group plan offer true Automatic Inflation Protection?
- ‘FPO’ – Future Purchase OPTION Inflation Protection .
Ma ny group plans offer something typically called ‘FPO’, which is inflation protection tied to a periodic option that will be extended to you to adjust your present daily benefit by some factor, such as 5%.
Consumers are frequently confused by this language by assuming that it means they have Automatic Inflation protection on an annual basis that is being added to their policy. Nothing could be further from the truth. The attraction for people is that the premiums seem so inexpensive relative to other quotes they may have gotten from an independent agent. Often the premium offered with “FPO” type inflation protection is about 40% less than a policy that includes automatic 5% Compounded Annual Inflation Protection. The reason for this large disparity in premium costs is that the FPO Option means that you have bought a policy with NO automatic inflation protection other than the option to purchase this ‘upgrade’ every time it’s offered. Now, here’s the downside……every time you exercise this FPO option, your premium increases relative to the NEW AGE that you have attained. Thus, assuming you are considering purchasing a policy at a younger age, say in your 40’s or 50’s, you will have the distinct pleasure of seeing your premiums increase significantly over the years (assuming you accept the increases each year) beyond what you could have had if you had simply purchased a policy with an automatic guaranteed and built-in inflation adjustment right up front.
So how does this apply to a younger applicant? Well, for starters, while this FPO option is a reasonable thing to consider for people ages 70 and beyond, we believe it is very disadvantageous for a younger person. It is highly likely that at some point you will no longer exercise this FPO option because the premiums have become too great, and thus you will most likely refuse any further option to increase your policy value. This will effectively cause your policy value to stagnate, thus limiting the value of your policy in later years when you are most likely to need it. Unfortunately, depending on when you have arrived at this understanding, you may not be in a position to acquire another suitably designed LTC policy, and you may have seriously jeopardized your future financial security. So, the old maxim of ‘penny wise & pound foolish’ may apply here to those who do not have the knowledge, but certainly not to you since you have just been given a jewel of an insight that will save you much heartache.
(ii) CPI – Consumer Price Index
Similar to the above FPO explanation, except the increase is pegged to whatever the Consumer Price Index has increased by. With the CPI option, in order for your benefits to keep pace with inflation, you will still need to purchase more coverage every year or two at your new attained age. It won’t be long before you will likely be paying more for your policy than if you had simply included the inflation protection in the original premium. Most people stop accepting the increase offers and end up with very inadequate protection when they go on claim.
# 3.The Elimination period.
Very typically, Group plans will have a ‘standard’ 90 day Elimination period, which means that you are responsible for the first 90 days of service that you receive.
“Days of service” is the key phrase here which refers to actual days of service, not consecutive calendar days. Most consumers tend to think in actual calendar days, thereby equating a 90 day waiting period as 3 months. That is likely true if you need long term facility care, however, not necessarily so if you require home care.
What this means in real life is the following:
Most people may stay at home first, and typically receive about 3 to 4 actual home visits from a care agency or worker per week. That being the case, you will have 3 or 4 days credit per week towards the 90 days that you are paying for. However, if you maintain that usage, then it could literally take you between 4 – 6 months to satisfy the requirement of 90 service visits. By that time, a good percentage of home bound consumers may already have recovered, and the insurance company has not had to pay one nickel because the 90 day Elimination period has not been satisfied.
Though individual policies may be written this way as well, there are other LTC plans in the open market from “A” rated carriers that offer both ‘Calendar’ day contracts (meaning that a 90 day elimination period means 90 days maximum),or even better, offer a variety of ways to minimize and reduce these days or discount them entirely to 0 days. There is thus a considerable advantage to comparison shopping that group plan to maximize your benefits at and policy value.
# 4 Additional ‘advanced’ features
Your Group plan will often offer only the basic features of a long term care policy.
Other advanced features generally not found in Group plans but certainly available with individual open market plans are:
Restoration of Benefits
Spousal/Partner Survivorship Benefits
Joint Waiver of Premiums
Shortened Paid-Up Provisions
These and many more options can be explained to you upon your request by simply requesting a Free Quote from us to compare to the Group plan that you are being offered.
