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How to Insure Your Income: How The LTC Policy is Structured

LTC insurance benefits usually are characterized by the level of care needed. Generally, the benefits are designed to cover one or more of the following levels of care:

  • skilled nursing care;
  • intermediate care; and
  • custodial care.

Skilled nursing care includes daily nursing and rehabilitative care that is performed only by, or under the supervision of, skilled medical professionals or technical personnel. This care is available 24 hours a day, must be ordered by a physician, involves a medical treatment plan, and usually is performed directly by or under the supervision of a registered nurse.

Intermediate care includes medically supervised health care for individuals who do not require the degree of care and supervision provided by hospitals or skilled nursing homes, but who need daily medical care of some kind and other assistance. Generally, 24-hour-a-day nursing supervision is not required, but some medical care is provided under the direction of medical personnel. This care is also ordered by a physician and supervised by registered nurses, but is less specialized than skilled nursing care. Intermediate care facilities also are licensed by the state.

Custodial care includes care that is provided for the purpose of meeting personal needs, such as help in walking, bathing, dressing, eating and other essential activities of daily living. Custodial care is also known as personal care. It may be administered by licensed practical nurses -- but it also may be given by nonmedical personal, such as volunteer workers, therapists and family members. The most common type of long-term care, it can be provided in a variety of settings -- ranging from a nursing home to the patient's own home.

Home health care is often an extension of intermediate care, custodial care or both. It is provided when the patient is in need of some health care or personal assistance, but does not need to be confined to a nursing home. This is care received at the patient's home. It may include part-time skilled nursing care, such as occasional visits by registered nurses or licensed practical nurses. It may include speech, physical or occupational therapy, and part-time services of home health aides. It almost always includes some degree of custodial care, such as assistance with meal preparations, personal hygiene and taking medication.

Most LTC policies are issued on an indemnity basis, which means the contracts provide a daily maximum benefit -- such as $100 per day, for each day of confinement in a nursing home or other long-term care facility. If the policy also includes benefits for home care, the daily limit for home care expenses typically is 50 percent of the daily nursing home benefit amount.

Some LTC policies are issued on an expense incurred basis, which means the contracts reimburse a proportion of the actual expenses incurred. These benefits function much like some forms of hospital and medical insurance, because the insurance pays only a percentage of the costs (usually 50 percent to 80 percent), and the insured is responsible for the rest -- an arrangement known as coinsurance.

Regardless of whether a policy is issued on an indemnity or expense incurred basis, LTC coverage usually is written with an elimination period. This is the initial period of time after an insured is confined in a nursing home for which no benefits are payable. Benefits become payable for additional days of confinement after the elimination period is satisfied. Most insurers will offer elimination periods of 15, 30, 60 or 90 days -- or more.

Since the elimination period affects the amount of an insured person's out-of-pocket cost and the amount the insurance company pays, the period selected will affect the premium. The longer the elimination period, the smaller the premium; the shorter the elimination period, the larger the premium.

Once the elimination period is satisfied, the benefit payment period begins. Under the legal definition of long-term care insurance in most states, the benefit period has to be at least one year. Most insurers offer benefit periods in terms of a number of years, ranging from one year to 10 years. Some insurers offer lifetime LTC benefits.

Purchasing lifetime LTC benefits is the only way to guarantee that benefits will never run out, but the lifetime benefit option (when available) will have the highest premium.

Some policies split the maximum benefit period into two parts by providing a benefit period per confinement and a separate lifetime maximum period.

Example: Sam has LTC coverage with a three-year benefit period per confinement and a lifetime maximum benefit period of five years. On three different occasions, Sam is confined to a nursing home for respective periods of six months, one year and two years beyond his policy elimination period. In each case, he receives benefits until he is released -- because none of these confinements exceeds three years. However, Sam has used up three and one-half years of his total five-year maximum lifetime benefit, leaving him with only one and one-half years of additional coverage for all future needs.

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