Understanding LTCI: 3 Basic Components
If you’re reading this article, you know long term care insurance (LTCI) is important. For many people it can be confusing, but it doesn’t have to be. So let’s break it down. In any LTCI policy the 3 key components are how much, how soon, and how long.
When planning for a long-term care (LTC) event and deciding how much coverage to buy on an LTC policy, how much refers to the amount of money that will pay out of your policy. This benefit will grow over time depending on which inflation protection you buy.
This can be broken down even further. There are two parts to how much. There’s the benefit amount and the inflation protection. For the benefit amount you can choose daily or monthly. A daily maximum amount of reimbursement or a monthly maximum. Deciding on these amounts can seem overwhelming. To get a good idea what LTC costs in your area visit our Cost of Care Map. After you’ve chosen your benefit amount, you’ll choose your inflation option. Here are a few:
- Guaranteed Purchase Option (GPO) or Future Purchase Option (FPO) – additional benefits offered at set times
- Simple – yearly set dollar amount
- Compound – Compounding yearly
- Other innovative solutions – as the industry evolves carriers come up with more options
The next component to your LTCI is how soon you will be paid benefits once an LTC event starts. For LTCI this is called an elimination period, but it’s easiest to think of this as a waiting period or a deductible like your health insurance. During this time, you are responsible for paying for any care you receive.
There are two types of elimination periods, Calendar Day and Service Day. Calendar Day begins on the first day of care, and your policy will begin paying after a certain number of days. Service Day, the less expensive option, only counts days when you receive care. Your policy would begin paying after a certain number of days where you received care. The most common elimination period is 90 days.
When considering your elimination period, try to consider how much you’ll be able to afford out of pocket before your benefits begin.
"When considering your elimination period, try to consider how much you’ll be able to afford out of pocket before your benefits begin."
The final component to consider is how long, meaning how long your benefits pay out. This is decided by a number of years or a total pool of benefits you receive. This can range from 1 year to 8 years or $50k to over a million dollars in coverage.
Your pool of money is determined by multiplying your maximum daily or monthly benefit by your benefit period. Depending on how much you use each month, could mean your pool lasts longer. Most people choose around 3 years.
LTC doesn’t have to be complicated, but it does have a lot of moving parts. If you still have some questions, speak to a specialist and find out if LTCI is right for you.