Life Insurance Buyers Guide

Seven major sections are covered in this guide. Advice is based on years of experience from policy holders and agents alike. Introduction The Daily Benefit Explained The Elimination Period Explained How to Choose the Daily Benefit and Elimination Period The Benefit Period Explained Then Benefit Determination Explained Optional Policy Riders Explained Introduction Buying any form of insurance can be a very intimidating process. This guide is designed to make the process of purchasing a long term care insurance policy quite a bit easier. There are many factors to keep in mind during the buying process. We'll try to go over many of these points. Before you purchase insurance you should consult with a trusted insurance agent or family member. One of the most important considerations is the choice of insurance companies. This is a vital decision for many reasons. The financial strength of an insurance company is very important. The financial strength is a good indicator of a company's ability to pay it's claims. There are several companies that rate insurance companies. These companies rate insurance companies based on their amount in reserves and other financial factors. A few well known companies are: Standard and Poors A. M. Best Weiss Research   Top | Back Daily Benefit The daily benefit of a long term care insurance policy is the actual monetary benefit amount that the insurer will pay to the nursing home. This figure is broken down to the daily amount of coverage. Policies can typically be designed with this figure ranging anywhere from $50 to $300 per day. Choosing a larger daily benefit will cause the policy premium to be higher. Top | Back Elimination Period The elimination period of a LTC policy is essentially used as a form of a deductible. It is also commonly referred to as a waiting period. A normal waiting period is either 0, 7, 20, 50, 60, 90, or 100 days. Choosing a longer elimination period is an easy way to lower the premiums of a policy. Top | Back Choosing the Daily Benefit and Elimination Period In order to effectively design a long term care policy you need to determine how much cash or semi-liquid reserves you have or are willing to apply to long term care. At this point in time the nation's average cost of long term care is close to $138 per day. Inflation tends to run between 3% and 5% each year. Assuming a 4% increase each year, the chart below shows a hypothetical estimate of long term care in the future. Number of Years From Now 1 2 3 4 5 10 15 20 25 Estimated Cost $144 $149 $155 $161 $167 $203 $257 $325 $395 After making an educated guess as to how long before you may necessitate long term care, determine how much of your assets is cash or semi-liquid enough to pay for long term care. You must decide how much you are willing to spend for this care. Using this figure and the chart above, you can wisely determine how long of an elimination period and how much of a daily benefit your needs require for your long term care insurance policy. Top | Back Benefit Period The benefit period is yet another decision you must make when designing your LTC policy. The benefit period is the maximum amount of time that the insurer will provide the daily benefit. This time period can range from 2 years, 3 years, 4 years, 5 years to a lifetime. By choosing a shorter benefit period, you are lowering the policy premium. It's usually best to choose as long a benefit period as you can realistically afford. Top | Back Benefit Determination One major difference in Long Term Care policies is the way in which the insurer determines when benefits begin. Most insurers use what is known as an ADL system. ADL is short for Activities of Daily Living. A few examples of ADL's are bathing, dressing, eating, and toileting. Insurers that use this system will pay benefits after it is medically documented that the insured cannot perform a predetermined number of ADL's. Every insurance company may have a different set of ADL's. Each policy also requires assistance with a specific number of ADL's prior to benefits being paid. In choosing a long term care policy, it is recommended to choose one that provides coverage when aid is needed with only 2 ADL's. If more than 2 ADL's require aid before benefits begin, the insured may not receive their necessary treatment. Some policies allow benefits to begin if a cognitive impairment exists, such as Alzheimer's disease. Top | Back Optional Policy Riders or Provisions There are also several optional riders available for long term care policies. Each one needs to be addressed and considered. Inflation Protection is a rider available that compensates for typical cost increases in long term care by increasing the daily benefit amount. There are several methods in which the benefit can be increased: yearly simple 5% increase, yearly compounded 5% increase, or even an increase based on the consumer price index. This rider is recommended. A Non-Forfeiture rider will provide for a partial return of premium or a reduced paid-up policy in the event of policy lapse due to nonpayment. For those that want a policy to cover home health care, adult day care, or assisted living centers, a Home Health Care rider should be considered. Usually the benefit is a percentage of the daily nursing benefit. The percentage can range from 50% to 80% to a full 100%. A Waiver of Premium rider is also fairly common. This is an option that allows the policy to remain in force as if premiums were being made once a patient is receiving the benefit. Although this guide is intended to aid in the purchase of a long term care insurance policy, there are possibly issues that may not have been addressed. Please consult with a trusted insurance agent or family member prior to the purchase of a policy. Top | Back Get an long term care insurance quote. More insurance coverage