Features for Long Term Care Insurance Plans
Most people will require at least some form of long-term care (LTC) later in life. To help them prepare for this, many will choose to purchase a long-term care insurance plan. In other articles on this website, we have discussed the various forms of care and services that this type of insurance can cover. However, there is more to selecting an LTC insurance plan than just deciding how much coverage you will need and what types of care you want the plan to cover. Long-term care insurance plans also offer a wide range of features, options, and riders. Sometimes these are included within the plan, and sometimes they are offered as extras available at additional cost. A selection of common and noteworthy examples are listed below.
Future service options:
this type of option is seen in some long-term care policies. It will allow the policy to adapt and extend coverage to new forms of care services as they are developed. If you are uncertain about what kind of care you will need in the future and want to keep things open and adaptable, it may be worthwhile to look into plans that offer future service options.
Many people buy long-term care insurance 10-30 years before receiving their benefits. Having this long stretch of time between making payments and receiving benefits means that inflation is a major concern. Luckily, most plans will offer an inflation protection rider to help counteract this effect. Inflation protection will increase your benefit by a specific percent, with 3-5% being a commonly recommended amount. You can choose to get either simple inflation protection (which increases the benefit only one time) or compound inflation protection (which increases the benefit annually). If you are under 70 when you make the purchase, compound is generally considered the best choice, as simple generally can’t keep up with inflation rates and rising costs of care over longer periods of time. The younger you are when you first purchase your plan, the more important inflation protection becomes, as it means a longer period between the time you start making payments and the time when you start receiving benefits.
Future-purchase or guaranteed-purchase options:
If you select an option like this, you will start out paying a low premium and receiving only a limited amount of coverage. You can then choose to buy more extensive coverage later on in exchange for a significantly higher premium. This can be great if you aren’t certain that you’ll need a lot of coverage at the moment but still want to keep your options open in case something changes. Just be aware that if you turn down the offer of extending your coverage too many times, you may lose the ability to do so going forward.
If you fail to pay one of your premiums or if you drop your benefit, nonforfeiture options allow you to receive a reduced amount of benefit based on the amount that you have already paid into the plan. Some states require plans to have such options, but others do not. Check and see what the situation is in your state before deciding to drop. If your policy does not include this type of option, all payments made before you stop paying premiums will be forfeit.
Some plans will pay out different amounts for different services, such as at-home care versus nursing home care. With pooled benefits, you have a total dollar amount available that can be used towards different types of care, allowing you to choose and combine services in whatever way best suits your needs and budget.
Return of premium riders:
Policies with such riders will pay a death benefit to a beneficiary if the insured person dies before he or she has received benefits equal to the amount of premiums that had been paid. This ensures that, should something happen to you before your LTC insurance policy has fully paid out, the money will not be lost and will instead go to your heirs.
Restoration of benefits:
This feature gives you the ability to have benefits you exhaust restored if you no longer need them for a certain period of time (commonly 180 days). Put in simple terms, if you make a large claim but then recover and need no further care for a time, you can get back the money that was lost in that first claim and thus ensure that you have plenty available for future claims. The restoration of benefits feature can significantly increase the total amount of care that your policy will pay for and can help prevent you from exhausting all of your funds in a short period of time. This option is included in some policies and offered as an additional option in others. Some insurance companies will place a limit on how many times your benefits can be fully restored, while others will not.
This is a rider that couples can choose to add when they purchase a policy together. With this, when one spouse dies, the remaining spouse will no longer have to pay their LTC insurance premium. It may help to think of it as a kind of death benefit. These types of riders are offered in some form by most companies selling long-term care insurance. People who buy this type of rider are usually required to keep it for ten years without filing any claims before it will kick in. If you purchase an LTC insurance policy as a couple, this is one of the main riders that agents will try to sell to you. While it does have its benefits, it is worth noting that in many cases it is unnecessary and can even end up costing more in added premiums than the value of the benefit it would ultimately pay out. There are definitely situations where it should be considered, though, such as a case where one spouse has annuitized income that will stop once they have passed away, such as Social Security, a pension, or a private annuity. It may also be worth looking into for couples with a significant age gap between them.
If you want to learn more about long-term care insurance, including information on long term care insurance costs, benefits and drawbacks of buying an LTC insurance plan, the types of care it can cover, and what alternatives are out there, take a look at our other articles.
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Things to Look Out for When Choosing A Policy