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While the standard features are automatically included in a long-term care insurance policy, you can control the premiums you pay and the benefits you receive when you select the benefit choices in a policy. Below are descriptions of the most common benefit choices in policies, and tips on selecting what is right for you.
The daily benefit you select is the maximum dollar amount that the insurance company must pay for your care on a given day. Some policies pay this benefit out as a weekly or monthly benefit, which allows you to receive benefits for expenses on specific days that are greater than your daily benefit.
The daily benefit choices may range from $40 to $500 per day depending on the carrier. If you are purchasing a reimbursement policy, most companies will allow the amount of the daily benefit that you did not use to be carried over, which extends your benefit period. For example, if your daily benefit amount was $150 and your expenses were only $100, then the remaining $50 would be carried over to be used later. This could therefore allow a three-year plan to last longer than three years! If you purchase an indemnity policy, the carrier would pay you the entire daily or monthly benefit regardless of the cost of your care. However, some indemnity policies require some care each day to receive any benefit for that day. Also, some reimbursement policies have optional indemnity riders allowing you to convert them to an indemnity policy.
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Tips:
- Research the average daily cost of care in the area you are planning on retiring to ensure you select the appropriate daily benefit amount.
- The more discretionary income you have, the lower the daily benefit you may want to purchase.
- Consider the extra cost if you want a private room when selecting your daily benefit, should you move into an assisted living or nursing home facility.
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This benefit provides for home health care in your home. This can include skilled professionals like registered nurses and licensed therapists , home health aides and personal care attendants, as well as homemaker services. Adult day care benefits are usually included also.
The home health care benefit the carrier will pay is usually based on a percentage of the daily benefit. For example, if you choose a 100% home health care benefit, you would receive 100% of the daily benefit you selected for services in your home. The choices vary by carrier, but some other examples are 75% or 50%.
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Tip:
If it is important for you to stay in your home, you will want to choose 100% home health care options. If you do not have a primary caregiver or live alone, home care may not be in your best interest, since you may require around the clock care.
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The benefit period you select is the maximum amount of time that you will receive benefits. When you select a benefit period, it is expressed in years. This can range anywhere from one year to unlimited years (lifetime coverage). Usually, the benefit period is multiplied by the daily benefit you chose to equal a lifetime maximum, or pool of money to pay for your care. For example, if you purchased a three-year benefit period with a daily benefit of $100, this would give you a pool of money (lifetime maximum) of $109,500 (1,095 days X $100).
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Tips:
- The more assets you have, the shorter the benefit length you may need.
- If you have a family history of Alzheimer's or simply longevity, you may want to consider unlimited benefits. Alzheimer's patients have been known to require care for more than 20 years.
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The deductible is also known as an elimination period. This is similar to the deductibles you are used to in other types of insurance you carry. The elimination period is the length of time you must pay for long-term care services before the insurance policy begins to pay benefits. Examples of deductibles available are: 0, 20, 30, 60, 90, 100, 180, 365, or even 730 days. When you choose your deductible you are agreeing to pay for any charges during those days. Generally, the longer the elimination period, the lower the premiums. But remember, the lowest premium is not always the best purchase.
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Tips:
- The more savings/assets you have, the longer the elimination period you can get by with.
- The younger you are, the more important it is to consider the FUTURE cost of the deductible, since the cost of long-term care is expected to increase with inflation. It may be more cost effective over the long run, to select a shorter deducible.
- Choose a policy that only requires you to meet the elimination period once in a lifetime.
- Also consider the alternative use of your premium dollars relative to any savings from selecting a longer elimination period. Could your premium savings be reinvested to make up the difference in increased exposure if you have to self-insure for a longer period of time?
- Usually, the younger you are the smaller the premium savings because of a longer elimination period, but your future exposure could be dramatic 20 or 30 years from the time of purchase if you assume an extra 60 days of risk (the difference between a 30 and 90 day elimination period; for example).
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When you purchase long-term care insurance, you will want your policy to stand the test of time. The costs of long-term care are expected to increase just like they have done in the past. In fact, over time, the costs of long-term care can double or triple what they are today. Depending on the state that you live in, you will have several choices of inflation protection options. The two most common inflation protection options in long-term care policies are 5% compound and 5% simple inflation protection. These options increase your benefits over time, but your premiums are designed to stay level for the life of your policy. If inflation for long-term care runs five percent annually, a nursing home that now costs $110 per day could be charging more than twice as much a day in 14 or 15 years. Without this protection, your policy could cover less than half of your care costs at that time.
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Tips:
- If you are 70 years or older, 5% simple increases may be sufficient.
- If you are younger than age 70, compound increases make more sense because it will increase the benefit amount faster and to a greater degree in the long run.
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