What About A Deductible?

Is There a Deductible Before I Get Benefits?

Yes. Whether you’re insured on a traditional or a hybrid policy, LTC benefits are payable after a deductible (an “elimination period”). You are responsible for your expenses during that period. In virtually all of the policies on the market today, you only need to meet your deductible once in your lifetime.

You select your deductible at the time you apply for your policy. 30, 60, or 90 days are typical choices, although some hybrid policies fix the number at 90 or 100 days. At least one hybrid policy offers a zero day deductible for home care benefits with a 90 day deductible for facility care benefits.

Occasionally we are asked about using a 180 or 365 day elimination period with traditional LTC policies. If you compare the premium savings for such a long deductible compared to a 90 day waiting period to the out-of-pocket cost you would have on claim between the 91st and 180th, let alone the 365th, day before becoming eligible for benefits, you’ll inevitably find that the “savings” pale in comparison to the cost of your care during the extended out-of-pocket expense period.

Forgive me for getting into the weeds a little here, but let’s consider the numbers for a traditional policy from a well established insurer.

Consider the value of the premiums you’ll save over, say 20 years, with a 90 day compared to a 30 day deductible. Assume a traditional policy issued for a male, single, issue age 55, preferred health, with $5,000 monthly benefit, a $300,000 benefit pool, and a 3% compound benefit increase rider.

The annual premium with a 90 day deductible: $2,247. With a 30 day deductible: $3,035. Savings: $778 a year. $778 actually saved at, e.g., 3% after taxes every year for 20 years, grows to $20,906. $5,000 benefit grows at 3% compounded annually over 20 years to $9,031 a month. You go on claim after 20 years with a benefit of $9,031 monthly. During days 31 to 90 on claim, the policy with a 30 day elimination period would pay a maximum of $18,062. The policy with a 90 day deductible wouldn’t pay until after 90 days, but the savings fund would provide $20,906 to cover expenses during the 31st to the 90th day. You’d be nearly $3,000 ahead with the 90 day deductible assuming that you saved the difference at just 3% net.

Some traditional LTC policies offer a provision that waives the deductible for home health care. That financial relief valve can be important both because most long-term care claims begin with home health care and it makes the premium savings achieved with a 90 day elimination period all the more attractive.

Be sure that the days you receive home care count toward satisfying the deductible that will apply should you later require care in an assisted living or skilled nursing facility. Also be sure to consider whether your deductible is satisfied by calendar or service days. Calendar days are preferable because you have the certainty that you will be eligible for policy benefits in 30, 60, or 90 actual days from the day on which you would be eligible for benefits but for the deductible. Service days could stretch out the point at which you actually become eligible to receive benefits to longer than your nominal (e.g.,90 day) elimination period.