Sabtu, 06 November 2010
"short And Fat" Ltc Policies Beat "long And Skinny" Ones
Long term care insurance policies have an important component called a benefit period which greatly affectspremium costs. This article discusses what I call "Short and Fat vs. Long and Skinny LTC Policies".
That is right -- Short and Fat LTC policies! So what is a benefit period anyway?
The benefit period is the number of years that ONCE you go on claim (need help in bathing and dressing or have some cognitive impairment (Alzheimer's or similar ailment) that the insurance company will pay the daily or monthly benefit that you chose when you applied for the policy.
So if you bought a benefit period of say 5 years, once you qualified for benefits, and satisfied the deductible (how many days of care that you need to pay out of pocket), the insurance company will pay those benefits for a maximum of 5 years in this case.
The benefit period, whether a set number of years, say 6 years for example or unlimited years are the MAXIMUM amount of time, if you used your FULL chosen daily or monthly benefit that your policy would pay on a claim.
If you had Alzheimer's for 9 years, the policy benefits would have been exhausted after those 5 years and you would be paying for the last four years from your own money.
Most insurance companies have a number of benefit periods to choose from. Typically they are 2, 3, 4, 5, 6, 7, or 10 years OR an Unlimited benefit period (say you went on claim for 35 years due to being in a wheelchair or something).
Most LTC policies have at least four or five different benefits periods from the above choices which you can choose from for your policy.
The benefit period, whether a set number of years, say 4 years for example or unlimited years are the MAXIMUM amount of time, if you used your FULL chosen daily or monthly benefit that your policy would pay on a claim.
Now for the "Short and Fat" part...
Long ago there wasn't too much difference in the premium prices for a 5 year benefit period compared to an Unlimited policy. So since there wasn't much of a cost difference, many clients chose the Unlimited benefit to protect against a HUGE potential disaster of needing help in bathing/dressing, etc. for DECADES -- not just a few years.
But today, there is a much larger difference in the premium prices for unlimited. So what to do?
First of all let me say that one of the largest LTC insurance companies has statistics that show that only 11% of their claims last longer than five years. Of course this means that about 90% of the claims last shorter than five years. So the odds are very much in favor of never needing a policy that would pay unlimited years.
So compared with a policy that offers an Unlimited benefit period, you can get a much higher daily/monthly dollar benefit that you are MUCH more likely to actually use and benefit from. Any unused dollar benefits will extend the number of years of your benefit period and not be lost.
Also you are much more likely to use a higher dollar amount for 2-4 years than having to pay extra money out of your pocket during care with a benefit period that is probably never going to be reached.
But... if you are pretty young (30-55) an Unlimited policy still might be a choice to look at. Older ages will find Unlimited years of benefits very expensive and there is likely a better way to structure a policy.
So knowing the above statistics, would it make more sense to you to have a Short and Fat policy (one with a larger daily or monthly dollar benefit for a shorter period of time)verses... a smaller daily or monthly dollar benefit for a longer period of years?
I'd put my money on Short and Fat!!
So if you would normally consider a policy that pays $150 per day for 7, 10 years or an Unlimited benefit period... you MIGHT seriously consider a policy that would pay $180-$200 per day for three to five years instead.
No sense in paying money out of pocket during the 3-5 years you are most likely to remain on claim.
Keep in mind that in 20 or 30 years the compounded inflation policy rider will work in your favor by giving you much more purchasing power to pay for care by starting out with a bigger initial benefit!
The odds are pretty good that the insurance company will pay more out for your care under these conditions.