Private Long Term Care Insurance - Cost, Premium, Policies & Tax Benefits

Long Term Care Insurance, also referred to as LTCI, is insurance bought to help pay for the cost of long-term care (if the need for using the same ever arises) beyond a certain period. That period has to be determined beforehand. This product is sold in the United States, United Kingdom andCanada. Generally, health insurance, Medicare and the like do not cover long-term care insurance.

To whom is this insurance product beneficial?

Those people who have difficulty in performing basic daily activities can benefit from this product. Daily activities include bathing, toileting, transferring, dressing, bathing, eating, walking, continence, etc.

During the lifetime of many individuals, need for long-term care of any type may be required, especially during old age. A few may require it even before that time; it cannot be predicted. So age does not determine whether the product is necessary.

What are the types of policies?

Long term care policies are of two types:

1. Tax qualified policies: The policy is suitable for those people who suffer from a severe cognitive ailment, for whom care for a minimum period of ninety days will be required and who, without substantial help are unable to perform a minimum of two of the following activities of daily living:

Dressing, bathing, transferring, toileting, continence and eating.

The benefits from a tax qualified policy are non-taxable.

By law, tax-qualified policies carry restrictions on when the policy holder can receive benefits.

1. Non-tax qualified policies: Formerly referred to as traditional long term care insurance, it includes a ‘trigger’ called a ‘medical necessity trigger’. When the patient’s doctor or the one who is associated with the right insurance company declares that his patient requires medical care, the policy can be used. In this policy, the requirement of inability to perform a minimum of one activity of daily living is enough. Here the benefit- taxability is not specified.

The rates for long-term care insurance are determined by:

1. The policy holder’s age
2. The daily (or monthly) benefit
3. For how long the benefits pay
4. The elimination period
5. The inflation protection
6. The health rating

There are discounts for couples (spouses and live-in-committed relationship partners) and multi-life on individual policies.

There is a waiting or elimination period of 20 to 120 days for most policies, when the policy holder pays for care before he reaps its benefits. Premium depends inversely upon the deductible period. Before becoming eligible to collect benefits, some policies state that the policy for long-term care should be paid up to one year.

Most plans offer ‘Survival of spouse’, ‘non-forfeiture’, ‘benefit- restoration’ and ‘return of premium’ options.

Mode of payment

There are annual, semi-annual, quarterly and monthly modes of payment.

Other points to note

• Coverage costs tend to be expensive. This is specially observed when consumers wait until retirement age to purchase LTC coverage.
• The insurance company cannot change the language on the policy documents once a person purchases the policy.
• The policy can never be canceled by the insurance company for health reasons.
• The policy can be canceled for non-payment.
• In most of the policies, there is cover for care only in the continentalUnited States. Those that cover care in specific foreign countries generally cover only one nursing care.
• Most benefits are paid as reimbursements.

Private long term care insurance is gaining popularity in theUnited States. But premiums are getting costlier. Even existing policy owners are bearing the brunt of the same. Planning for future care indeed requires a clear head.

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