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13 years ago · by · Comments Off on What To Look For In The Ideal Disability Insurance Policy

What To Look For In The Ideal Disability Insurance Policy

Protecting your income, financial planners say, is the cornerstone of all financial planning.  A 40-year-old has a 45% probability of becoming disabled for a substantial time during his or her lifetime (Society of Actuaries, 1995).  Your income and ability to work are your most valuable assets.  Protecting your earnings (which could be more than $1 million for a 45-year-old earning $50,000 a year projected to age 65) should be high on your list of priorities.  The following article will help you sift through the maze of different disability contracts that are offered.What to look for in a ideal disability policy

If every company offering a disability insurance policy had the same wording, terms, and conditions, then the consumer’s or agent’s job would be easy; all he or she would have to think about would be simple things, like whether or not they liked the company’s logo.

Unfortunately, evaluating, selecting, or recommending the right contract is not so easy.  There could be 30 or more considerations, terms, definitions, etc. that make up a contract (analogous to the thousands of parts that make up an automobile), each affecting benefits, how much, how long, and under what conditions and circumstances a claim will be paid.  Most companies offer enough similarities in about 15 or 20 of these components, however there are differences in many others.

Let’s look at seven of the most important differences, roughly in the same order in which they appear in most contracts:

1. GUARANTEES: One of the most dramatic changes the industry has made in the past several months is the emphasis on guaranteed renewable only policies.  This change enables carriers to raise rates and thus remain profitable.  The agent should try, however, to get his prospect a non-cancelable (non-can) and guaranteed renewable policy. Enough companies still offer non-can policies, which guarantee the insured’s rates to the age of   65.  Other carriers have removed their non-can policies from the market or use this feature only with a loss of earnings policy (see residual/proportionate).


2. DEFINITIONS: The contract definition for sickness should say, “when first manifested itself” rather than “when first contracted.” The difference between the two is significant, especially if the disability is cause by cancer, for example.  Under the first definition, if cancer existed when the policy was issued, but it had not yet produced symptoms nor caused a prudent person to seek medical attention, it would be covered.  Under the second definition, it would not if it could be proven to have existed prior to the policy’s effective date.

The best definition for total disability is “own occupation” or “own occ.”  Although this definition is available for many occupations (but not all), it is not always necessary, nor is it always available for the full benefit period, and in many cases it should be.

This definition might be necessary for someone whose skill could be transferred to another occupation, for example, a surgeon.  Without this kind of definition, he or she could be expected to teach or become involved in a related field of medicine.  As a result, the surgeon might not be considered totally disabled and instead might be paid under the residual benefits provision. The other reason is that it is easier to prove loss of duties vs. loss of income and by comparison is “hassle-free” at claim time.

There are three “own-occ” definitions and one other disability definition.  These definitions reflect a particular carrier’s claims experience for a particular occupation.  They are from most to least liberal, are as follows:

  • Own occupation/ full benefit period– This definition pays even if the insured is working elsewhere (in another occupation).  Some carriers even offer an own-occ specialty definition. Especially important to the medical profession.
  • Own occupation/ not gainfully employed elsewhere – A policy with this definition pays if the insured can’t do the duties of his or her occupation and is not working elsewhere.  Working or not then becomes the claimant’s choice.
  • Own occupation/ for a period of time, thereafter unable to work/not working elsewhere – This is a split definition that gives true own-occ (see the first definition above) for a period of time (for example, five years), then changes to unable to work/not working elsewhere by reason of education, training, and experience.
  • Loss of earnings – This definition has been around for a long time, but more carriers have recently chosen to stipulate this in lieu of the own-occ definition.  Loss of earnings is the same as residual (proportionate) benefit.  If during a disability the insured has a 30% loss in income while disabled and under the care of a physician, they’ll receive 30% of the monthly benefit. While this policy does pay proportionately, please note that the insured starts off with an initial 40-50% shortfall – since participation tables only allow approximately 50-60% of pre-disability income to be covered (depending on the income of the insured, their occupation, and where the policy was issued). Higher issue limits are available if the premium is employer paid. However, these benefits are taxable!

3. BENEFIT PERIOD: This represents how long someone will be paid in the event of a covered disability (be aware there may be exclusions due to pre-existing conditions), but once again, not all benefit periods will be the same, all else being equal.  For example, with regard to benefits to be paid for a lifetime, different configurations are available or are imposed based on occupation and age at the time of disability.  Some of these onset ages are as follows:

  • Lifetime benefits – only if disabled before age 60 (sickness)
  • Lifetime benefits – only if disabled before age 65 (accident)

If a company makes any or all of the above available as an option (and some do have more than one), the longer the “window of opportunity” stays open, the higher the premium will cost.

I might add at this point that this option rapidly is disappearing from the landscape, and I for one contend it shouldn’t.  Some carriers offer a graded lifetime benefit instead, which simply states the insured might get some percentage of the base benefit paid for lifetime, depending on the disability onset age.

4. RESIDUAL/PROPORTIONATE DISABILITY OPTIONAL BENEFIT: Most contracts read almost alike for this benefit except for some of the following terms and conditions, which can make a difference in terms of how much of the claim will be paid:

  • Pre-disability earnings period: Typical contracts state that, as a benchmark, the company will consider the previous 12 months or any two consecutive years within the last five, whichever is more favorable to the insured. There are also other combinations.
  • Pre-disability income included or excluded for the calculation of loss/earnings: This can be a significant factor if the claimant is in the service industry business (e.g. accountant, attorney, etc.) and has some accounts receivable (pre-disability earnings) received during a period of disability. If the contract does not allow these to be excluded, then the calculation will generate a lower loss of income percentage and as a result the payment will be smaller.
  • Qualification period: This is the number of days the insured must be totally disabled before the residual benefits can be paid. Companies that have this restriction usually require 30 days. Most companies do not impose this qualification period and also allow periods of residual disability to count toward the elimination period.

5. RECOVERY/EXTENDED TRANSITION OPTIONAL BENEFIT (usually part of residual): Basically, this recovery benefit means a person who no longer is under claim (under a physician’s care) will be paid as if he/she still were (even though he has returned to work full time). This enables an attorney or other professional to return to work and be paid while the practice is being rebuilt. An example would be a Certified Public Accountant (CPA) who broke a wrist during tax season (when he/she earns 80% of his/her annual income) and recovered perfectly after April 15 for the remainder of the year. Benefits under this provision would continue to be paid even though the accountant was fully recovered until their income reached 80% of pre-disability earnings. Again, some companies offer this benefit, but for different time periods: for either 12 or 24 months. Some offer it for the full benefit period.

6. FUTURE PURCHASE INCREASE OPTIONAL BENEFIT: Most companies offer this option; however, once again there are these differences to watch out for:

  • Cut-off age for having this option issued as part of the policy. Most companies will not offer this option after the insured’s age 50, although a few companies will issue it up to 55. In any event it drops off at these ages if issued (with a corresponding reduction in premium).
  • Cut-off age for exercising the option and whether or not the option can be exercised and paid during a period of disability. I haven’t seen any company allow it to be exercised past 55. Most, if not all, use a formula as to what percentage can be exercised at any given time, participation tables not withstanding. A few allow all or part to be exercised and paid, along with an existing claim.

7. COST OF LIVING ADJUSTMENT (COLA) OPTIONAL BENEFIT: Some differences that exist between companies fall into the following categories:

  • Basis for increase, that is, indexed to some standard such as the Consumer Price Index (CPI) or guaranteed.
  • Conversion of these benefits to the base benefit after returning to work, prior to what age and at what cost, if any. This is especially important if the insured got disabled again and there was no future increase option or the insured wanted the new claim to begin with the last benefit amount. An article on this subject is yours for the asking upon completing the contact sheet.

8. MISCELLANEOUS: There are a couple of other related contract components that should be considered when analyzing a contract, but because they are less significant, I will not elaborate. These are:

  • Conditionally renewable — most policies are, after age 65, renewable to 75, while others are renewable for the insured’s lifetime (if the insured is gainfully employed for a minimum of 30 hours weekly).
  • Loss of income necessary to be deemed totally disabled (most contracts say 75%, while a few use 80%) — the lower the percentage, the better the contract.
  • Recurrent disability — some contracts state six months must have elapsed, while others say twelve. Which is better depends on the length of the benefit period. If the benefit period has expired, then six months is better for the following reasons: If the insured can return to work for six months and has a relapse, then the benefit period starts all over again.






CONCLUSION: The insured should have their policy reviewed by a specialist in view of the fact that the disability insurance industry has experienced some major changes. Recently issued policies or even some older ones might contain provisions that will make it more difficult to have a claim paid. The window of opportunity is beginning to close for the better contracts.

Females in particular have been hard hit with the introduction of sex distinct rates, which have replaced unisex rates, resulting in premiums that are approximately 30% higher than males. However, in some instances it is possible to get unisex rates.


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14 years ago · by · Comments Off on The Basics Prepare for the unthinkable: long-term care

The Basics Prepare for the unthinkable: long-term care

If it can happen to Superman, it can happen to you. More than 12 million Americans need long-term care, and almost 5 million of those are working-age adults. Here’s how to prepare for the worst.

By Terry Savage

I’ll bet you’re not considering the prospect that you might need nursing home or skilled home health care. But the unthinkable can happen. Just ask Superman — actor Christopher Reeve. Reeve was paralyzed in a 1995 horse-riding accident, joined millions of Americans who require nursing care at home or who now reside in nursing facilities.

You insure your home against fire and your car against an accident — and never complain if that money is wasted. Why not insure against one of the most expensive realities of life — long-term care? As our lives lengthen and new treatments are developed, you — or your parents — are more likely to require some type of senior care.

With a little planning, you can buy long-term care insurance — either for yourself, or as an annual gift for your now-healthy parents. And you can encourage your company to provide this coverage as an employee benefit. Otherwise you may become one of the 7 million Americans who, according to the National Council on the Aging, now provide or manage care for a friend or relative aged 55 or older and not living with them.

Long-term care insurance is a product that catches the attention of seniors, but the ideal time to buy it is actually when you’re in your early 50s and in good health. At that point, premium costs are lower, and you’re less likely to have a pre-existing condition that disqualifies you. But a society that values a youthful appearance seems unwilling to recognize these expensive facts of life.

The costs of long-term care are staggering today and should soar higher in the coming years when baby boomers retire. Even the GenXers won’t escape the impact. Your parents will either spend your inheritance on nursing home care, or you may find yourself taking care of your elderly parents out of your own retirement funds.

In fact, the U. S. General Accounting Office says that nearly 40% of people age 65 now will spend some time in a nursing home. The federal Health Care Financing Administration projects that spending on nursing home care will rise from about $94.1 billion now to $125 billion a year by the end of 2005 and $330 billion by 2030.

The average annual cost of a private nursing home is now about $55,000, or $150 per day — with many facilities in large cities costing more than $65,000 a year. Those costs can add up quickly, and Medicare does NOT cover them — except for a few days in a skilled nursing facility after a hospital stay.

And no Medicare supplement policy covers custodial nursing care. Yes, state Medicaid programs cover nursing care for the indigent — but that means almost all assets and income must be spent down before the state will pick up the tab.

Medicaid spend-down planning has received attention as a way to deal with the nursing-care costs. Financial advisers counsel seniors to transfer assets to younger family members — a process that must be completed at least three years before asking Medicaid to pay nursing home costs. But these state nursing home programs for the impoverished do not cover home-health-care costs. And aside from the moral implications of such a strategy, do you really want you or your parents to depend on a government-funded nursing facility?

Long-term care insurance can solve the problem in most cases. The latest generation of policies pays for “home care” at a senior daycare facility, as well as care in a skilled or custodial nursing facility. A portion of premiums may be tax-deductible, depending on your age and income. But not all policies are alike, the business is growing (There were just 4.1 million policy holders in 1998.) and coverage’s are constantly evolving, so study both the product and the pricing.

Nuts and bolts

If you’re thinking about buying long-term care insurance, here’s what you should know before you buy.

The cost of a long-term care policy depends primarily on three basic factors: your current age, your current state of health, and the location of your residence. Unless you move, you can’t control any of these. But you can control such questions as the amount and length of coverage, the elimination period (deductible), and whether you’ve chosen an inflation rider.

Buying early pays. A healthy 50-year-old could purchase more than adequate coverage for $1,365 a year. For a 73-year-old, the same policy might cost $6,300 a year. This four-year coverage would include a 90-day deductible or elimination period, $200 per day in coverage (for home health care or nursing home care), and a simple inflation rider — all on a policy from a top-rated company.

Good health now pays off later. Once you’ve locked in an annual premium, it can’t be raised if your health changes. But insurance companies can ask state regulators to raise premiums for an entire age group, depending on claims experience. Unfortunately, many companies have raised premiums in recent years, once they realized they’d underpriced their policies. (See below, on choosing a reputable insurer.)

While some insurers require a medical examination, most just ask for a medical reference. However, any false claims could result in future denial of coverage.

Where you live affects costs.  That’s because nursing costs typically are higher in major metropolitan areas than in smaller communities.

Length of coverage: The average stay in a nursing facility is 2.5 years, so some people opt to limit coverage length to cut costs. But if you’re purchasing a policy in your mid-50s, you’ll find that lifetime coverage is not much more expensive.

Elimination period: This is like a deductible and works like one. You agree to pay for the first 60 days or 90 days of needed care; then the policy kicks in. Having a 90-day deductible can cut premium costs substantially.

Inflation rider: Even a 3% inflation rate can cut the value of your dollar in half in 25 years. Plus, assume health-care costs will rise more than the general inflation rate as boomers age. So it may pay to buy an inflation rider. All tax-qualified policies today (see below) must offer this coverage as an option.

Other issues

Benefit payments and triggers: A qualified physician must certify to the insurance company that you need the benefits — and those benefits will be paid only to qualified caregivers. A daughter who simply does your shopping and prepares meals wouldn’t qualify as a caregiver, but she might if she’s a trained professional.

Most policies require the inability to perform at least two activities of daily living to trigger the benefits. The activities include being able to dress yourself, bathe yourself, move from a bed to a chair, use toilet facilities or eat unassisted. Policies will also pay out if you can’t pass certain mental function tests. (Look for a policy that specifically includes coverage for mental or cognitive impairment.) Most policies no longer require a hospitalization before benefits start, but check the wording anyway.

Insurance companies may pay benefits using one of two methods:

Expense-incurred benefits: These are paid either to you or to your provider up to the limits in your policy.

A daily benefit or indemnity: This will be paid directly to you. But be sure your policy offers a pool of benefits on a daily or weekly basis allowing you to pay for covered services as needed, as well as nursing home care.

Tax-deductibility: You may be able to deduct part of your annual premium as part of a medical deduction. But remember, you can only deduct medical expenses that exceed 7.5% of adjusted gross income. The size of a deduction depends on age. People over age 61 can deduct $2,510 (assuming they meet the 7.5% threshold). Almost all policies sold before Jan. 1, 1997 were grandfathered and are considered qualified. Benefits paid by a qualified policy aren’t generally considered taxable income — even if your employer paid the premiums.


Waiver of Premium: This provision lets you stop paying the annual premiums once you’ve moved into a nursing home and the insurance company has started to pay benefits. It may not apply if you are receiving home health care.

Premium Refund: Some policies will repay your estate any premiums you paid, minus benefits used. Usually, there’s an age limit, typically 65 or 70.

Non-forfeiture benefits: If you drop your coverage, perhaps because you can’t afford the premiums, you can receive some benefits for the money you’ve already paid in. But this feature can boost the policy cost substantially.

Where to look for more information
Many of the big life insurance companies are now training agents to sell these new products, but that limits you to one company’s policies. You can get better comparisons by reaching out to a growing number of insurance agencies licensed to sell policies from different companies.

In fact, there are several Web sites for these agencies that provide quotes’, price comparisons and advice on choosing a policy (see the links at left).

Find a strong company
Make sure you’ve purchased from a company with a strong financial base, and a 10-year history with this insurance, so it will price policies properly and be there when you need it. A number of companies jumped into long-term care insurance without adequate data on which to base prices.

Companies such as Fortis and Travelers have either sold their long-term care businesses to others or reduced sales. But John Hancock, UnumProvident, and GE Financial have become big players in this business. Companies that raised prices substantially for existing policyholders include Conseco and Penn Treaty.

Independent insurance expert Martin Weiss has created a ratings service for long-term care companies at his Web site, Weiss Ratings. Weiss suggests that experienced companies have more claims-paying data on which to accurately price policies. He also warns that if you ask an agent whether a recommended company has ever raised premiums, the agent will probably say no. That’s because companies change the identification number of a policy, in effect creating a new policy, when they ask for a rate increase! Ask whether an increase in premiums has taken place on this type of policy instead of on this specific policy.

An alternative coverage

A number of companies are marketing a combination of life insurance and long-term care coverage that lets you withdraw some of the death benefits (not the cash value) to give guaranteed long-term care coverage. Golden Rule Insurances Asset-Care plan requires a single premium, one-time deposit of cash into a policy. The company will either guarantee a minimum rate of interest or offer a variable choice of investments inside the life policy. It provides at least 50 months of long-term care benefits. You can buy extended coverage. The downsides of the policy: it’s expensive, and some people don’t have the cash to make the upfront deposit.

The need for long-term care can occur at any time of life. Of the 12 million Americans who need long-term care, nearly 5 million are working age adults. If something happened to you — or your parents — how would you cover the cost? Don’t say you’d just leave it to the government. Instead, take a minute to stop by a nearby nursing home. You would certainly bring some cheer to the patients there. And you’ll gain new respect for those who provide care. And, I hope, you’ll be inspired to do some planning now, before the need arises. After all, that’s what insurance is all about.

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14 years ago · by · Comments Off on Long Term Care Glossary

Long Term Care Glossary

There is a lot to learn when it comes to long term care insurance. Use our glossary to help with any terms you may not quite understand.


Activities Of Daily Living (ADL) – An abbreviation for the phrase “Activities of Daily Living.” In federally tax qualified policies the ADLs that can trigger the receipt of benefits are limited to eating, bathing, dressing, continence, transferring and toileting. In Tax-qualified policies you must require assistance with at least 2 of the 6 ADLs (or have a cognitive impairment) to be eligible to receive benefits.

Adult Day Care – Provides social and other personal services including supervision and assistance with some ADLS in a community setting. “Day” care can be provided at anytime of the day but care is always less than 24 hours. Adult day care facilities are often used in combination with home and family caregivers in order to give the primary caregiver a break.

Alternative Plan Of Care – On policies with an Alternative Plan of Care benefit, the carrier will pay for new or emerging services that are not specifically defined under the Long Term Care plan if they later become available and are a reasonable substitute under the individual’s plan of care.

Assisted Living Facility – Assisted Living Facilities (called Residential Care Facilities in California) provide personal care and assistance with ADLs in a residential setting for those that aren’t able to live independently but do not require the level of round-the-clock care provided in a nursing home. Assisted Living Facilities have seen a tremendous growth in recent years while the number of skilled nursing facilities has remained flat.


Bed Reservation Benefit – Pays the cost of reserving your place in a facility should you need or want to leave for an extended period (e.g. for a hospital stay or extended visit with relatives).

Benefit Triggers – Qualifying events to become eligible to receive benefits under your Long Term Care insurance policy. In a tax qualified policy this will be the requirement to need assistance for at least 90 days with 2 of the 6 activities of daily living or having a severe cognitive impairment.


Care Coordination/Care Management – Care Management is also known as Care Coordination and is a required benefit of Partnership certified Long Term Care policies. It is a process of assessing an individual’s Long Term Care needs and developing a Plan of Care using all available funding sources. The goal of care management is to ensure that the insured is adequately cared for and making the best use of their financial resources.

Chronic Care – Care and services in order to help achieve functional independence for those with continuing and long-term health problems days as opposed to “acute” care which refers to short term or severe illness of a closed duration. Chronic conditions generally have no specific cure and require care over a protracted period of time. Chronic care is often used interchangeably with Long Term Care in the medical community.

Co-Insurance – In Long Term Care the concept of co-insurance refers to the amount that the insured must pay out-of-pocket to make-up the difference between their actual costs and the amount the policy covers. The greater the amount the insured is willing and able to “co-insure” the lower the policy benefits must be and therefore policy premiums.

Cognitive Impairment – A deterioration and loss of intellectual capability that affects a person’s memory, language, personality and ability to reason, communicate and understand. Severe cognitive impairment is a symptom of Alzheimer’s and other forms of dementia.

Continence – One of the six Activities of Daily Living defined in a Tax Qualified Long Term Care plan. It refers to the ability to control bladder and/or bowel movements.

Compound Inflation – A rider where your benefits increase by a rate compounded every year. For example, if your Maximum Daily Benefit (MDB) was $100 and you had a 5% compound inflation rider, the Maximum Daily Benefit would increase by 5% per year. Therefore in year two it would by $105, but in year three $110.25, in year four $115.76 etc. The difference between a compound and simple inflation rider is not significant in earlier years, but becomes greater as time goes on. It is recommended that you talk to a Long Term Care specialist to determine which inflation rider would be best for your individual circumstances.

Comprehensive Policy – Long Term Care insurance policy that covers care in multiple settings including facility and in-home care.

Custodial Care – See Personal Care


Daily Benefit – The maximum amount the Long Term Care policy will pay for covered services in any given day.


Elimination Period – Also known as a deductible or a waiting period. This is the number of days after the insured qualifies for and begins receiving services before the policy begins to pay benefits. While some policies have no deductible periods and pay benefits from the first day, the most common waiting periods are 30 days, 60 days, or 90 days.


Facility Only Policy – Policy where benefits are only covered if the policyholder is receiving care in a licensed Long Term Care facility, e.g. a Nursing Home or Assisted Living Facility.

Free Look Period – A provision which allows the insured to cancel the policy for a full refund within 30 days of receiving the policy.

Future Purchase Option/Guaranteed Purchase Option – Premium doesn’t increase when you increase coverage under this option as compared to automatic compound or simple inflation where the coverage increases each year automatically without a concurrent increase in premium.


Guaranteed Renewable – Guaranteed Renewable means that the insurance company cannot cancel a policy or change any of the benefits, unless a policyholder fails to pay the premiums. Insurance companies are only allowed to increase premiums for a “class” of policies, but not for an individual personally for any reason including a change in health or age.


Hands-On Assistance – The physical assistance of another person without which you would be unable to perform one of the Activities of Daily Living. Some insurance carriers define the inability to perform an ADL without hands-on assistance as a trigger for policy benefits. This is a more stringent measure than merely requiring “stand-by” assistance.

Home Care – Skilled and unskilled Long Term Care services provided in the home.

Home Health Aide – “Hands-on” custodial assistance provided in the home. Home health aides may be licensed but do not provide medical care. Typically they will help with activities of daily living such as bathing, dressing and transferring. Home Health Care agencies are usually certified by Medicare, but are more expensive than those that choose not to get certified.

Homemaker Services – These “hands-off” services that provide assistance with the personal chores or activities that are necessary to live at home. They would typically include housekeeping, cooking and running errands.

Hospice Care – Designed to give supportive and palliative care to people in the final phase of a terminal illness. Hospice care can be provided at home or in a hospice facility and encompasses physical, emotional and spiritual support for the patient and their family.


Inflation Protection – A rider you can add on to your Long Term Care insurance plan that adjusts the benefits over time to account for inflation. Inflation protection riders can adjust benefits annually based on a simple or compound fixed rate (e.g. 3 or 5%) or based on the consumer price index (CPI). Alternatively some plans have a Future Purchase Option where you have the option to increase benefits in the future.

Informal Care – Care provided by family and friends of a loved one. While, unlicensed and generally unpaid, informal care makes up the majority of in-home care and has been termed the “back-bone” of our national Long Term Care system. In residential settings formal, paid care is often used to supplement the informal care provided by family caregivers.

Instrumental Activities Of Daily Living (iADL) – Skills necessary to live independently but not necessary for fundamental functioning. IADLs for instance would include shopping, preparing meals, taking medications, paying bills etc. Inability to complete Instrumental Activities of Daily Living is not a trigger to start receiving benefits under a Long Term Care insurance policy. However, many policies will cover these services for someone who is eligible for benefits due to inability to perform a specified number of the Activities of Daily Living.

International Benefits – Benefits for covered services received outside the United States. Some policies have international benefits included others do not. If this benefit is important to you, let your Long Term Care insurance specialist know so they can find a plan that includes this coverage.


Lapse – Termination of a policy due to the policyholder’s failure to pay the premium.

Lapse Protection – Policyholder’s can pay past-due premiums and reinstate their policies up to 5 months after they have lapsed if the failure to pay was the result of cognitive or functional impairment.

Lifetime Maximum Benefit – The maximum amount an insurance carrier will pay over the life of a policy. For a policy with a maximum Daily Benefit and set benefit period it is equal to the current Maximum Daily Benefit times the Benefit Period in days.

Look-Back Period For Medicaid/Medical – In order to qualify for Long Term Care benefits under Medicaid many people tried to “give away” money to children or transfer assets to a “safe” financial vehicle. In response, Medicaid will now “look-back” to any asset transfers you have made in the 5 years before applying for Medicaid benefits. Any transfers made during this period can be counted as part of your assets for the purposes of determining Medicaid eligibility and can result in an “exclusionary” period before eligibility can be restored.


Medicaid (MediCal) – Medicaid (Medical in California) is a joint federal and state program that provides health care services for people with low incomes and limited assets. Each state sets its own limit on the amount of income/assets a person can have and still qualify for Medicaid. MediCaid will cover qualified Long Term Care expenses (often limited to a Medicaid qualified nursing facility) for people that are legally impoverished.

Medicare – A federal program to provide hospital and medical insurance to people age 65 and older and to certain ill or disabled persons. Benefits for Long Term Care are very limited.


NonForfeiture Benefits – This is an optional rider on Long Term Care insurance policies that allows the policyholder to retain some limited policy benefit (usually equal to the amount of premiums paid-in) if you lapse your policy.


Partnership-Certified Policy – A Long-Term Care insurance policy approved by your state for participation in the partnership program. This program allows you to receive benefits from Medicaid for Long Term Care services without spending-down all of your assets if you have previously purchased and depleted the benefits in a partnership-certified policy. This program is not currently available in every state.

Personal Care – Non-medical care and assistance needed to help a person perform activities of daily living and/or supervision and assistance for someone suffering from a severe cognitive impairment. Most health insurance plans do not cover custodial or personal care but are limited to acute or rehabilitative skilled-care. Long Term Care insurance plans were therefore designed to cover these services.

Plan Of Care – A documented, individualized plan of Long Term Care services prepared by a Licensed Health Care Practitioner (LHCP). Typically a Plan of Care would include the types and frequency of care needed and whether the care was to be provided by family care-givers or through formal paid care providers. If formal care is required the care plan should include a list of potential providers including whatever community services are available in the area.

Pre-Existing Conditions – Medical conditions that existed, were diagnosed, or were under treatment before the policy was issued. If the application is approved by underwriting, most Long Term Care insurance policies will cover pre-existing conditions as long as they were revealed at the time of application.


Respite Care – Respite care refers to temporary or short-term care provided to the patient so that the primary informal care-giver can take a break or rest. Respite care can be provided at home or in a facility and allows the primary care-giver a temporary relief from care-giving.


Simple Inflation – A rider where the benefit increase by a fixed amount per year. For example if your Maximum Daily Benefit (MDB) was $100 and you had a 5% simple inflation rider, the Maximum Daily Benefit would increase by $5.00 per year. Therefore in year two it would by $105, in year three $110, in year four $115 etc. The difference between a compound and simple inflation rider is not significant in earlier years, but becomes greater as time goes on. It is recommended that you talk to a Long Term Care specialist to determine which inflation rider would be best for your individual circumstances.

Skilled Nursing Facility/Nursing Home – The highest intensity level of Long Term Care. A skilled nursing facility is defined as a health facility or a distinct part of a hospital that provides 24 hour a day nursing care on an inpatient basis. Skilled nursing facilities will have a registered nurse or LPN on duty at all times and a licensed physician on call at all times.

Stand-By Assistance – The presence of another person within arm’s reach required to prevent injury during the performance of an ADL. For example, if you need somebody standing by to catch you in case you fall getting in and out of the bath. This is a lesser requirement for triggering of policy benefits than the requirement for hands-on assistance.

Step-Down – A policy feature which allows a policyholder to reduce coverage in exchange for a lower premium. For instance, a policyholder can reduce the Daily Benefit, or the total number of years the policy will pay or increase the elimination period. A policyholder has the right to step down policy benefits anytime after the first year and should always be considered before lapsing coverage.

Substantial Supervision – Continual monitoring of a cognitively impaired person.


Tax Qualified – In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA). Under this bill there are federal tax advantages for LTC policies that are designated “tax-qualified” (TQ). For instance, on a tax-qualified policy you may be able to deduct part of the policy premium from your taxes as a medical expense if you qualify for a medical expense deduction. Likewise, insurance benefits from a Tax Qualified policy, in general, are not taxable as income. To be defined as “tax-qualified” the Long Term Care policy must meet the provisions of the federal guidelines defined in HIPAA. Policies purchased on or after January 1, 1997 may or may not be tax-qualified. All Long Term Care insurance policies purchased before January 1, 1997 are “grandfathered in” and are considered qualified for tax-favored status.

Toileting – One of the six defined Activities of Daily Living in a federally tax-qualified Long Term Care insurance policy. Refers to the ability to get on and off the toilet and perform hygiene related tasks.

Transferring – One of the six defined Activities of Daily living in a federally tax-qualified Long Term Care insurance policy. Refers to the ability to move in or out of a bed, chair or wheelchair.


Underwriting – The process whereby the insurance carrier reviews an individual’s health status prior to issuance of a policy in order to determine if they are eligible for coverage. Underwriting for Long Term Care generally involves one or more of the following: completion by applicant of medical questionnaire, review of applicants medical records, a telephone interview by a nurse or health aid including a cognitive test, an in-home physical and cognitive assessment by a nurse or health aide.


Waiver Of Premium – A common provision in Long Term Care insurance policies that waives the requirement to pay premiums while the insured is receiving benefits.

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14 years ago · by · Comments Off on How do you want to be remembered?

How do you want to be remembered?

By Lisa Caddell-business columnist/Rocky Mount Telegram
Monday, August 29, 2005
The following two stories are fictional and have been written to illustrate the possible advantages
of having a good long term care policy when you need care in the future.
You are a 60-year-old, intelligent male contemplating early retirement. Having always been one to
plan for the future, you are considering the financial risks you may face upon reaching the
statistically expected age of 81. You realize that the possibility exists that you may live even
longer than expected since your parents did, and you are in very good health, playing golf and
tennis regularly. Right now, it is difficult to imagine that someone else may have to take care of
you someday.
Since it is difficult to ignore the fact that so many people need care when they get old, you
consider how you might pay for your own care and how it might affect your family. After talking to
a few of your friends and requesting literature about long term care, you conclude that long-term
care insurance is too expensive. You are not willing to spend, or invest, the few dollars a year it
would take to buy a plan for a nursing home or the managed home care you might need. Thus,
you decide to take your chances and save the money.
Time went by, and sure enough, your gamble paid off. You died suddenly of a massive heart
attack at age 80. The money that you would have paid premiums with was saved, instead, and
your heirs had an additional sum of money plus interest to distribute among themselves.
However, when the inheritance was divided among your loved ones, the extra money you had
saved really didn’t make a significant difference in anyone’s life.
The following story has the same beginning as the first; you did not purchase long term care
insurance, and you faithfully deposited the few thousand dollars per year in a savings account.
This time, upon reaching the ripe old age of 80, you did not die suddenly. No, this time you
suffered a debilitating stroke or you developed Alzheimer’s Disease. Your family attempted to
keep you at home for a while, but your spouse was no longer able to handle the household
chores by herself. The children were only able to help on the weekends so the family tried to hire
outside help. They discovered that it is very difficult to locate good, honest caregivers. None of
the family members were experienced in home health care, and everyone felt inadequate and
guilty that they could not do more. No one ever dreamed it would come to this.
Finally, your family came to the conclusion that there was no other alternative but to locate a
good nursing home and apply for residency. By that time nursing home costs had more than
doubled. Nursing homes that were charging $50,000 a year for room and board in 2005 were
charging over $98,000 a year in 2025. The money plus interest you saved by not purchasing LTC
insurance paled in comparison to the possible cost of your care.
The money you had saved was gone is four months and some of your assets had to be liquidated
to pay for the nursing home and the other services you needed. Because you were physically
strong and iron willed, your nursing home stay extended well beyond the average. You finally
gave up and died at age 86 after spending five years in the nursing home. The $500,000 it took to
pay for your care that lasted five years made a significant difference in a lot of lives. Not only was
there no inheritance left to divide, but your spouse who was still living and struggling to stay at
home, herself, was in danger of a nursing home stay.
The children had long since forgotten about any inheritance and only hoped that mom would not
be forced into a substandard facility. Since there was no money left, the children knew from
having had the experience with your situation that finding a place to stay when there isn’t enough
money to pay the full bill reduced their mother’s options for care significantly. Yes, you saved a
few thousand dollars and change by not purchasing long term care insurance, but the
consequences were devastating and far-reaching, even beyond your grave.
When it comes to me and my family, I would rather waste the money on long-term care insurance
than take the risk of having to pay for long-term care out of pocket. Just recently, my 93-year-old
grandmother made a comment to me while we were visiting her. She said, “Lisa, I know I am
going to spend all that money on this insurance, and I’ll never get a dime back.” I responded, ” I
sure hope so, Grandma.”
The story of “spend down” is common place. Nationwide, roughly 70 percent of those living in
nursing homes are impoverished and receive Medicaid benefits. Is the cost of long-term care a
risk you want to shoulder alone? You have insured your other major risks, like your home, your
automobile and your health insurance, so why not long term care? Can you think of anything,
other than the cost of long-term care, that could involuntarily wipe out your life savings?
Lisa Caddell is a senior long-term care specialist in Rocky Mount.

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Shayne Insurance Specialists
Ed Shayne

Gaithersburg, Maryland

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(301) 509 - 4263

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