What Am I Buying?

What’s My Benefit?

Think of long-term care benefits as flowing from a pool of money. You determine when and how fast benefits will flow at the time you apply for your policy.

Depending on the type of policy for which you are applying, you may include provisions that speed up the flow under certain conditions, that periodically increase the size of the pool, that refill the pool after some benefits have been taken from it, that allow you to access your partner’s pool if you have exhausted your own benefits, or that provide a death benefit should you pass away without exhausting your long-term care benefits.

For example, if you select a five year benefit period, and a monthly benefit of $5,000, your pool of money will be $5,000 x 12 x 5 or $300,000. If, on claim, you access your pool at the rate of $5,000 a month continuously for 5 years, the pool will be emptied and your policy benefits will cease. But if the cost of your care requires less than $5,000 a month, your pool will last longer than 5 years.

Endless pools are neat in architectural designs. In the past, many LTC insurers offered policies with “lifetime” or “unlimited” benefits. No more. As of August, 2018, one traditional product offers a lifetime benefit period. The average maximum benefit period available today is 6 years.

Be sure to consider various benefit periods in structuring your policy. Depending particularly on your age, may be more comfortable with a 4 or 5 year period going forward, recognizing that you’ve both substantially hedged the statistical bet that we noted earlier in the Probabilities comments, and that you could reduce your benefit period in later years (thus also then reducing your premium).

Once again, the point is to secure a level of coverage with which you are comfortable, given your health history and reasonably foreseeable financial circumstances.

If you’re applying with your spouse or partner, the inclusion of a provision for “Shared Care” (which we’ll discuss a little later) could provide a very economical way of more generously hedging that bet for one of you compared to each of you buying a very large pool of money. Note, however, that Shared Care is not available in hybrid products.

One major attraction of hybrid policies is that you are buying the answer to the “use it or lose it” complaint about traditional long-term care products. With a hybrid policy, if you pass away without needing or exhausting the long-term care benefit, your beneficiary will receive the policy’s full or residual life proceeds. We’ll contrast traditional and hybrid policies further in the "Are There Other Options?" comments of this website.