Long Term Care Insurance

Another type of policy that’s indirectly related to medical expense policies and the concept of disability is the increasingly popular long-term care (LTC) policy.

LTC insurance is designed to pay a fixed dollar benefit to the insured to help offset the costs of long-term or convalescent care. Although there’s no age requirement to receive benefits from an LTC policy, these policies are typically purchased by older adults who are concerned that advanced age may affect their ability to perform activities of daily living. Many policies pay part or all of a stated benefit when an insured needs care - either at home or in an assisted living facility - due to the loss of one or more of the six activities of daily living (ADLs).

Activities of daily living:

• Ability to feed yourself
• Ability to bathe yourself
• Ability to maintain continence (use the bathroom)
• Ability to transfer (move from bed to chair unassisted)
• Ability to dress oneself (Dressing)
• Ability to use the toilet (Toileting)

Most policies require the insured to be unable to perform at least two out of the six ADLs. Policies that pay benefits based on the loss of only one ADL are rare.

There is usually a probationary period for pre-existing conditions (6-month maximum) on new policies. However, when replacing an LTC policy with a new LTC policy, no new probationary periods may apply.

An insurer may not cancel an LTC policy solely on the grounds of age or the deterioration of the mental or physical health of the insured. Mental disorders (including Alzheimer’s) caused by illness or accident are covered.

An Outline of Coverage and Buyer’s Guide must be delivered by the producer to the applicant at the time of application. If the policy is sold via correspondence, these documents must be delivered no later than the time the policy is delivered. This Outline of Coverage must plainly state that premiums may increase.

The owner of an LTC policy is entitled to appoint someone (in addition to themselves) to receive premium notices, receive notice of cancellation, and pay policy premiums.

Free look (right to examine)

An individual policyholder who purchased LTC coverage has the right to return the policy within 30 days of delivery and have all premiums refunded if not satisfied for any reason.

All individual LTC policies must be guaranteed renewable (non-cancellable may also be offered, but it is not required), and this provision must appear on the first page of the policy.

Home health care

If an LTC policy covers home health care, the insurer may not first require that the insured receive care in a facility, home, or community setting before home health services are covered.

Inflation protection

No insurer may offer an LTC policy unless the insurer offers, at the time of application, the option to buy inflation protection.

Exclusions

LTC policies may exclude certain mental illnesses (but not Alzheimer’s disease or other age-related cognitive impairments), alcoholism, drug addiction, acts of war, criminal activities, self-inflicted injuries, personal aviation, and treatment outside the United States.

LTC policies can be structured to pay benefits directly to a qualified facility or to the insured, who then uses the funds to offset the cost of care. While LTC policies may offer lifetime benefits, most are issued with a set benefit period (such as 2, 5, or 10 years). By law, all policies must provide at least 24 months of coverage.

Lesson summary

Long-term care (LTC) insurance policies are becoming increasingly popular and are related to medical expense policies and the concept of disability. They are designed to help pay for long-term or convalescent care costs. Key points include:

• There is no age requirement to receive benefits, but these policies are often purchased by older individuals concerned about a reduced ability to perform daily activities.
• Benefits are provided when insured individuals need care due to the loss of two or more of the six activities of daily living (ADLs), including:
  • Ability to feed oneself
  • Ability to bathe oneself
  • Ability to maintain continence
  • Ability to transfer unassisted
  • Ability to dress oneself (Dressing)
  • Ability to use the toilet (Toileting)
• Standard eligibility is the inability to perform at least 2 of the 6 ADLs. Policies paying benefits for just one ADL impairment are rare.
• There is usually a 6-month probationary period for pre-existing conditions on new policies.
• If replacing an LTC policy with a new one, no new probationary periods may apply.
• Insurers cannot cancel an LTC policy based solely on age or deteriorating health.
• Mental disorders caused by illness or accident, including Alzheimer’s, are covered.
• An Outline of Coverage and Buyer’s Guide must be provided at the time of application, or no later than policy delivery if sold via correspondence.
• Individuals have a 30-day free look period to return the policy and receive a full premium refund.
• All individual LTC policies must be guaranteed renewable (non-cancellable is optional), and this provision must appear on the first page.
• If the policy covers home health care, insurers cannot require facility care before home health services are covered.
• Inflation protection must be offered at the time of application.
• Exclusions may include certain mental illnesses (but not Alzheimer’s or other cognitive impairments), alcoholism, drug addiction, and other listed items.
• LTC policies can pay benefits to a facility or directly to the insured to offset care costs.
• Policies may offer lifetime benefits, but most have a set benefit period. By law, policies must provide at least 24 months of coverage.

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