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. A policy may not exclude or limit benefits on the basis of Alzheimer’s disease, although it may exclude other mental or nervous disorders.
An Outline of Coverage and Buyer’s Guide must be given to each prospective applicant. Under the NAIC Long-Term Care Insurance Model Act, the outline of coverage is delivered at the initial solicitation: a producer delivers it before presenting the application, and when the policy is sold by direct response (by mail, for example), the outline is presented together with the application. States that follow the NAIC models set the same timing for the buyer’s guide. 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.
Respite care
LTC policies often cover respite care, which provides short-term relief for primary caregivers. The permanent caregiver may need time to rest, travel, or attend to personal matters, and respite care pays for a temporary caregiver to step in during that time. Respite care can last anywhere from a few hours to several weeks and may take place at home, in a healthcare facility, or at an adult day care center.
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
Under the NAIC’s Long-Term Care Insurance Model Regulation, LTC policies may limit or exclude coverage only for listed causes, including preexisting conditions; certain mental or nervous disorders (but not Alzheimer’s disease); alcoholism and drug addiction; conditions arising out of war, military service, participation in a felony, riot or insurrection, suicide or intentionally self-inflicted injury, or aviation (an exclusion that applies only to non-fare-paying passengers); care given by a member of the insured’s immediate family; and care available under Medicare, another government program (other than Medicaid), workers’ compensation, or another LTC or health policy. Policies may also limit coverage for 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). Under the NAIC Long-Term Care Insurance Model Act, a policy must provide coverage for at least 12 consecutive months to count as long-term care insurance.
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.
- Alzheimer’s disease cannot be excluded or limited, though other mental or nervous disorders may be.
- An Outline of Coverage and Buyer’s Guide must be provided before the application is presented, or together with it in a direct response (mail) sale.
- 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 disease), 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. Under the NAIC model act, policies must provide coverage for at least 12 consecutive months.