Long Term Care Insurance
Frequently Asked Questions For Insurance & Financial Advisors
One of the greatest challenges a retired person has is in regard to the possibility of outliving their retirement and assets. This problem compounds considering most people would like to leave an inheritance to their family. A person works hard and sacrifices much when saving for their future retirement. Of all the financial risks that a retired person has in retirement, the greatest is getting sick and needing extended care without having a plan of care in place. The industry refers to this plan as…Long Term Care.
A common misconception that consumers have is that Long Term Care is about insurance. Unfortunately there have been irresponsible insurance companies, sales agents and medical providers that have been the cause of that incorrect perception. The Long Term Care industry is not about insurance. Long Term Care is about putting together a plan of care in case your client gets sick and needs extended care and then finding the best possible way for your client to afford that plan of care.
People do not plan to fail, they fail to plan. We have a great responsibility to help our clients, who are retiring or already retired, put a plan of care in place that answers as many potential care challenges as possible and ultimately is affordable. In order to accomplish this, we must collect as much data and background information from our client as possible, ask questions and most importantly, listen. Each client is unique and as such, requires a unique approach to their specific situation.
We believe that people make good business decisions based on complete and accurate information but that we cannot provide appropriate recommendations as advisors without following the previously mentioned steps. An example, imagine a doctor who did not take time to listen or test for a person’s symptoms. Instead, the doctor recommends a prescription or other treatment just because the previous client needed it. How much faith would you have in that doctor or their practice? The same standard applies to all professional advisors.
Professional Advisors are students of their industry. They are able to help develop an effective, efficient plan of care that involves the family and they are able to make appropriate recommendations based on each particular client’s unique situation. In many cases, Long Term Care Insurance will play a role in a client’s plan of care. This FAQ is meant to help professional advisors understand how to properly incorporate Long Term Care Insurance into their portfolio and most importantly, feel confident that they are doing what is best for their clients.
Sales & Marketing:
- Why should your clients purchase Long Term Care Insurance?
Medical technology has changed your client’s financial “ball game”. In the year 1900, average life expectancy was approximately age 47. Today, life expectancy has nearly doubled. Prudent people understand that the longer they live, the more chances they have at getting sick and needing care. It is an Advisors responsibility to help their client develop and implement a plan of care should a sickness or accident cause a need for extended care. A carefully thought out plan of care, in most cases, will include the purchase of Long Term Care Insurance. Long Term Care insurance is the product designed to protect the retirement portfolio during the Asset Preservation stage of life. It is important to note that Long Term Care Insurance is not the answer for all clients.
- When should your client’s purchase Long-Term Care Insurance?
It is common knowledge that the younger your clients are when they purchase insurance, the lower their premiums will be. However, Long Term Care Insurance was not primarily designed for clients who are in the Asset Accumulation stage of life. The protection of income and retirement for people building towards retirement is much more important during that stage of life than purchasing coverage that will pay for extended care. Disability and Critical Insurance are, in this case, more appropriate for your clients during Asset Accumulation stage of life. That being said, Long Term Care Insurance is much more important for clients who are transitioning into or are already in the Preservation stage of life. It is important to keep in mind that these products were not meant to compete against each other though. A responsible advisor not only will understand and respect each product but will also implement each product based on what they were specifically designed to do for the benefit of their client.
- Is it wise for your client to wait when considering the purchase Long Term Care Insurance?
The short answer is “No”, it isn’t wise to wait. Most of the time, a client’s motivation behind waiting is to save money. However by waiting, the client ultimately takes their health for granted. Keep in mind that it isn’t really a client’s money that truly purchases coverage…it is their health. Advisors need to make sure that they effectively communicate the importance of timely implementation for all clients, especially when a client is healthy. Once a need is discovered, it is important to implement a solution for that need in a timely manner. The goal of helping people plan for care is to answer questions/challenges as they are uncovered.
A common misconception is that by waiting a couple of years to purchase Long Term Care Insurance, it would be less expensive than purchasing it now. Here is a hypothetical cost comparison to consider:
LTC Insurance Cost Comparison by Year:
Purchase AgeYearly PremiumYrs. Until Age 84Total Cost of Premiums Paid 45$746 39$29,094 (39 x $746)
As you will note, a client who purchases Long Term Care Insurance earlier in life will actually pay less in total premium than the client who chose to wait until later on in life. This hypothetical cost comparison does not take into consideration that a person is likely to have health changes throughout the years which would also have a negative effect on the premiums.
- What is Long Term Care?
Long Term Care references the industry that provides medical assistance with the basic, everyday Activities of Daily Living that most people can do independently. Activities of Daily Living are often referred to as ADLs for short. As a result of illness, injury, frailty or dementia due to advanced age, many people need assistance in order to maintain a healthy standard of living. However, Long Term Care services include medical and non-medical care. Some people need constant supervision or reminders to accomplish every day activities, such as using the toilet, eating, bathing, dressing, taking medications and so forth. Duration of Long Term Care services can be weeks, months or even years when assisting patients recover from illnesses, injuries or dementia.
- What is Long Term Care Insurance?
Long Term Care Insurance (LTCI) is an insurance product designed to protect your client’s retirement portfolio during the Preservation Stage of Life from the extremely high cost of long term, extended care.
- The importance of consulting with an Advisor vs. a Product Specialist
When considering the need for any type of insurance, your clients need to feel confident that they are consulting with a professional who will help them determine whether the policy they are considering is appropriate based on their overall circumstances as opposed to just being sold a policy. An advisor understands the importance of asking questions, collecting background information and taking time to analyze that information before making a recommendation. It is our belief that real professionals never make recommendations without complete and accurate information. And because insurance is usually a complex subject for consumers, recommendations must be approached with an EDUCATIONAL focus, not emotional focus.
That being said, no one likes to feel like they are being sold. Thus it is an advisor’s responsibility to collect appropriate data from each client so as to make proper recommendations based on each client’s unique situation. Your client needs to be placed in a position to make an intelligent business decision…which only comes from getting complete and accurate information. On a side note, we believe that professional advisors choose to represent several insurance carriers so that their clients have access to the best policy based on their unique situation. One company can never be everything to everyone.
- Can Long Term Care insurance premiums increase?
Yes. Long Term Care policies are usually designed as Guaranteed Renewable products. The only way an insurance company can raise premiums on an “In Force” policy is if premiums were increased on a “Class” basis. This simply means that an insurance company cannot single your clients out to increase their premiums. If the company needs to raise premiums, they are required to do so for every policyholder who owns a policy with the same contractual provisions. A Class basis raise must be approved by the State Department of Insurance. Specific policies that are issued as “Partnership Qualified” have tighter restrictions on insurance companies raising premiums on “In Force” business.
- Where do people receive Long Term Care services?
Long Term Care services can be provided in many different settings. Home Healthcare and Community Care, Assisted Living and Nursing Home Facilities are the primary settings for care. Adult Day Care and Alzheimer’s Centers are examples of other available services and facilities. In most circumstances, a consumer’s first choice of where to receive care is in their home.
- What types of services do Long Term Care insurance policies cover?
Comprehensive Long Term Care insurance policies cover skilled, intermediate and custodial services in a variety of settings, including Home and Community Care, Assisted Living Facilities, Nursing Homes, Adult Day Care and Alzheimer’s Centers. Covered expenses will vary from policy to policy. In a comprehensive policy, benefits are paid for services delivered in both skilled, intermediate and custodial settings. Skilled care is “Hands On” care ordered by a physician under a plan of treatment, provided 24 hours a day and is most often provided in a nursing home. Custodial Care or Personal Care helps a person perform ADLs (Activities of Daily Living)…assistance that is provided in most every setting.
- How common is the need for Nursing Home Care?
Although there is abundant information about the population, age and condition of nursing home residents, it is difficult to provide statistical projections that can apply to each individual client from that information. Professional Advisors should not be focused on statistics anyway. Professional Advisors do not use statistics to “scare” clients into purchasing products from an emotional perspective. It is a professional’s responsibility to educate their clients on the importance of developing a Plan of Care in case one is needed and in figuring out the most effective, efficient way of paying for that Plan of Care. One of the primary goals of Financial and Estate Planning is to have plans put together in advance so that should challenges come up, the path is clearly defined and the client’s finances will be shielded from major risks. Long Term Care services are one of the largest risks to your client’s financial portfolio.
- What is the average cost of Long Term Care services?
The average cost for Long Term Care services varies depending greatly on the type of care provided and the geographical area it’s provided in. For individuals who receive full time Home Health Care from a combination of family and paid caregivers, the annual cost would be much less than the cost an individual receiving full time care from a Skilled Nursing Facility could expect. The most effective way for your clients to know what their cost might be is to determine what Plan of Care they should have in place, consider what their total estate value is and finally, how much risk are they willing to absorb. Ultimately, success in the Plan of Care will be based on whether your client properly utilized other people’s efforts and other people’s money.
- What can Professional Advisors do to avoid clients getting overwhelmed with policy premiums?
With any purchase, it is imperative to take into consideration exactly what the client needs. Here are several items to take into consideration when recommending a Long Term Care Insurance policy:
1. What is your client’s total asset base? 2. How much of your client’s assets are liquid? 3. Does your client rely on those liquid assets for income…if so, what percentage? 4. Does your client own a business? If so, what type (Sole Prop, LLC, S-corp, C-corp)? 5. Does your client own an HSA policy? 6. Does your client live in an area where certain types of care aren’t as readily available? 7. What amount of risk can your client afford to self insure, if any?
- What should your clients consider when purchasing Long Term Care Insurance?
There are a number of variables that can affect both the quality and cost of a Long Term Care Insurance policy. In addition to the importance of selecting a financially strong insurance company, consideration should be given to the Benefit Period, the Monthly Benefit, the type of Elimination Period, Inflation Protection and how comprehensive the policy is in the types of care covered.
- How much coverage should your client purchase?
Determining how much coverage your client should purchase is actually quite simple. Considering Long Term Care Insurance is designed to protect their retirement portfolio, the determination on amount of coverage should be based on what would protect your client’s estate from the high cost of care. That being said, a Professional Advisor first needs to help his/her clients establish what their Plan of Care will be should they get sick or injured and need care. Next, the client’s total asset base should be determined and subsequently, the client needs to decide how much of their assets they are comfortable having at risk, if any.
- What Benefit Period should you recommend to your client?
A Benefit Period is the length of time that a Long Term Care policy will provide a benefit. Some policies provide for a maximum total dollar benefit instead of an actual benefit period. The appropriate period of coverage depends on your client’s total assets, their Plan of Care and then the purpose of the policy. We believe that Professional Advisors have the responsibility of approaching each client differently, based on their unique situation. That being said, our rule of thumb for recommending Benefit Periods looks something like this:
1. Assets of $250k and below- 3 year benefit or no coverage 2. $250k to $500k- 3 year benefit to 5 year benefit 3. $500k to $750k- 5 year benefit to up to 10 year benefit 4. $750k and above- typically lifetime benefit period.
- What is an Elimination Period/Waiting Period?
An Elimination Period is like a deductible in that it represents the number of days during which the Insured is eligible for benefits but no benefit is payable by the insurance company. It is imperative to note that there are three different types of Elimination Period options available:
1. Days of Service: the only days that count towards the Elimination Period are days where billable care is provided 2. Calendar Day: every day counts towards the Elimination Period, whether care was provided on that day or not 3. Zero Day: client has access to their benefits from day one
The “Days of Service” Elimination Period is the least expensive option as it is tougher to satisfy for your client. The “Calendar Day” Elimination Period is the most favorable option as it provides a straight forward definition for your client as to when their coverage will begin. The Zero Day Elimination Period is the most expensive of the options and in certain cases it is automatic on the policy for Home Care. We never recommend the Days of Service option for any client. We primarily recommend the Calendar Day option, unless it is not available. In which case, we would recommend the Zero Day option for Home Care.
The difference between the different Elimination Period options is not as important for Facility Care (Nursing Home and Assisted Living) due to the fact that care is provided in some form on a daily basis. However, the difference in the options is imperative when it comes to Home Health Care. Considering care might be provided in the home anywhere from one day per week to all seven, your clients deserve straight forward definitions in qualifying for their care. Having each day count toward the Elimination Period, regardless of care being provided, or a Zero Day option is best for your clients and certainly less confusing.
- What length of Elimination Period should you recommend to your clients?
Shorter Elimination Periods (0 day, 30 days or 60 days) will increase your client’s policy premiums compared to longer Elimination Periods (90 day or 180 days). What an advisor needs to considered is how much should your client afford to self insure before the policy begins paying benefits. It is important to note that Medicare and a Medicare Supplement will pay for the first 100 days of Skilled Nursing Home Care and some Home Health Care benefits, although benefits are limited to Skilled Care which is normally provided in the first couple of weeks. We do not believe it is wise to make a decision on Elimination Period solely based on coverage that may be provided by Medicare or a Medicare Supplement.
- What benefit should you recommend to your clients…indemnity or reimbursement?
There are four different ways a Long Term Care Insurance policy can pay a benefit. However, not all insurance companies offer each of these options. It is very important for advisors to understand each of these options and how they actually work. Unfortunately, there is a lot of wrong information and ignorance from product salespeople in regard to these options. Here is a quick overview of each option and how they work:
1. Cash Indemnity: pays a monthly cash benefit, regardless of actual expense or future proof of claim 2. Daily Indemnity: pays a cash benefit each day care is provided, regardless of actual expense incurred 3. Daily Reimbursement: reimburses actual expenses “up to” the daily benefit maximum available 4. Monthly Reimbursement: all actual expenses for daily care throughout the month are averaged together and reimbursed
Cash Indemnity policies are the most expensive of the above options and no longer available on most Long Term Care policies. Daily Indemnity policies are also expensive but are more readily available to your clients. However, due to lack of agent education these plans are sold incorrectly and many times promoted the same as Cash Indemnity benefits. Your clients need to understand that with Daily Indemnity policies, if care is not provided on a given day, no indemnity amount is available. It is our opinion that this benefit is too expensive for what it is worth.
Daily Reimbursement policies are the least expensive of the options because they do not pay as good of a claim for Home Health Care benefits. A simple example: if your client purchased “up to” $100 per day and their cost for care yesterday was $80, they would only get reimbursed $80. If there cost for care today was $100, they would get $100. However, if their cost for care tomorrow will be $120, they would only get reimbursed $100. Monthly Reimbursement policies take the daily cost of care over the month, average the costs and reimburse based on that average. For the premium, the Monthly Benefit is without a doubt the most effective, efficient policy available to your client.
- How is Long Term Care Insurance policy premium calculated?
Long Term Care Insurance policy premiums are calculated based on several factors:
1. Your client’s age 2. Your client’s resident State 3. Your client’s health history 4. Your client’s marital status 5. Policy design
Long Term Care Insurance plans are considered Guaranteed Renewable. Guaranteed Renewable means your client’s premiums are designed to stay level for the life of the policy. Rate increases may occur but your clients cannot be singled out. It is important to note that any increase has to be for everyone of the same rate class and approved by the Department of Insurance in each State before it is implemented.
- Does my client have any shorter premium pay options available?
Yes. While the premium payment period for most policies is the lifetime of the insured, some policies provide for “paid up” policies after 10 years or allow for premiums to be “paid up” at age 65. The benefits of a shorter premium payment period include the ability to pay for the insurance in full before retirement and once the policy is paid up, the company cannot increase premiums. The principal disadvantage of limited pay premium pay options is that each of the premiums will be much higher than the lifetime premium pay option.
- Long Term Care insurance myths…separating fact from fiction.
There are many misconceptions about Long Term Care insurance you might hear from your clients. It is important to keep in mind that these misconceptions are due to limited education or unfortunately from uneducated media, agents or a friend of a friend heard a story one time. What we need to keep in mind is that with proper education, myths, skepticisms and objections are easily overcome so that your clients are in a position to make good business decisions. Here are seven of the most common myths, skepticisms and objections:
Myth #1: It will never happen to me.
Medical technology has greatly increased average life expectancy in America and reasonable people understand that the longer they live, the greater chances they have at getting sick or injured and needing care. This point is not meant to be argued. There are unreasonable people out there who may choose to not think logically about this issue and they will continue to be unreasonable regardless of the amount of education. A wise client will recognize that there is a chance at needing care, take time to design a Plan of Care now and find the most suitable means of financing that care.
Myth #2: The Government will pay for my care.
There are people who believe that the Government will pay for Long Term Care services. What they don’t realize is that the resources for Long Term Care services are extremely limited. These services are provided under either the Medicaid or Medicare system. Medicaid, like most public assistance programs, is designed for people of extremely limited means. For State specific Medicaid information, please visit: www.cms.hhs.gov/medicaideligibility/. In order for your clients to qualify for Medicaid, they must have limited income and nominal assets, including their home. For those clients who have any decent amount of assets, they would actually have to spend through almost all of it before qualifying. Qualifying for Medicaid actually works against your client’s goals of protecting their assets as it requires them to spend down the very thing they are trying to protect.
Medicaid Planning is the process of transferring assets to other individuals outside of required look back periods prior to receiving Medicaid benefits. A Look Back Period is the time frame a State can “look back” into your client’s asset gifting to recoup all costs incurred by the State Medicaid program. The Deficit Reduction Act of 2005 increased Look Back Periods from 3 years to 5 years and made the practice of transferring assets to qualify for Medicaid much more difficult.
Medicare is a Federal Health Insurance program that provides limited benefits for Skilled Long Term Care services only. Skilled Care is defined as around the clock, specialized care provided by a medical professional, such as a doctor or nurse. Since the most significant costs of Long Term Care services come from needing long term help with Activities of Daily Living, the largest cost associated with Long Term Care services is not actually covered. This is referred to as Custodial Care and is primarily provided by informal care givers. Medicare will pay for twenty days of Skilled Nursing Home cost and will only pay for Home Care while Skilled Care is provided.
Myth #3: My Health Insurance/Medicare Supplement Insurance will pay for my care.
Health Insurance is designed to reimburse hospital and doctor expenses based on usual, reasonable and customary charges in the rehabilitation of an injury or illness. It was not designed to provide reimbursements for Long Term Care services and that is why health policies provide very limited reimbursements, if any, for Long Term Care services. Medicare Supplements provide a little additional coverage but only for an additional 80 days of Skilled Nursing Home care.
Myth #4: Long Term Care insurance policies are too expensive.
Long Term Care insurance policies are expensive compared to what? Unfortunately, there are agents out there who have little to no planning experience and try to sell “Cadillac” plans to everyone without having a clue as to whether the policy is the most appropriate for their unique client or without taking into account the best means of funding the plan they are selling. For people who are protecting their assets from the high costs of Long Term Care services, wouldn’t it make the most sense to have their portfolio or business pay for the plan as opposed to paying for it out of their monthly income? A Professional Advisor will be able to show his/her client how to utilize 1% or less of the interest on their portfolio to protect their entire portfolio or how to utilize their client’s business to pay for premiums on a tax advantageous basis. Just remember, if your client “can't afford the solution”, they definitely can't afford the problem.
Myth #5: If I invest the money I would spend on premiums, I will have enough money to pay for care if the time comes.
Considering the “advisors” who are responsible for propagating this type of statement get paid by working exclusively with investments, it is no wonder why they would communicate this to their clients. Help your client understand that even that “advisor” gets paid fees (commissions) on all the money they have under management. Many times, those advisors don’t even have the proper licensing and educational requirements to represent insurance. That being said, a professional Advisor will be able to show his/her clients how to protect their entire portfolio from the cost of Long Term Care services with 1% or less of their entire portfolio. One other thought, even if your client invested $5k per year into an account, how long would it take for them to be able to have access to an average of $75k tax free per year in order for services to be covered?
Myth #6: I'm young so I can wait to apply for coverage.
If age was the only factor in determining coverage costs, this would be an okay assumption. However, it is never wise to assume anything. Long Term Care Insurance policies are medically underwritten. Regardless of how much money your client has, it is their good health that truly purchases their coverage. Medical conditions can permanently exclude your clients from qualifying for any coverage. Even minor health incidences, such as physical therapy for a minor sports injury, can temporarily disqualify your clients from qualifying for coverage. Since no one is guaranteed to be illness or injury free, it is wise for your clients to not take their good health for granted when considering the purchase of coverage. In addition, the older a person gets, premiums become substantially more expensive and in almost every case, the client actually would have been better off purchasing it younger and paying a smaller premium for a longer period of time.
Myth #7: Long Term Care Insurance is Nursing Home insurance.
Like many myths, this one is rooted in fact. When the first Long Term Care policies were being sold back in the 1970's, there was no such thing as Assisted Living Facilities or formal Home and Community Care. However, as the industry changed and added different types of care, Long Term Care Insurance policies changed and added coverage for those new types of care. Over the last decade, Long Term Care Insurance policies have become much more comprehensive, with coverage being provided for Home and Community Care, Adult Day Care and in some policies, informal care provided by family members. Considering most clients choose to receive care in their home for as long as possible, it is appropriate to approach comprehensive Long Term Care Insurance as a way for clients to avoid going to the Nursing Home.
- Long Term Care costs are expensive; will they continue to increase over time?
The chances are likely that Long Term Care costs will be more in the future than they are today. The following table highlights how much Long Term Care services could cost in the future if it were to increase by 5% compound each year:
Future Long Term Care Costs:
Based On 5% Compounded Growth
Year Cost per YearYear Cost per Year
- What is the difference between Nursing Home insurance and Long Term Care insurance?
Nursing Home insurance is actually the predecessor of comprehensive Long Term Care insurance. It is possible to still purchase a Long Term Care insurance policy that provides benefits primarily when the insured is confined to a Nursing Home or Assisted Living Facility, although most policies available today are comprehensive and will also cover Home and Community Care. It is important to note that because most people would rather receive care in their own home, a comprehensive policy is usually most appropriate for your client’s needs.
- Does Medicare cover Long Term Care services?
Medicare is a Federal Health Insurance program that provides limited benefits for Skilled Long Term Care services only. Skilled Care is defined as around the clock, specialized care provided by a medical professional, such as a doctor and nurse. Medicare will cover the first 20 days of Skilled Nursing Home care and Skilled Home Health care for a short time. While a Medicare Supplement will cover an additional 80 days of Skilled Care in a Skilled Nursing Facility. However, since the most significant costs of Long Term Care services come from needing long term help with Activities of Daily Living, the largest cost associated with Long Term Care services is not actually covered. These services are referred to as Custodial Care and are primarily provided by informal care givers, including family members.
- Does Medicaid cover Long Term Care?
Medicaid is a State run, federally funded program for people who have extremely low income and limited assets. For clients who have moderate to a considerable amount of assets, they would actually have to spend through almost all of their assets before qualifying. Qualifying for Medicaid actually works against your client’s goals of protecting their assets by requiring them to spend down the very thing they are trying to protect.
Medicaid does cover Long Term Care services in a Nursing Facility and some services for Home Care. However, Home Care services are generally limited to skilled care and rehabilitation services. For additional, State specific Medicaid information, please visit: www.cms.hhs.gov/medicaideligibility/.
- Does Health Insurance cover Long Term Care services?
Health Insurance is designed to reimburse hospital and doctor expenses based on usual, reasonable and customary charges in the rehabilitation of an injury or illness. It was not designed to provide reimbursements for extended Long Term Care services. There can be benefits available for services but if there are, it is normally for a very Short Term period.
- What benefits make up a good Long Term Care policy?
There are many moving parts to Long Term Care Insurance. The following list is meant to provide a basic overview of the most important policy benefits to consider when working with your clients:
1. Monthly Reimbursement Benefit 2. Benefit Period 3. Elimination Period (calendar day versus days of service) 4. Inflation Protection 5. Waiver of Premium 6. Restoration of Benefits 7. Nonforfeiture Benefits 8. Respite Care 9. Spousal Discounts and Benefits 10. Tax Qualified versus Non-Tax Qualified
- Should your client consider “Self Insuring” as an option in funding their Plan of Care?
The decision to “Self Insure” the cost of a Plan of Care is an option for the right client. Many times we find that clients who do not want to waste their money on coverage they may never use or a “Financial Advisor” has recommended to them that because of their wealth, they should self insure. However, there are many different items to consider prior to deciding on self insuring their Long Term Care Risk.
- Should your client purchase Long Term Care Insurance if their only source of income is Social Security?
The primary purpose of Long Term Care Insurance is to protect assets. If your client doesn’t have assets to protect, we would not recommend that your client purchase a Long Term Care policy. If your client has limited assets or no assets, the only other reason for your client to purchase a Long Term Care policy is so they have a choice in where they get care if they need it. However, if the purchase of a policy will cause the client challenges with their monthly budget, we recommend this client consider alternatives for funding their Plan of Care.
- Should you ever consider replacing an “In Force” Long Term Care policy?
If your client already has a policy but the benefits are inadequate, we suggest that should strongly consider having your client apply for an additional policy rather than replacing the current policy. It is very rare to find a situation where replacing a Long Term Care policy is the right thing to do for the client.
- What services are generally excluded from being covered under a Long Term Care Insurance policy?
As with all insurance policies, there are limitations and exclusions to consider. In addition, there are services such as those provided to mental illness patients (excluding Alzheimer's, dementia or other organic brain disorder) that are generally excluded from coverage. Some examples of exclusions would be services for alcohol or drug related addiction, attempted suicide, self-inflicted injuries or an illness or injury caused by an act of war. Also, policies generally exclude those who have had treatment already paid for by the Government.
- Are Long Term Care Insurance premiums tax deductible?
Subject to dollar limitations, premiums paid for qualified long term care policies are eligible for deduction as a medical expense. It should be noted that policies issued prior to 1997 are automatically considered to be qualified as long as they meet state requirements. In order for individual clients to benefit from the deduction, they must itemize their deductions. In addition, only medical expenses in excess of 7.5% of their Adjusted Gross Income are deductible. The eligible dollar amount of premiums that is deductible varies by age. The only caveat to this is if your client owns an HSA. In this specific case, your client would be allowed to pay for their Long Term Care Insurance premiums through the HSA account without having to satisfy the Adjust Gross Income requirement of 7.5%. However, your client would still limited to the same eligibility limitation based on their age.
If your client is self-employed, the rules are more favorable. A client who owns a Sole Proprietorship, LLC or S-corporation is able to have their business pay for premiums but would still limited to the same eligibility limitation based on their age. However, a C-corporation is able to pay for 100% of all policy premiums and the owner(s) are able to discriminate who they provide this benefit for without limitation to traditional ERISA nondiscrimination guidelines.
- What happens to your client’s policy should the insurance company become insolvent?
When an insurance company is about to become insolvent, the State Insurance Commissioner steps in with authority to protect the policyholders. It is important to understand that insolvency does not mean bankrupt. The insurance carrier still has their required reserves set aside to pay claims. The State Department of Insurance steps in and manages those reserves upon insolvency. In addition to the reserves, each State’s Guaranty Association was formed to provide financial assistance to protect policyholder interests in case of insolvency. With the approval of the court, the insurance commissioner will take the company under supervision and develop a plan to either rehabilitate the company or sell off books of policyholders to other insurance carriers. The results will vary from State to State and from situation to situation, but policyholders are likely to forfeit some of the benefits that they were entitled to under the policy that they purchased but they are guaranteed access to a portion of their benefit nonetheless. This is just another reason why it is so important to choose a financially sound company when your clients consider purchasing insurance.
- If your client moves out of State, will their policy still pay a benefit?
Yes, most policies have what is called “portability,” which means they can be used anywhere within the U.S. In addition, some carriers have policies that will even cover benefits internationally.
- Can I Partner with The Ark Group to Sell Long Term Care Insurance?
If you are an advisor or an insurance agent looking to sell Long Term Care Insurance, you will want to contact The Ark Group to get appointed with each of the companies we are contracted with. We work with Insurance Agents and Financial Advisors in all 50 States. Simply pick up the phone and call our office at 866‐725‐0777. We do not take building relationship with you for granted and look forward to earning your business!
- Why Should I Partner with The Ark Group to Sell Long Term Care Insurance?
We are a National Independent Brokerage and Planning Agency and work with many of the best Long Term Care Insurance companies. From individuals to business owners, we make sure your client has access to the most comprehensive Long Term Care Insurance policies available on the market today. We understand that Long Term Care Insurance policies are a legal contract, and that your client needs to have the best coverage available based on their unique situation. Every Long Term Care Insurance policy is different, and as such, will pay benefits based on the specific definitions within each contract.
Our agency makes recommending and selling Long Term Care Insurance as easy of a process as it can possibly be for Insurance Agents and Financial Advisors. Not only do we assist in policy comparison and review, we also provide training that will cover sales, product and most importantly, concepts that will help you take care of your clients in the best way possible. In other words, we provide you with everything you could possibly need to evaluate a policy, and help your client make an intelligent business decision, while making sure you are well compensated.
- What makes a good Long-Term Care Insurance Policy?
This is a pretty simple question to answer. The first step is to choose a financially solid insurance company because it is likely your client won't be using their policy for many years. However, financially strong doesn’t just mean overall financial strength. It also means the insurance company’s Long Term Care Insurance block of business is financially sound. There have been many financially strong companies to get out of the Long Term Care Insurance business due to not having a financially solid block of business.
The next step is to have a good understanding of the different benefit options available on Long Term Care Insurance policies.
- “Calendar Days” Elimination Period or Zero Day for Home Care
- Benefit Period (lifetime benefits are not appropriate for everyone)
- Waiver of Premium (including spousal waiver of premium)
- Limited Premium Payment Options
- How does a comprehensive policy differ from a non-comprehensive policy?
A comprehensive Long Term Care Insurance policy will cover expenses for service delivered in nursing facilities, assisted living facilities, adult day care centers, home healthcare or community care. A non-comprehensive policy will either cover Facility Care (Nursing Home and Assisted Living) or Home Health Care only. We rarely ever recommend the purchase of a non-comprehensive, limited benefit policy due to the lack of options for the client.
- How does a Long Term Care Insurance policy pay a benefit?
There are four options available for benefit payments. The first is Cash Indemnity. The benefit of this plan is that once the client has qualified for claim, they get cash to use however they want to use it and traditionally do not have to provide future proof of claim. This would allow a client to pay a friend or family member for care. The challenge is limited carriers offer this option due to the expense and since insurance carriers aren’t in the business of losing money, the cost of this plan is the most of the four options. Our opinion is to not spend any more money than absolutely necessary to have a good benefit. We believe that this isn’t the best plan for the premium dollar for most clients.
The second option is Daily Indemnity. With this option, your client would receive a cash benefit available on any day that a charge for actual care has been received. If there was no cost for care or no care provided on a given day, there would not be a benefit paid to your client. This is the most common type of indemnity benefit on LTCI. This option could allow your client to pay a benefit to a friend or family member also but you will want to double check the policy limitations and exclusion section to make sure a friend or family member are eligible. Please keep in mind that most insurance agents have not been properly trained in the difference between this option and the previously mentioned “true cash” option. Many times the second option is presented to people as offering benefits more like the first option. This is why we always suggest you work with a Professional Advisor who understands how to read an outline of coverage to confirm what the actual benefit is. This second option is less expensive than the first option but still an expensive option nonetheless.
The third option is a Daily Reimbursement. This option is the least expensive option and for a reason. This type of policy will reimburse daily expenses, up to the chosen coverage amount. If there is a day that the charges are more than the maximum daily benefit chosen, your client would be responsible for self-funding the difference. For Facility Care this isn’t a big issue because charges are pretty consistent on a day to day basis. However for Home Care, where charges are inconsistent from one day to the next, this daily reimbursement could become costly especially on days where they have higher charges. As an example, if your client purchased a daily benefit of up to $100, and the charge yesterday was $80, the client would get reimbursed $80. If today’s cost was $100.00, the client would get $100 reimbursed and if tomorrow’s cost was $120, your client would get $100. The remaining cost would be out of pocket. Now keep in mind the numbers I used were for illustrative purposes. The more realistic numbers would be closer to one day’s charge around $125.00 and the next day around $310. If your client purchased a reimbursement of up to $100 per day, they would have out of pocket for those two days of $235. So, let me ask you wouldn’t it be great if the daily charges could be averaged together over the course of a month for a better reimbursement?
Our fourth option is Monthly Reimbursement. This option will average all costs throughout the month and reimburse based on that average. As an example, based on the above numbers a Monthly Reimbursement policy would take the $80, $100 and $120 charges average them together and reimburse based on that average. There is a maximum monthly reimbursement amount but it will pay a better claim than Daily Reimbursement. In fact, because of the monthly averaging benefit, it will many times pay a better claim than the Daily Indemnity benefit. It is our opinion that for the premium, this plan is the most effective and efficient coverage option for most clients.
- What is an Elimination Period?
An Elimination Period is like a deductible. In other words, it is the period of time or number of days worth of care a client has chosen to self insure before the policy pays a benefit. Normal Elimination Period options are from 0 day, 60 days to 90 days…some policies allow for up to 365 days of self insuring before a benefit would get paid. The policy premium decreases as the number of Elimination Period days increases. The most important item to note in this topic is that there are two different types of Elimination Periods. We have found that a strikingly high number of agents or advisors have not been trained on is how to distinguish between the two different types of Elimination Periods, Days of Service or Calendar Days. It is very important to pay attention to the difference between these two definitions.
A Days of Service option requires that in order for ANY day to qualify towards the Elimination Period, qualified care has to be provided on that particular day. In other words, if your client received qualified care three days out of the last seven, only the three days they received qualified care would qualify towards the Elimination Period. This obviously can be a little misleading to your client. If they purchase a 90 day Elimination Period, they would have a reasonable expectation that 90 days after they qualify for care, that they should begin receiving benefits. With the Days of Service option, they most likely will have to wait much longer than 90 days in order to receive benefits if your client is receiving Home Care…simply because most times, Home Care is provided a few times during the week. However, if your client needed to go to a Facility to receive care, your client would likely be just fine since your client isn’t in and out of the facility a couple of times per week.
A Calendar Days option is very simple. This option allows all days, whether care was provided or not, to qualify towards the chosen Elimination Period. In other words, if your client purchased a 90 day Elimination Period and they qualify for care, they can go to the calendar and mark down 90 days from the date they qualified and they will know with certainty their benefits will be eligible to begin on that day. This option costs more in premium but for the minimal difference, we suggest clients go with this option unless they chose a 0 day Elimination Period. In that case, the difference isn’t an issue because benefits are provided on day one.
- What is a Benefit Period?
A Benefit Period is the length of time benefits are available to a client. Normal Benefit Period options are from 2 to 3 years of coverage all the way up to Unlimited Lifetime coverage. A responsible Advisor will have the education necessary to determine what Benefit Period is most appropriate based on each client’s unique situation. There are cases where Unlimited Lifetime benefit is appropriate and there are certainly cases where Unlimited Lifetime benefits are not. We recommend that you take into consideration the Estate value before recommending the most appropriate Benefit Period bases on the client’s unique needs.
- What is a Benefit Amount?
A Benefit Amount is the dollar figure your client chooses to have protection for either on a daily or monthly basis. Depending on the policy type and the carrier, your clients can purchase as low as $50 per day and as high as up to $400 per day. Now keep in mind that should your client purchase a Monthly Reimbursement plan, your client would have access to $3,000 per month in Benefit Amount if they chose $100 per day benefit. We recommend that you check what the average cost of care is for your client’s area and use that as a guide towards determining the Benefit Amount.
- What is Inflation Protection?
Inflation Protection is imperative for your client to have. Inflation Protection can increase your client’s Benefit Amount each year to keep up with industry inflation. There are many different options of Inflation Protection but some of the most common are:
- increase the Benefit Amount at either 2%, 3%, 4%, or 5% - is the highest priced inflation option - increases the Benefit Amount at 5% each year - is the moderately priced inflation option - increases the Benefit Amount by the current year’s CPI - is another moderately priced inflation option
- Guaranteed Purchase Option
- increases the Benefit Amount equal to 5% every year - is the least expensive inflation option up front - if client elect this optional increase, it will be at the client’s attained age for pricing…in long run, this is the most expensive option
In most cases, the advantage of Compound Inflation over Simple Inflation protection is noticeable after the 12th policy year. Our quick “Rule of Thumb” on Inflation Protection is:
- Age 65 & Under: Compound Inflation
- Ages 66 to 70: Compound or Simple Inflation
- Ages 71 to 75: Simple or a low Compound Inflation option
- Ages 76 & Above: take the premium for Inflation and apply it toward the purchase of immediate benefit
It is our opinion that the only age group where Inflation Protection is not adamantly recommended is 75 and above. We believe that a good Advisor would want to take the difference in premium for the Inflation Protection and apply those premium dollars towards the Benefit Amount since the client is hypothetically closer to prospectively needing the benefit.
- What are examples of other Benefits and Riders available?
There are several different Benefits and Riders available to your clients on LTCI policies. Depending on the insurance company, some of these Benefits and Riders might already be added to the policy and not considered riders. We suggest you always confirm specific policy benefits before speaking with a client. Here is a listing of some of the other Benefits and Riders you will find on LTCI policies:
- Respite Care - a benefit that pays for Facility or Home Care services for your client while a primary, unpaid caregiver is given the opportunity to take a break from providing care.
- Equipment & Home Modification - a benefit that pays for the purchase and installation of items such as ramps, stair lifts, etc, that will help enable your client to stay at home longer.
- Alternate Care Benefits - a benefit that allows for the consideration of paying for other types of care that might not be available now but could become available in the future.
- Caregiver Training - a benefit that will pay for a friend or relative of your clients to receive training so that they can provide informal, caregiver training to help around the home.
- Restoration of Benefits - a benefit that will restore previously used claim benefits should your client go for a period of at least 180 consecutive days without being benefit eligible…this benefit is not necessary on an Unlimited Benefit plan.
- Home Care Waiver of Elimination - a benefit that automatically provides your client with a zero day Elimination Period for home Care benefits…even if they have chosen a higher Elimination for Facility Care.
- Shared Care - a benefit that allows a couple to share the benefits of one policy instead of having to purchase two separate policies…the challenge with this benefit is that your client is not eligible for the Unlimited Benefit Period on Shared Care.
- Waiver of Premium - a benefit that will waive premiums once your client has qualified for care and has been on claim typically for 90 days…some carriers have a spousal Waiver of Premium option that will not only waive the premiums for the spouse who is on claim but also for the spouse who is not.
- Survivorship - a benefit that will waive all future premium payments should a married couple purchase a policy, own it for a minimum of ten years without having a claim and then one of them pass away after the tenth policy anniversary date.
- Return of Premium - a benefit that will return premium, either at death or after a certain time frame, to your client either minus any claims paid or regardless of claims paid…it is our opinion that these riders are nothing more than a very expensive and limited Life Insurance benefit. For the difference in premium, your client could purchase a pretty large Life Insurance policy and come out ahead in most cases.
- Nonforfeiture - a benefit that as long as it has been in force for a minimum amount of time, will provide your client with a reduced, paid up LTCI Policy equal to the total amount of premiums that have been paid in should their policy lapse for whatever reason.
- What are Limited Premium Pay options?
Limited Premium Pay options allow for your client to have the ability to pay off their premiums over a limited period of time rather than paying premiums for the life of the policy. Another benefit of having a Limited Premium option is in regard to potential future premium increases. Should your client have their premiums paid up and an increase takes place, it will not affect your client and they would not have any additional premiums to pay. There are not very many Limited Pay Options available any more. A few options are:
- 10 Pay- this option allows your client to pay off their premiums in 10 years
- Paid Up at Age 65- this option allows your client to pay off their premiums at age 65
- Single Pay- this option allows your client to pay off their premiums in a onetime premium payment
- How do State Partnership Qualified Plans work?
On February 8th, 2006, the Deficit Reduction Act was signed into law allowing additional states to establish QLTCI Partnership Programs. The partnership programs in California, Connecticut, Indiana and New York are grandfathered and may continue “as is”.
State Partnership Programs implemented under the DRA are intended to provide dollar-for-dollar asset protection to an individual who purchased a QLTCI policy, if the individual qualifies for the state’s Medicaid assistance program later in the future. This means that your client can protect assets equal to the amount of benefits they receive under their Partnership QLTCI policy. In other words, State Partnership programs provide a safety net to your clients by allowing them to protect a portion of their assets in the event they may need to apply for Medicaid. Here’s how it works:
- An individual purchases a partnership-qualified LTCi policy
- When that person needs LTC services, he first uses the benefits under his policy
- If benefits are exhausted and still needing care, he may be eligible to receive additional LTC services through his state’s Medicaid program without having to spend down all his assets to meet eligibility requirements.
If your client purchases a State Partnership QLTCI policy that pays $200,000 in benefits, they can keep $200,000 in assets and still be eligible for Medicaid. In other words, a Partnership policy allows your client to protect $1 in personal assets for each dollar in benefits paid by the policy.
- How do hybrid Long Term Care Insurance product options work?
Currently there are two different types of LTC hybrid options available: Life Insurance with an LTC rider and Annuity with an LTC rider. These products provide a fresh approach to retirement planning. For those clients who simply will not spend money on LTCI premiums, because they either refuse to believe it will happen to them or they feel they can self insure without any issue, these hybrid options will give them the best of both worlds. By combining Universal Life insurance or an Annuity with LTCI and creating one product, your client will be able to self insure while maximizing their leveraged dollars in spreading the risk. The Universal life option typically provides a “pool of benefit dollars” that are able to be used for covered LTC expenses and/or a death benefit for beneficiaries should your client not need care. Because these type policies are built on Universal Life policies, the values grow income tax deferred at the carrier’s current interest rate. The Annuity option is a simple way to combine the safety and tax deferred growth of a single premium, nonqualified, deferred annuity with the benefit of leveraging that money for LTC benefits. However, the only death benefit available on this option is the accumulated value of the annuity as long as LTC benefits haven’t been used.
When used properly, these hybrid products can be a very good solution for select clients. However, these options do have limitations. Two examples: your clients do not have the same tax advantages when paying the premiums and these products do not provide Unlimited Benefit options for your clients. For the clients who could use one or both of these benefits, you will want to make sure your client understands these limitations thoroughly…you will want to make sure your client understands the limitations and exclusions of any policy or concept for that matter.
- What is Non-Tax Qualified Long Term Care Insurance?
The benefit of a Non-Qualified policy is simply that the benefit triggers to get on claim are easier to attain. With a client either needing to show a loss of 1 of 5 ADLs, show a Cognitive Impairment or show that the claim was Medically Necessary; the policy language was simpler for your client to qualify for a claim. However, the prospective tax challenges these polices potentially had, in many cases, outweighed the simplified benefit triggers. Your client wasn’t eligible to deduct any premiums on their personal or corporate tax returns and they also ran the risk of benefits getting taxed. Although it is important to note, that there has yet to be a case where LTC benefits have actually been taxed… a 1099 is still issued to an insured at claim by the carrier at the end of every claim year.
- What is Tax Qualified Long Term Care Insurance?
In 1996, the first Qualified Long Term Care Insurance policy was introduced to the marketplace. This type of policy was initially under some scrutiny because the benefit triggers were tightened up. A client would need to either show a loss of 2 of 6 ADLs or show a Severe Cognitive Impairment and have a Medical Professional certify in writing that the insured will need 90 consecutive days worth of care in order to qualify for a claim. As you can see, the policy language did tighten up but based on all the claims review, it did not keep as many people from going on claim as what was originally thought.
However, the tax benefits to these plans outweighed the perceived claim qualification limitations, in most cases. A QLTCI policy not only gives your client the ability to deduct QLTCI premiums from their personal or corporate taxes but it also guarantees that any benefit paid under $300 per day (in tax year 2011), will not be taxed as income. The tax benefits available to your clients are really important to note as we have found that many Professional Advisors are not entirely aware of what these benefits are.
- Do carriers offer discounts for married couples?
Yes! Most Long Term Care Insurance policies provide discounts when both husband and wife apply for coverage. The discount can be as high as 40% of the combined premiums.
- What if your client misses a premium payment…will they lose their coverage?
Long Term Care Insurance policies usually provide a 31 day Grace Period. This means that if your client does not pay their premium when it is due, they are given 31 days in which to do so. If they do not pay within the allotted 31 days, they would be required to apply for reinstatement for continued coverage. Should the company choose to not approve their reinstatement application, they would lose their coverage (unless they had elected a non-forfeiture benefit option). However, if your failure to pay is due to a cognitive impairment, you may have 180 days in which to pay all back premiums. Carriers have implemented a third party notification option at no additional cost so that should your client be in danger of lapsing their policy, the third party would be notified so that a premium payment can be arranged before the lapse.
- How much should your client expect to pay for Long Term Care Insurance?
Prices for Long Term Care Insurance vary widely, but our rule of thumb is the cost shouldn’t be any greater than 5% to 7% of your client’s entire asset base, unless your client decides to opt for a limited pay policy. As an example, if your client has %1 million in assets, they could expect to pay premiums that are around the $5,000 to $7,000 range (for a couple). However, there are always exceptions to this rule of thumb.
That being said, a Professional Advisor will help his or her clients budget properly for this type of expense. In other words, this type of expense should not be paid out of your client’s regular monthly budget. The premiums should either be paid out of an HSA, by your client’s business or from your client’s retirement base.
- I am concerned about my client’s Long Term Care Insurance policy premiums increasing?
Much has been said about carriers, such as Conseco and Penn Treaty, who have increased their “In Force” policy premiums by as much as 40% or more. Rate increases are very much a reality but bad news always travels faster than good news. Most carriers have gone through a rate increase but of the major carriers who have, the percentage increase has been much lower. It is important to note that, in our opinion, at some point in time all carriers in the Long Term Care Insurance marketplace will go through some percentage increase.
- Which Inflation Option should I recommend to my client?
As mentioned before, Inflation Protection is imperative for your client to have. Inflation Protection increases your client’s Benefit Amount each year to keep up with industry inflation, which will continue to see significant growth due to the population getting older and needing more care.
That being said, our basic “Rule of Thumb” on Inflation Protection is:
- Age 65 & Under: Compound Inflation
- Ages 66 to 70: Compound or Simple Inflation
- Ages 71 to 75: Simple or a low Compound Inflation option
- Ages 76 & Above: take the premium for Inflation and apply it toward the purchase of immediate benefit
- Should your client choose a Group or Individual Long Term Care Insurance policy?
This is a good question but also a little bit of a misnomer. Both product options have their perks. A Group Long Term Care Insurance plan is an - employer sponsored plan where the employer agrees to pay some or all of the premiums. There are also premium discounts given for people who purchase their coverage through the Group offering. In addition, there can be underwriting concessions depending on the size and participation of the Group. Group LTCI can be a relatively inexpensive option but the employer is normally responsible for determining the specific benefits available on the coverage. These plans are not always Guaranteed Renewable, and the employer has the right to change insurers or benefits at any time.
An Individual LTCI Policy allows the insured to choose the type of benefits they need. The insured is responsible for paying 100% of the premiums but they are also in control of what benefits they choose to have covered by the policy. Individual LTCI policies are Guaranteed Renewable for life which means that the policy and your client’s benefits cannot be cancelled by the insurance company. However, there are no policy premium discounts for purchasing coverage (just for good health and having a spouse that applies for coverage) and there are no underwriting concessions for individual coverage either.
- What are the different State tax incentives for purchasing Long Term Care Insurance?
Here is a listing of State QLTCI tax incentives (current as of February 2008):
- How long does it take to get a quote for my client?
First, it is important to understand that we are more than just an agency that provides quotes. In fact, the best way to utilize us is getting us involved in case development, research and implementation. In most cases, we will be able to assist you in uncovering other needs for your client. We will then help you design the proper insurance protection plan for that client.
So, as long as you provide us with the appropriate information when you request the quote, we will turn your quote around within the next 24 hours. Our Long Term Care Insurance Quote Request form has a listing of the information we need from you to find the right company for your client’s unique need and provide you with a quote.
- How does The Ark Group’s application and new business process work?
- Application is received by The Ark Group via mail
- We review the application and make sure it is complete
- Our application review depends entirely on how well the applications are completed by the advisor
- if application is complete and was received before noon: same day submission to the company - if application is complete but received after noon: the next morning it will submitted to the company - if the application is not complete and was received before noon: same day request for outstanding information from the advisor - if the application is not complete and was received after noon: the next morning we will request outstanding information from the advisor
- Once the application review is complete, we submit the application to the home office
- it usually takes less than 24 hours from receipt to submission of application - many times we get priority processing due to the amount of business we do - if we receive a check with the application, after proper review, we overnight the completed app and check to the company
- We will begin following up on the new business the next week
- When we submit an application to the home office, it usually takes 24 to 48 hours for it to be processed, imaged and ready for the underwriting review team
- The underwriting review team makes sure they have everything they need for the underwriter to review and then places the app into queue
- From the time we receive an application to the time an underwriter begins reviewing the application is approximately 4 to 6 business days unless the advisor did not complete the application properly
- From time to time, a representative from the insurance company may call your client to confirm their answers on the application. These Phone Interviews usually take around 20 minutes.
- Approximately 7 to 10 business days from when you submitted the application, you will begin receiving weekly emails from our office regarding each of your pending applications
- New Business can take an average of 45 to 60 days in underwriting…just depends on health history, how thorough we are with the application up front and medical records turnaround times
- In our opinion, it is always wise to tell your clients that it will take an average of 45 to 60 days to receive a decision from the underwriter
- now, it isn’t often that it takes this long but we always like to under promise and over deliver - in most cases, it takes less time but we would rather have you underpromise and over deliver to your client.
- We will communicate with you once your New Business is approved. If it is approved with a lesser rating than originally applied for, we are usually able to communicate that with you prior to the file getting issued and mailed. However, some insurance companies issue and mail the policy upon approval and before we have the chance to communicate with you.
- We will continue updating you on your New Business until it is placed “In Force”
- What is underwriting?
Underwriting is the process of selecting applicants by which an insurance company examines specific risk factors by classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The underwriting process includes the possibility of rejection for those risks considered unacceptable. Insurance Companies price their products based on risks they consider acceptable and unacceptable. As such, one company might be more competitive with a particular risk than another. We help you decipher which company will work best for your clients based on their unique situation. Examples of what is considered in evaluating your client’s risk may include:
- Medical Information Bureau (MIB.com)
- How long does underwriting normally take?
New Business can take an average of 45 to 60 days in underwriting from the time we receive all completed paperwork. It depends on your client’s health history and how thorough we are with the application up front. Most of the time spent in underwriting is collecting information (medical records, etc.) so the underwriter makes an informed decision. In our opinion, it is always wise to tell your clients that it will take an average of 45 to 60 days to receive a decision from the underwriter. It isn’t very often that it should take this long but we always like to under promise and over deliver. In most cases, it takes less time but if you provide your client with an underwriting answer in less than 45 days, they will be more impressed than if you told them less time up front.
- What are the usual problems that cause delays in underwriting?
There are a few common factors that can cause delays in the underwriting of your application. As a Professional Advisor, you can help reduce the delay time by providing a high level of detail when you complete the application, ask your client’s to communicate with their physicians to provide their medical records quickly and be respondent to outstanding requirements. Here is a brief list of the most common problems:
- How complete is your client’s application? - If you provide all of the details the insurance company needs up front, it takes us less time to keep coming back to you for clarification on the application. So it is always a good idea to provide a high level of detail when you apply for coverage through one of our companies.
- How long will it take to obtain your client’s medical records? - This probably causes more delays than any other part of the underwriting process. The insurance company generally requests a copy of your client’s medical records from their general physician, a specialist or both. We are all at the mercy of their doctor’s office once the formal request has been made. Sometimes medical records are obtained within a couple days but that is not very normal…especially if your client’s doctor requires a special HIPAA Authorization to release records or is a part of Kaiser Permanente.
- How respondent is the advisor to their pending business? Once our office begins forwarding emails to you regarding your pending business, we suggest you review, respond to requests as necessary and provide us with the outstanding requirement as soon as possible.
- What type of medical exam is required?
There are no paramedical exams required for Long Term Care Insurance. There may be a Phone Interview or an In-Person interview but there are no further medicals required.
- What your client needs to know about the Phone or In Person Interview
1. What kind of questions will be asked?
The examiner will ask your client about medications, surgeries, treatments, and current or previous medical conditions. However, the primary purpose of these interviews is to decipher mental capacity…in other words, your client is being checked for signs of dementia. In addition to the health and mental health questions, they will ask your client for the names and addresses of any doctors your client has seen in the last five to ten years. To speed up the process, your client will want to have this information handy. It is also important that your client answer health questions exactly how they are asked. If an underwriter wants to know something in particular, they will ask about it.
2. How can I best prepare my client for the exam?
Here are some recommendations you will want to make to your client regarding the interview
- It is important for your client to be kind to the interviewer
- If your client can’t hear the interviewer or can’t understand what they are saying, a new interviewer should be requested
- The same questions are asked of everyone applying for coverage
- Get a good night's sleep the night before the exam
- Be prepared to advise the interviewer of all medications they are taking
- Have their physicians’ names, addresses, dates of past visits, names of any prescribed medications (dosage and frequency as well), and any information regarding injury and/or major illness during the previous five years.
- What determines the rate class my client will receive on their application?
In order to receive preferred rates, your client must be in excellent overall health. Each company determines rate classes based on their unique underwriting requirements. Family health history, tobacco use, a history of alcohol abuse or drug use can also affect the rate class your client receives. For underwriting questions regarding a particular client, please contact us for further assistance.
- Your client has early onset Parkinson’s disease. Will they be able to purchase a policy?
Unfortunately the answer for your prospect is “No”. That being said, fortunately for the clients who already own a Long Term Care Insurance policy, the answer is “No”. The goal of the underwriters is not just in evaluating an individual but to protect the In Force block of business. The higher the risks they accept, the more likely for increase in claims, the more likely premiums can increase. We believe that a Long Term Care Insurance policy is not an entitlement, it is an earned benefit. Parkinson’s disease is on the list of impairments that insurers will not accept due to the much higher risk factors for long term claim.
- Will your client have to be examined by a doctor to buy Long Term Care Insurance?
In most instances, the answer is “No”. Your client will either be interviewed over the phone or in person regarding their current health and medical history.
- What happens if the advisor or the client makes a mistake or omission on the application?
We can’t stress how important it really is to be accurate and thorough when completing the application for Long Term Care Insurance. Insurance companies rely on that information to evaluate risk properly and make a profitable decision for their current block of business, the client, the advisor and for the insurance carrier. A misstatement could lead to cancellation of the policy and return of the premiums. Normally, this would take place as a claim is being processed. So it is extremely important to be completely up front with the underwriters and to do everything possible to be thorough and detail oriented.
- What is the significance of "Activities of Daily Living" in a Long Term Care Insurance policy?
The ability to perform Activities of Daily Living (ADLs) is one of the standards for judging whether your client can qualify for their benefit. ADLs include bathing, dressing, eating, toileting, continence and transferring (getting in and out of beds, etc). If your client is unable to perform two of the six listed ADLs without stand by or hands on assistance for a period of at least 90 consecutive days (certification from a physician is required), then your client will most likely be eligible for claim.
Do not confuse Activities of Daily Living with Instrumental Activities of Daily Living. IADLs include preparing one’s own meals, shopping for groceries and personal items, managing one’s money, using the telephone, doing housework and obviously do not require professional assistance like ADLs would. IADLs are not considered in qualification for claims.
- What is a Cognitive Impairment?
A Cognitive Impairment is an organic brain disorder such as Alzheimer's disease. These impairments are characterized by the substantial supervision that a person might need to protect themselves or others because of their loss of memory, orientation or the ability to reason.
- When is your client eligible for Long Term Care Insurance benefits?
All Long Term Care Insurance policies specify the conditions under which benefits are payable. A Claims Service Representative can discuss the requirements of the Insured’s particular policy and ultimately help the Insured and/or their representative understand the conditions under which benefits are payable.
- When should a claim for Long Term Care Insurance benefits be initiated?
Your client or their representative should contact you and the insurance company as soon as Long Term Care services are required or are being received. Once your client has contacted the insurance carrier, they will be given claim paperwork to be completed by them and the client’s physician. That paperwork will be reviewed and medical records will be ordered from the client’s physician to confirm the need for claim. It is important for your client to keep in constant communication with the insurance company and to be detail oriented in their communications. It is also highly recommended that your client document each and every conversation and communication they have with the insurance company’s claim department. Encourage your clients to never assume anything as this is a business of paper and ink.
- What claim forms are required?
Required forms will include carrier specific claim’s paperwork, statements from the Insured, the attending physician, and the actual long term care provider. If the policy provides for reimbursement of expenses incurred for services, bills or invoices will be required as well.
- Is there any information, other than claim forms, needed to make a claim determination?
There may be…further information may be requested at the discretion of the claims department. Once the carrier receives the completed claim forms, it may be necessary for the insurance carrier to obtain additional documentation to make an accurate determination of eligibility for benefits. The additional documentation may include but is not limited to physician and hospital records and care provider notes.
- Who is responsible for reviewing the claim forms?
Each claim is assigned to a Benefit Analyst who works directly with the Insured, their designated representative and a Care Coordinator to complete the claim process. A Benefit Analyst is a professional trained to adjudicate Long term Care Insurance claims.
- What are Care Coordination Services?
Most policies provide a benefit for the services of a Care Coordinator. A Care Coordinator is a Registered Nurse who assists the Insured in finding appropriate care services based on the client’s needs. The Coordinator is assisted by Registered Nurses who work in or near the Insured’s hometown.
- Once a claim is filed, how quickly will it get processed?
It is important to note that each claim is unique and the time it may take to make a benefit determination can vary. We recommend being proactive on behalf of your client which includes communicating with the insurance carrier on a regular basis.
- Will your client need to satisfy an Elimination Period before they file a claim?
No, your client is not required to satisfy their Elimination Period prior to filing a long term care claim. It is highly suggested that Long Term Care Insurance claims get filed as soon as the Insured begins receiving long term care services.
- Will the process of qualifying for claim be very stringent for my client?
In order for your client to receive benefits on their Long Term Care Insurance policy, two of the following three qualifications must be met:
- your client must require assistance with two of six “ADL(s)”; or
- your client must require assistance with “severe cognitive impairment”; and
- a physician must certify in writing that your client will need 90 consecutive days assistance with either the two of six ADLs or severe cognitive impairment
- Does your client get to choose where they receive Long Term Care benefits?
Yes! With a Long Term Care Insurance policy, your client is in control of their Plan of Care. Your client can choose whether they receive care at home or in a facility.
- Will your client’s policy pay benefits for family members who provide care?
Most policies do not pay benefits when family members perform professional home care services. However, there are policies available that will pay family members to provide IADL services.
- Will your client’s Long Term Care Insurance policy pay benefits internationally?
Most policies will pay a benefit if your client moves away from the U.S. However, your client will not have access to all of their benefits for an International claim. Since every carrier is different in how they pay for International claims, you will want to review your client’s policy to make sure you and the client are aware of the specific benefits available, if any.
- Does your client have to be hospitalized before their policy will pay a benefit?
It is very rare to find a hospitalization qualification in a Long Term Care Insurance policy. Prior to Tax Qualified policies and the NAIC claims qualification standardization, there were policies that had many different qualifications, including hospital stays. Most long term care policies issued today do not require a hospital stay.
- Will your client be taxed on their Long Term Care Insurance benefits?
If your client owns a Non-Tax Qualified Long Term Care Insurance policy, they will be given a 1099 at the end of every year any benefit is paid. It is important to note that to date, there has been no taxation of Non-Tax Qualified. For Tax Qualified Long Term Care Insurance, taxation is significantly clearer. Benefits received from Daily or Monthly Reimbursement policies are not taxable. Benefits received from Indemnity policies are also not taxable, except amounts that exceed the insured’s total qualified, long-term care expenses. In other words, any benefit above $300 per day in 2011 could be included as taxable income.
- Can an insurance company refuse to pay a claim?
The only ways a company can refuse to pay a claim is if a person misrepresented themselves on the application for coverage or if the client does not qualify for the claim based on the claim qualification wording in the policy. A Professional Advisor understands that we work in a business of “paper and ink”. A client can count on the benefits made available to them according to the specific language of the policy they purchased. Should their claim be denied, they do have the right to question the denial and either receive further review or request a detailed summary of why their claim was denied. The company may determine that it did not have all of the relevant information or that the claim was denied in error.
- If the Insured disagrees with the claim decision, how can that decision get appealed?
The Insured or their designated legal representative can appeal the claim decision by sending a written request to the carrier Claim Services Department. The written request to review a decision on a claim should also include any additional information that would be pertinent to your client qualifying for the claim. A Claims Specialist will review the appeal, with any and all of the additional information provided, and will notify the Insured, in writing, of the carrier’s decision sometime within 60 days of receiving the appeal. If special circumstances require additional time for our review, the Insured will be notified.
- My question is not listed, who do I contact at The Ark Group?
If you have already reviewed our list of the most Frequently Asked Questions and you did not find the answer you were looking for, please contact us. Our agency is open from 8:30am to 5:30pm CST Monday through Thursday and 8:30am to 5pm CST on Fridays.
The Ark Group
1055 N. 115th St, Ste 200
Omaha, NE 68154
Toll Free: 866-725-0777