Frequently Asked Questions

If you die or suffer a loss while insured for Life Insurance under the Policy, we will pay the benefit to your Beneficiary according to the terms of the Policy after we receive satisfactory proof of death or loss.

You must apply for the Policy when required, be an Eligible Person, and be a member of the defined Eligible Class.

You may elect optional coverage up to 5 times your annualized earnings rounded to the nearest $1,000, up to a ceiling of $500,000. Additional coverage for your spouse is also available, as covered below.

If you are applying for coverage in excess of the Guaranteed Standard Issue amount, or if you are applying under Late Enrollment, or if you are applying for reinstatement after your coverage has ended, you will be required to provide Evidence of Insurability. We may require you to have a physical examination depending on several factors including the amount of coverage you elect.

Yes, employees pay towards the cost of the insurance premium.

In most states, these policies are portable.  If your Optional Life Insurance ends because your job with the Employer ends, or your job changes so that you are no longer in the Eligible Class, for example, you may continue your Optional coverage by making the election for portability within 31 days from the date your coverage ended.  If you make this election, your continued coverage will be covered by the terms of the Group Life Portability Policy, and the premiums will be at the rate then in force for the group premium rate.  Information is available from your Employer on the benefit features and pricing of this coverage.

Any portion of your coverage that you do not elect for the portability feature may be converted to an individual policy according to the Conversion Privilege.

The Conversion Privilege permits you to keep your Employee Life insurance in the following situations:

  • Your employment ends;
  • You leave the Eligible Class;
  • The Policy ends or there is a change in the Eligible Class, under certain other specified conditions; or
  • Your Policy was being continued because of a disability and the continuation ceases and you have not returned to work as an active employee.

Application must be made within 31 days after the group insurance ends. The converted policy is an individual policy, written on any form we then issue for the amount chosen, except term insurance. Waiver of premium, accidental death, or other optional provisions or riders are not available under the individual policy.

If you become Totally Disabled before age 60 while insured under the Policy, your Employee insurance will be continued without further payment of premium.  You must pay the premiums until your Totally Disability is approved.  To be considered Totally Disabled, you must:

  • Be unable to perform the material duties of your own occupation on a full-time or part-time basis because of an injury or sickness;
  • Not work at all in any occupation; and
  • Be under a physician’s care.

Yes, you may choose to continue your and your spouse’s coverage during a Family and Medical Leave.

If you choose to continue the coverage during the leave, the required contributions must be paid to your Employer, any changes in benefits that occur during the continuation period will apply on the effective date of the change, any Active Work or hospital confinement period will be waived, and the continuation during the Family and Medical Leave will run concurrently with a continuation during any other leave of absence.

If you choose not to continue your coverage, coverage will resume without your providing Evidence of Insurability if you return to work immediately after the Leave ends.

Family and Medical Leave means a leave of absence as defined by the Family and Medical Leave Act of 1993 or any state-mandated family and medical leave act or law.

Yes, in the event of a Terminal Illness expected to result in death within 12 months, you may receive the lesser of 50% of the Life Benefit or $250,000, provided that you have at least $10,000 of life insurance. Because you may have to pay tax on this Living Benefit, you should consult with your tax adviser before requesting this benefit.

You have the option of insuring your spouse’s life for 10%, 20%, 30%, 40% or 50% of the supplemental coverage you elected, rounded to the nearest $1,000, with a ceiling of $250,000.

If you elect coverage in excess of the Guaranteed Standard Issue limit, your spouse may have to provide Evidence of Insurability, part of which may include a physical exam.

In most states, these policies are portable. If your Optional Life Insurance ends because your job with the Employer ends, or your job changes so that you are no longer in the Eligible Class, for example, you may continue your Optional coverage by making the election for portability within 31 days from the date your coverage ended. Any portion of the spousal life insurance benefit may be continued under portability with a minimum of $10,000 coverage to a maximum of the lesser of the plan maximum or a total of $500,000 for all policies with Provident.

Yes, in the event of your spouse’s Terminal Illness expected to result in death within 12 months, you may apply to receive a portion of the life insurance benefit while your spouse is still alive, up to 50% of life benefit with a maximum payment of $125,000, if your spouse has at least $10,000 of life insurance coverage. Because you may have to pay tax on this Living Benefit, you should consult with your tax advisor before requesting this benefit.

You may elect an Accidental Death and Dismemberment (AD&D) policy in amounts of up to five times your annual earnings, rounded to the nearest $1,000, up to a ceiling of $500,000. This coverage is referred to as the Principal Sum. If you suffer a Loss due to Accidental Injury while insured for AD&D, we will pay the benefit to your named Beneficiary.

The AD&D benefit is a percentage of the Principal Sum based on the type of Loss as shown below:

Accidental Loss Of Percentage of Principal Sum
Life 100%
Both hands or both feet or sight of both eyes 100%
One hand and one foot 100%
Either hand or foot and sight of one eye 100%
One hand or one foot 50%
Sight of one eye 50%
Speech and hearing 100%
Paraplegia, quadriplegia, or hemiplegia 100%
Maximum any one accident 100%

The Loss must occur within 365 days of the accident.

Yes, employees pay towards the cost of the insurance premium.

Yes. This Policy includes a Seat Belt Benefit of an additional 10% of the AD&D benefit otherwise payable not exceeding $10,000, for those covered Losses resulting from automobile accidents while wearing a seat belt, subject to certain terms and conditions as described in your Insurance Certificate.

This Policy also provides for an Education Benefit of an additional 5% of the AD&D benefit otherwise payable, to be paid to a Qualified Student, defined as a spouse or child who at the time of your death was a full-time post high school student in a school of higher learning.

Like your Life Insurance policy, this policy is portable in most states. Similarly, the new policy will be governed by the terms of the Group Life Portability Policy, at the rates then in force. This AD&D coverage is not available for conversion to an individual policy

Yes.  You may elect optional coverage of 10%, 20%, 30%, 40% or 50% of the supplemental coverage you elected, rounded to the nearest $1,000, to a ceiling of $250,000.

The benefits follow the same schedule as your own AD&D policy, and also include the Seat Belt benefit. The spousal AD&D policy benefits do not include the Education Benefit, and all benefits will be paid to you, rather than any other named beneficiary. Unlike your own AD&D policy, the spousal coverage is not portable.

Loss is defined as:

  1. Loss of a hand means total severance at or above the wrist;
  2. Loss of a foot means total severance at or above the ankle joint;
  3. Loss of sight, speech, or hearing means the entire and irrevocable loss of the function;
  4. Loss of thumb and index finger means total severance of each at or above the joint closest to the wrist, without loss of the entire hand;
  5. Loss of use of hands or feet means total and irrevocable loss of voluntary movement;
  6. Total paralysis of both arms and legs for quadriplegia;
  7. Total paralysis of both legs for paraplegia;
  8. Total paralysis of the arm and leg on the same side of the body for hemiplegia.
     

Benefits are not paid for Losses caused directly or indirectly, wholly or partly by:

  1. Physical or mental disease, pregnancy, hernia, or ptomaine;
  2. Medical or surgical treatment, except surgical treatment required by the accident and performed within 90 days of the accident;
  3. Infections, except those occurring through a wound at the time of the accident;
  4. Suicide or intentionally self-inflicted injury, whether sane or not;
  5. War or act of war, declared or not, civil or international;
  6. Injury while riding in any aircraft not licensed to carry passengers or not operated by a duly licensed pilot;
  7. Injury while acting as a pilot, student pilot, crew member, flight instructor, or examiner on any aircraft;
  8. Committing, or attempting to commit, an assault, felony or any criminal offense, or active participation in a riot;
  9. Voluntary use of any controlled substance as defined by statute, unless used as directed by a physician;
  10. Operation by the insured of a automobile or boat if at the time of injury, the insured’s blood alcohol concentration exceeded the legal limit; or
  11. Overdose of any medication if not taken as prescribed by a physician.
     

Employee Disability Insurance is designed to provide income replacement to protect you and your family from financial hardship in the event you are unable to work at full capacity due to injury or sickness. The Executive Disability Program is comprised of three elements:

  • Short Term Disability, an elective coverage which commences on the 14th day after the disability and continuing to the 180th day of disability;
  • Long Term Disability, for disability extending over 180 days, that provides eligible executives 60% of their base pay up to a maximum monthly benefit ceiling; and
  • Executive Buy Up, whereby eligible executives may exercise the option of increasing the level of their long-term disability insurance coverage from 60% of their base salary to 80% of their total income, up to a maximum monthly benefit ceiling.

Most Americans have a greater chance of becoming disabled before retirement than of dying. Nearly 15% of the population aged 22-44 is disabled, and of those severely disabled, 54.2% are between the ages of 22-64.1 The employment rates and earning power are reduced substantially among these groups. Advances in modern medicine have resulted in declines in death rates, while chronic long term disability increased over the same period. 48% of all home foreclosures are the result of disability, while only 3% of all foreclosures are related to deaths.2

1 McNeil, J. M. “Americans with Disabilities: 1994-95.” U.S. Department of Commerce Economics and Statistics Administration. P70-61 (August 1997): 2, 3. figure 2. Internet. June 13, 2000. Available: http://www.sipp.census.gov/sipp/pubsmain.htm
2 Housing and Home Finance Agency, U.S. Government

Disability insurance is protection against lost earnings as a result of accident or illness; while health insurance covers direct medical and hospital costs, disability insurance covers the need to protect income to maintain one’s family during the period of recuperation and to sustain additional expenses.  If a disability last longer than 90 days, the average length of the disability is over two years.  Few people have savings sufficient to protect their homes and families’ needs over that period of time in the pre-disability standard of living. 

Average Length of Disability if Disability Lasts Over 90 Days1
Age 25 2.1 years
Age 35 2.8 years
Age 45 3.2 years
Age 55 2.6 years
1 UNUM

You should plan on replacing as much of your net income as possible if you can afford the additional coverage. Although work-related expenses and income taxes may be decreased as a result of the disability, unreimbursed or uninsured medical and rehabilitative expenses can be anticipated to increase. And all the while, the usual basic living expenses and family support needs continue.

The total amount of the benefits you receive cannot exceed approximately 80% of your usual net income, so that you are not encouraged to remain disabled rather than returning to work.

This policy is guaranteed renewable, which means that the insurance carrier may not change your benefits.

Frequently, insurers offer as optional coverage, cost-of-living allowance (COLA) coverage, inflation increase benefit coverage, or an additional purchase benefit, permitting the purchase of additional insurance, subject to financial insurability. Others insurers provide automatic increase benefits, which provide for increases in benefits without annually increases a policy owner’s monthly benefit without evidence of either medical or financial insurability. Check out the various kinds of policies.

Coverage will continue without payment of premiums while monthly benefits are payable.

Built into some policies, available as an option with others, this benefit is called a residual disability benefit, which pays the insured a portion of the total disability benefit after a return to work based on the level of disability, or in some policies, based on the percentage of income lost due to the disability. For example, if after rehabilitation and therapy, you were able to perform some 70% of your job duties, you would be eligible for 30% of your disability benefit.

These are to be distinguished from recovery benefits, which provide for partial payment of benefits after a person has returned to work after a long term disability, until his or her earnings have been restored to pre-disability levels, even though he or she is fully recovered and no longer disabled in any way.

Recovery benefits, featured in some policies, provide for partial payment of benefits after a person has returned to work after a long term disability, until his or her earnings have been restored to pre-disability levels while the insured is re-establishing a client or customer base. This feature is particularly valuable to those engaged in professional practices and to those whose compensation is heavily incentive-based.

Suppose I have a disability that prevents me returning to my former occupation. Must I return to any occupation? Are expenses for rehabilitation covered?

Coverage can vary. Some insurers will permit the insured to choose whether to return to work if he or she cannot return to the former occupation. Additionally, some insurance policies will provide for rehabilitation or retraining expense coverage in addition to the regular benefits, under certain terms and conditions.

Own occupation” refers to the occupation in which you worked at the time of the disability; this term should always be distinguished from “regular occupation, ” which is interpreted to mean the occupation you had at the time of the disabling event until you have received 24 months of benefits due to the same disability—after those 24 months, “regular occupation” means any gainful occupation for which you are reasonably fitted by training, education or experience, whether or not that gainful occupation yields earnings commensurate with pre-disability levels. If you are not employed at the beginning of a disability, regular occupation means any gainful occupation for which you are reasonably fitted by training, education or experience.

If you become disabled during the period of time for which you purchased benefits, you will be covered for the income protection level you elected at the time of the policy purchase. Calculations for residual benefits will be based on your ability to perform those activities that you had been able to do prior to the disabling event.

The answer depends on the source and nature of the funds used to pay the insurance premiums. If you paid for the premiums with after-tax dollars, then you should receive the disability benefits tax-free. If you paid for the premiums with pre-tax dollars, then the benefits are generally taxable to you, as are benefits paid for by your employer. You should consult with your tax advisor about tax treatment of any disability insurance that you have and/or are considering purchasing.

To be eligible for coverage, you must apply under this Policy, and be an Eligible Person of an Eligible Class. The Eligible Class is defined in your Schedule of Insurance; an Eligible Person is:

  • An Employee Actively at Work for the Employer;
  • Regularly scheduled to work at least 30 hours per week;
  • A citizen or legal resident of the United States, its territories, or Canada;
  • Not a temporary or seasonal employee;
  • And not a full-time member of the armed forces of any country.

To be a Covered Person, you must be an Eligible Person, accepted for coverage under the Policy, make premium payments when they become due, complete the Eligibility Waiting Period, and fulfill the Actively at Work requirements and any Evidence of Insurability required.

If you are applying for coverage under Late Enrollment, you are required to provide Evidence of Insurability, which may include a physical examination if required by us, as will be required as well should you apply for reinstatement, or if you were not covered under the prior plan. Evidence of insurability will not be required for employees returning from a Family or Medical Leave.

Your monthly benefit amount is the calculation of your earnings multiplied by the Benefit Percentage (66 2/3rds% of your basic monthly earnings), to a stated maximum, before Benefit Offsets. Benefit Offsets are those amounts to which you are eligible through Workers’ Compensation, any state disability income program, any state unemployment benefit law, and similar programs, as applicable.

Yes. There is a Proportional Return to Work benefit, that restores your earnings to the pre-disability level for the first 24 months after your return to work, and on a formula basis after that time for the duration of the Maximum Benefit Period.

This is an “own occupation” policy, covering disability when you cannot perform the substantial and material duties of the occupation you were routinely performing prior to the disabling event.

If you return temporarily to active work, the allowable period of a temporary return is 12 months, and if you become disabled again within that period, the prior days of disability will apply towards satisfying the elimination period, and your disability will be considered a continuation of the benefit period.

If you die while LTD benefits are payable, the policy provides for a Survivor Benefit Amount as shown in your Schedule of Insurance, presently 6 times the Monthly Benefit Amount, to be paid to your surviving spouse; to your surviving children if you have no surviving spouse; or to your estate if you have no surviving children.

After you have been disabled and received LTD benefits for 12 months, your Monthly Benefit Amount will receive a Cost of Living Adjustment as shown on the Schedule of Insurance on each anniversary of the date LTD benefits began.

The elimination period, or the time you must be disabled, is 90 days. Claims should be filed on the insurer’s forms, and Proof of Loss should be filed within 90 days after the satisfaction of the elimination period.

Your coverage will continue without payment of premiums while LTD Monthly Benefits are payable. Your status as a Covered Person will continue while you are disabled, during any Lay-Off Period or Leave of Absence Period shown in your Schedule of Insurance, during the first six months of a labor dispute or strike, or while you are on a leave of absence under any state or federally mandated family or medical leave act.

Generally, if your age at disability is under 61, benefits will be paid to age 65; at age 61, the duration of benefits is graded according to the information provided in your Schedule of Insurance. However, 24 months of benefits only are provided for those disabilities arising from Mental and Nervous Disorders, or from Drug and Alcohol Disorders. Your Schedule of Insurance describes these limitations in greater detail.

No benefits will be payable for disabilities caused by war or any act of war, declared or undeclared, civil or international, or any substantial armed conflict between organized forces of a military nature; nor during periods of incarceration exceeding 90 days; nor for pre-existing conditions that existed in the three months prior to the effective date of the coverage.

Long term care is the assistance required by an individual who has a chronic illness or disability that leaves him or her unable to care for him- or herself for an extended period of time. Frequently, one receives long term care after one recovers. As much as possible from an accident or illness. Long term care may be provided in a residential care facility (e.g., an assisted living facility, a skilled nursing facility), an adult day care facility, or the individual’s own home. Such care includes both skilled nursing care and custodial care, and may be required by individuals of any age.

A survey of the caregiving members of the National Family Caregivers Association, performed in 1997, revealed the following1:

  • 61% of survey respondents spent 40 or more hours per week in caregiving activities.
  • 87% had been giving care for 3 years or more, and 28% had been giving care for 11 years or more.
  • 25% of caregivers expect to continue in this role for less than 5 more years; 31% expect to continue for five to ten more years; and 44% expect to give care for 11 or more additional years.

According to a study published in June 1997 by the National Alliance for Caregiving, 51.8% of caregivers were employed full-time and 12.3% were employed part-time. Only 35.6% were either retired or not employed.2 Clearly, the demands of caring for a family member will take their toll, no matter how willing you are to provide such care!

1 “Member Survey 1997: A Profile of Caregivers.” National Family Caregiving Association. n.pag. Internet. June 9, 2000. Available: http://www.nfcacares.org.
2 “Family Caregiving in the U.S.: Findings from a National Survey.” n.p.: National Alliance for Caregiving and the American Association of Retired Persons, 1997. 10. Internet. June 9, 2000. Available: http://www.caregiving.org/content/repsprods.asp.

Some of the most significant costs of providing home-based care cannot be measured in dollars; for example, consider the following statistics from the National Alliance for Caregiving1:

  • 25% of all caregivers say that they experience caregiving as emotionally stressful, while 15% report suffering physical or mental health problems as a result of caregiving.
  • 43% of caregivers report that caregiving has left them with less time for other family members than before.
  • 43% report having to give up vacations, hobbies, and other personal activities.
  • 49% of family caregivers who also worked reported having to change their work schedule to provide care (e.g., go in late, leave early, take time off during the work day), and 6% gave up work entirely.

Furthermore, it is estimated that the cost to business of caregiving in terms of lost productivity is between $11.4 and $29 billion per year.2

1 Family Caregiving in the U S.” 23, 22, 22, and 33, respectively.10. Internet.June 9, 2000. Available: http://www.caregiving.org/content/repsprods.asp.
2 “The MetLife Study of Employer Costs for Working Caregivers.” Metropolitan Life Insurance Company, 1997. 7. Internet. June 9, 2000. Available: http://www.caregiving.org/content/repsprods.asp.

Unless you have a net worth in excess of $5 million, chances are you should buy long term care insurance coverage. Costs for long term care can be significant, and statistics show that of 9.3 million Americans receiving assistance with activities of daily living or instrumental activities of daily living, 77% have been receiving care for more than one year and of that number, 29% have been receiving care for more than 5 years.1

By purchasing long term care insurance, you accomplish four key objectives:

  1. You provide yourself with greater control over how and where you will receive care. You are not limited by the options available through Medicaid.
  2. You reduce your dependency on family members, and avoid becoming a burden to them.
  3. You preserve your assets – very important if you will recover from this disability, or if you have a surviving spouse.
  4. You increase the likelihood that all of your needs will for assistance will be met. A government study found that “lacking the necessary assistance with ADLs, approximately one half of those in need experienced a serious negative consequence such as burns from bath water, weight loss, or being chair- or bed-bound.2

1 “Americans with Disabilities: 1994-1995. U.S. Census Bureau. Washington, DC:1997 Table 12. Internet. June 9, 2000. Available: http://www.census.gov/hhes/www/disable/sipp/disab9495/ds94t12.html
2 Health, United States, 1999 with Health and Aging Chartbook.” National Center for Health Statistics. Hyattsville, Maryland. 1999. 60.

A Long Term Care benefit will be paid to you if you become disabled according to the policy schedule. The amount of the monthly payment will depend upon:

  • The Long Term Care plan of coverage you choose;
  • Any options you choose; and
  • The place of residence used for long term care.

Plans of this category are designed to provide coverage for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital, such as in a nursing home, in the community, or in the home.

You are eligible for a monthly benefit if you are assessed as suffering a covered loss of functional capacity and are unable to perform two or more Activities of Daily Living (ADLs) or cognitive impairment. You must be under the regular care of a physician according to the condition.

When you elect the Simple Growth Inflation Protection Option, your coverage will be increased by 5% of your initial amount on the January 1st following your enrollment, and each subsequent January 1st until your total amount of coverage is 200% of your initial coverage.

You may also apply for additional coverage at any time, by completing an Application for Long Term Care Application and providing Evidence of Insurability.

When you apply for additional coverage, with the Simple Growth Inflation Protection Option, your additional coverage will also be increased by 5% of the additional amount each subsequent January 1st.

The Lifetime Maximum Amount is the maximum amount the insurance company will pay you for all the long term care benefits. You have your own Lifetime Maximum Amount. It is shown in the Schedule of Benefits, and may be adjusted to include inflation option increases, if applicable.

To qualify for long term care insurance you must be able to answer “no” to all the following four questions:

  1. Do you use mechanical devices, such as:  a wheelchair, walker, quad cane, crutches, hospital bed, dialysis machine, oxygen, or stairlift?
  2. Do you currently need or receive help in doing any of the following: bathing; eating; dressing; toileting; transferring; maintaining continence?
  3. Do you currently have, or have you ever had a diagnosis for or symptoms of: (a) Alzheimer’s disease, dementia, loss of memory, or organic brain syndrome? Or (b) multiple sclerosis, muscular dystrophy, ALS (Lou Gehrig’s Disease) or Parkinson’s Disease?
  4. Have you been diagnosed or treated by a member of the medical profession for AIDS or the HIV+?

If any of these questions is answered “yes,” coverage is automatically denied.

Beyond these four questions, the long term care insurance application asks approximately 20 questions regarding the applicant’s medical profile and health history. Depending on Unum’s assessment of the applicant’s responses and (possibly) review of a statement from the applicant’s personal physician, coverage may be rated (i.e., premiums may cost more) or coverage may be declined.

No. Medical underwriting is based on your responses to approximately 24 questions regarding your medical profile and health history. In addition, Unum may contact your personal physician to obtain copies of your medical records.

If you are over age 70, you will also be required to complete a personal interview with a representative of the Company. This interview will relate to your medical history and will include a test of cognitive function.

Persons who may be eligible for the plan are active Employees and their family members. An active Employee is a person working on a full-time basis for regularly paid earnings, for a minimum of 30 hours per week, and the Employer’s usual place of business or at a location to which the person is required to travel. Temporary or seasonal employees are not included.

A family member means the spouse of an active Employee, the natural, adoptive or step-parents or grandparents of an active Employee, the natural, adoptive or step-siblings of an active Employee and his or her spouse, or the natural, adoptive, or step-children of an active Employee and his or her spouse. To be eligible for coverage, a family member must be between the ages of 18 and 80.

For Employees: after the Employee has completed the Waiting Period, the Employee may apply for the first 30 days (a period called the First Enrollment Period) without Evidence of Insurability. After the First Enrollment Period, the Employee may apply at any time, with Evidence of Insurability.

For the Employee’s spouse, and for Family Members: the Employee’s spouse and the Family Members may apply any time after the Waiting Period, with Evidence of Insurability.

The appropriate Benefit Election forms are available from your Plan Administrator.

Evidence of Insurability includes the information you supply on the Application for Long Term Care Insurance, and may include proof of your medical history, test results, medical exams, physicians’ statements. The insurance company may also require an insurability assessment, and will use all this information to determine whether to approve or deny an Application.

An insurability assessment means a review done by the insurer or its representative to help to evaluate your cognitive and functional status. It may be by telephone and/or an in-person interview at a location selected by the insurer or its representative.

For active Employees, coverage begins on the latest of the Plan effective date, on the first day of the month that occurs on or after the month in which you became eligible for coverage, or the first day of the month occurring on or after the date you applied for coverage. You will not have coverage if you are absent from work because you are injured, sick, temporarily laid off, or on leave of absence when coverage would ordinarily begin. Coverage will resume when you resume active employment.

For Family Members, coverage commences on the later of the Plan effective date, or on the first day of the month following the date the insurance company approves your Application. Family Members will not have coverage if totally disabled on the date coverage would ordinarily begin. For these purposes, Total Disability is the inability due to injury or sickness, to perform each of the duties or activities of a person of the same age and sex in good health.

  • The date the Summary of Benefits under the Policy ends;
  • The date you no longer are in an Eligible Class;
  • The date your class no longer is included for insurance;
  • The date your total benefit payments equal your Lifetime Maximum Amount;
  • The end of the period for which premiums were last remitted to the insurance company for your coverage;
  • The date you no longer are an active Employee with the company; or
  • You die.

This Group Long Term Care coverage is portable, meaning that you or your authorized representative may elect to continue your coverage on a direct billing basis, and to be paid directly to the insurance company. You may not elect portable coverage if you had chosen to premium payments stopped for your Group coverage. An election for portable coverage must be made within 31 days after the end of the Group coverage. The premium rate schedule and benefit levels will be those in then in force at the time of the election for portability.

Yes. You may apply for changes in coverage at any time, including after election for portable coverage, by completing an Application for Long Term Care which includes Evidence of Insurability.

If you are disabled at the time your coverage would become effective, you will not have coverage until you have resumed active Employment.

If you become disabled and your coverage terminates because of nonpayment of premium, you may request reinstatement of coverage up until five months after the termination date by providing proof that your disability occurred prior to the coverage termination date, and you must pay all unpaid premiums.

Premium payments are waived during the time in which you are receiving benefits and residing in a Long Term Care Facility, in an Assisted Living Facility, or when you are receiving benefits for Total Home Care.

While you continue to have a disability, the Insurer may suggest alternate care designed to help you regain the ability to engage independently in the activities of daily living or to regain cognitive function. Examples may include a rehabilitation program, home modifications for wheelchair access, or certain types of medical equipment or hardware purchases. The terms of such alternate care and the actual expenses will be subject to mutual written agreement, and the Insurer may pay reasonable expenses which are not otherwise payable by Medicare or other insurance. Such alternate care is not mandatory, and if you choose not to accept alternate care, your benefits will continue according to the provisions of your Schedule of Benefits.

The insurer will not cover you for pre-existing conditions. Other exclusions are:

  • Disabilities caused by war, declared or not, or any act of war;
  • Disabilities caused by attempted suicide, whether sane or insane, or other acts of self-destruction;
  • Disabilities caused by commission of a crime for which you have been convicted under state or federal law, or the attempt to commit a crime under state or federal law.
  • Disabilities or confinements when you are outside the United States, its territories or possessions for a period of over 30 days;
  • Any days over 15 days in a calendar year during which you are confined to an acute care facility (acute care is medical care obtained as a result of a sickness or injury requiring immediate medical intervention);
  • Disabilities caused by voluntary use of any controlled substance as defined by law, unless as prescribed by a physician; or • Disabilities caused by psychological or psychiatric conditions which include:
  • Depression;
  • Generalized anxiety disorders;
  • Schizophrenia; or
  • Manic depressive disorders,

whether treated by drugs, counseling, or other forms of therapy. However, the Policy will make payments for conditions that are not psychological or psychiatric in nature, including Alzheimer’s disease, multi-infarct dementia, or Parkinson’s disease.

Disability insurance is an income protection policy that pays a monthly benefit to the policy owner in the event of an accident or sickness to help replace lost earnings. There are two main types of coverage: short term disability (STD) coverage, often provided as part of an employee benefits package to provide for the early part of a disability; and long term disability (LTD) coverage, which may be part of an employee benefits package or purchased individually, and which helps to replace income for an extended period of time.

This will vary from policy to policy. Some policies contracts provide coverage only for “total and permanent” disabilities; others, for “partial;” and yet others, for “temporary” disabilities.

This definition will vary from policy to policy as well. A policy may cover the inability to perform the usual and customary duties of the insured’s “own occupation,” or what the insured was doing at the time of the disability. Others will define total disability as the inability to perform the duties of any occupation; and yet others may define the disability in terms of the lost income.

Some policies cover only accidental injury, and do not cover illness. Others protect loss of income due to injury or sickness, and may provide benefits for disabilities due to complications of pregnancy or childbirth. In some circumstances, a person may be presumed to be totally disabled whether or not he or she is able to work or whether he or she is under a physician’s care, as when a person has lost the use of his or her sight or hearing, or the use of both hands, for example, and in other circumstances as specified in the policy.

Generally, pre-existing conditions will be excluded, as well as disabilities caused by any act or accident of war, or disabilities during periods of time during which the insured is incarcerated. Policies vary as well, excluding self-inflicted injuries and some injuries caused by substance abuse. Disability as part of normal pregnancy and childbirth is generally excluded, although complications arising from pregnancy and childbirth may be covered. It is important to check individual policy provisions. Some policies are guaranteed standard issue, which means the insurance carrier will provide coverage regardless of any pre-existing medical condition.

Employer programs will of course vary by employer; one should check with one’s employee benefits handbook for detailed coverage information. Employers pay for worker’s compensation coverage for their employees for work-related injuries, and these benefits are determined as a percentage of the employee’s wages. Such policies do not cover injuries or sicknesses occurring outside the workplace. More than half of the 19 million annual accidents occur off the job.1 Social security benefits are paid to “totally and permanently disabled” employees, based on a series of variables.  The disability must be anticipated to last for 12 months or to result in death.2 The benefits, if and when approved, will replace only a small portion of income: the average monthly total family benefit for a family of four where the spouse is under 65 is $1256;3 the average disabled worker benefit in April 2000 was a princely $755.4 There is a five-month waiting period, and benefits are reduced by worker’s compensation and other government benefits if available. Only five states (California, Hawaii, New Jersey, New York, and Rhode Island) and the Commonwealth of Puerto Rico have state disability programs, and even these provide only minimal benefits short term benefits: for a maximum of 26 weeks in Hawaii, New Jersey, New York, and Puerto Rico; 30 weeks in Rhode Island; and 52 weeks in California. Most people’s savings will not cover six months of usual expenses, so that a family’s entire savings could be depleted before Social Security Disability Insurance begins to pay.5

1 National Safety Council, Accident Facts Edition 1998
2 Social Security Administration publication: U.S. Government brochure “Social Security. Disability Benefits” 9/99. Internet. June 26, 2000. Available: http://www.ssa.gov/top10.html
3 Fact Sheet on the Old-Age, Survivors, and Disability Insurance Program, December 31, 1999; Social Security Administration. Internet. June 26, 2000. Available: http://www.ssa.gov/OACT/FACTS/fs1999_12.html. See also Office of Policy Publications, Social Security Administration, “Annual Statistical Supplement, 2000; Table 5.H3. Internet. June 26, 2000. Available: http://www.ssa.gov/statistics/Supplement/2000/pdf/index.html
4 The Office of Policy; Social Security Administration. Internet. June 28, 2000. Available: http://www.ssa.gov/policy/programs/ssd.html.
5 Business Almanac

 

It is important to remember that most group employer plans will not provide benefits for 100% of the employee’s earnings, and these plans generally protect salary only, excluding incentive earnings and bonuses in determining employee income. The benefits received will also be coordinated with benefits from other sources such as government programs, so that the insured receives no more than some percentage of his or her usual income up to a stated ceiling, and generally for a limited period of time.  Such plans are likely to leave vastly underinsured the high income earner and those who earn a substantial amount of their annual income through performance or other incentives. Individual disability insurance is designed to supplement or “wrap around” such programs, to increase the benefits received to approximate more closely the usual net income of the insured person. Individual disability policies will also include incentive and total income from the employer, rather than only salary, in computing benefit levels and amounts, and are not offset by disability income from other sources.

It becomes even more essential to preserve income in the event of a disability.  The disabled person is likely to have an interruption and reduction in income at the same time that he or she must cover uninsured or underinsured medical and/or hospital costs, while attempting to maintain the family’s lifestyle. The nature of the disability may require additional but uninsured care needs or rehabilitation expenses not anticipated within the person’s usual budget.

It is also important to recall that your individual disability policy is your policy, and coverage remains independent of your employer. It is fully portable, covering you in all circumstances, whether you choose to leave your current employer; and disability coverage remains independent of corporate reorganizations, merger, acquisitions, or other involuntary events. Once the policy is purchased, benefits may not be reduced by the insurance carrier.

The waiting, or elimination, periods before one may receive benefits are different for short term vs. long term disability policies, and will differ from policy to policy. In short term plans, the waiting periods may range between 0 to 14 days, depending upon the cause of disability. In long term plans, the waiting or elimination periods are longer, ranging from three to six months or longer, for disabilities arising from both sickness and accidents.

By definition, a short term disability policy will extend benefits for a maximum benefit period of no longer than two years. Typically however, these policies generally cover benefit maximum benefit periods of 26 weeks. Long term disability policies provide benefits for the stated policy period: for five years, to age 65 or 70, or even lifetime, depending on the policy and contingent on continuing disability.

Most Americans have a greater chance of becoming disabled before retirement than of dying. Nearly 15% of the population aged 22-44 is disabled, and of those severely disabled, 54.2% are between the ages of 22-64.1 The employment rates and earning power are reduced substantially among these groups. Advances in modern medicine have resulted in declines in death rates, while chronic long term disability increased over the same period. * 48% of all home foreclosures are the result of disability, while only 3% of all foreclosures are related to deaths.2 The reason most people purchase life insurance is to provide a replacement for the income stream of the insured. Disability insurance is designed to provide the same protection, under circumstances less drastic and more likely to occur than death.

1 McNeil, J. M. “Americans with Disabilities: 1994-95.” U.S. Department of Commerce Economics and Statistics Administration. P70-61 (August 1997): 2, 3. figure 2. Internet. June 13, 2000. Available: http://www.sipp.census.gov/sipp/pubsmain.htm
2 Housing and Home Finance Agency, U.S. Government

Disability insurance is protection against lost earnings as a result of accident or illness; while health insurance covers direct medical and hospital costs, disability insurance covers the need to protect income to maintain one’s family during the period of recuperation and to sustain additional expenses. If a disability last longer than 90 days, the average length of the disability is over two years. Few people have savings sufficient to protect their homes and families’ needs over that period of time in the pre-disability standard of living.

Average Length of Disability if Disability Lasts Over 90 Days1
Age 25 2.1 years
Age 35 2.8 years
Age 45 3.2 years
Age 55 2.6 years


1 UNUM

You should plan on replacing at least 60-70% of your after-tax income, and more if you can afford the additional coverage.  Although work-related expenses and income taxes may be decreased as a result of the disability, unreimbursed or uninsured medical and rehabilitative expenses can be anticipated to increase.

Small business owners have special concerns, and should consider as well overhead expense coverage, recovery benefits, and if applicable, key-person or buy-out insurance coverage.

The total amount of the benefits you receive cannot exceed approximately 80% of your usual net income, so that you are not encouraged to remain disabled rather than returning to work.

If you elect a non-cancelable policy, the insurance company may not increase your premiums nor change the benefits, provided that you have made all the premium payments.

If the policy is guaranteed renewable, you may automatically renew your policy, but the insurance company may increase the premiums if it does so for an entire class of policyholders.

An optional renewable or conditionally renewable policy may be extended at its anniversary date if the insurance company decides to do so.

Frequently, insurers offer as optional coverage cost-of-living allowance (COLA) coverage, inflation increase benefit coverage, or an additional purchase benefit permitting the purchase of additional insurance, subject to financial insurability. Others insurers provide automatic increase benefits, which provide for increases in benefits annually increasing a policy owner’s monthly benefit without evidence of either medical or financial insurability. Check out the various kinds of policies.

If your policy lapses because of unpaid premiums, it will be reinstated if premium is received within the grace period. If the premium is received our Home Office within 57 days of the premium due date, the policy will be reinstated without requiring proof of insurability. After that, a reinstatement application will be required, and if approved, the policy will be reinstated.

After you have been totally disabled for 90 days, we will waive any premiums that have become due during the 90 days, and premiums that become due during the time you are totally disabled.

Built into some policies, available as an option with others, this benefit is called a residual disability benefit, which pays the insured a portion of the total disability benefit after a return to work based on the level of disability, or in some policies, based on the percentage of income lost due to the disability. For example, if after rehabilitation and therapy, you were able to perform some 70% of your job duties, you would be eligible for 30% of your disability benefit.

These are to be distinguished from recovery benefits, which provide for partial payment of benefits after a person has returned to work after a long term disability, until his or her earnings have been restored to pre-disability levels, even though he or she is fully recovered and no longer disabled in any way.

Recovery benefits, featured in some policies, provide for partial payment of benefits after a person has returned to work after a long term disability, until his or her earnings have been restored to pre-disability levels while the insured is re-establishing a client or customer base. This feature is particularly valuable to those engaged in professional practices and to those whose compensation is heavily incentive based.

Suppose I have a disability that prevents me returning to my former occupation. Must I return to any occupation? Are expenses for rehabilitation covered?

Individual policies and coverage can vary. Some insurers will permit the insured to choose whether to return to work if he or she cannot return to the former occupation. Additionally, some insurance policies will provide for rehabilitation or retraining expense coverage in addition to the regular benefits, under certain terms and conditions.

Own occupation” refers to the occupation in which you worked at the time of the disability; this term should always be distinguished from “regular occupation,” which is interpreted to mean the occupation you had at the time of the disabling event until you have received 24 months of benefits due to the same disability—after those 24 months, “regular occupation” means any gainful occupation for which you are reasonably fitted by training, education or experience, whether or not that gainful occupation yields earnings commensurate with pre-disability levels. If you are not employed at the beginning of a disability, regular occupation means any gainful occupation for which you are reasonably fitted by training, education or experience.

If you become disabled during the period of time for which you purchased benefits, you will be covered for the income protection level you elected at the time of the policy purchase. Calculations for residual benefits will be based on your ability to perform those activities that you had been able to do prior to the disabling event.

The answer depends on the source and nature of the funds used to pay the insurance premiums. If you paid for the premiums with after-tax dollars, then you should receive the disability benefits tax-free. If you paid for the premiums with pre-tax dollars, then the benefits are generally taxable to you, as are benefits paid for by your employer. You should consult with your tax advisor about tax treatment of any disability insurance that you have and/or are considering purchasing.

Long-term care (LTC) is the assistance required by an individual who has a chronic illness or disability that leaves him or her unable to care for him- or herself for an extended period of time. This illness or disability may be physical or mental in nature. Frequently, one receives LTC after recovering as much as possible from an accident or illness. LTC may be provided in a variety of settings, including, but not limited to the individual’s own home, an adult day care facility, or a residential care facility (e.g., an assisted living facility, a skilled nursing facility). Such care includes both skilled nursing care and custodial care, and may be required by individuals of any age.

A 2009 study by the National Alliance for Caregiving estimates that there are 36.5 million “caregiving households” in the United States – i.e., households in which at least one person has served as a caregiver withion the last twelve months. This represents 31.2% U.S. households, and an estimated 65.7 million people who have served as unpaid caregivers in the twelve months prior to the survey. 1

On average, these caregivers of adults spend approximately 18.9 hours per week providing care,2 and most (58%) assist their loved one with at least one ADL.3 However, 32% of the caregivers were classified as “high burden” caregivers (based on average hours of care and the IADLs/ADLs with which they provided assistance).4 Such individuals provide an average of 46.9 hours of care each week, including assisting with 3.2 of six ADLs and 5.5 of seven IADLs.5

While the NAC survey found that, on average, caregiving lasts 4.6 years, 34% of the caregivers surveyed indicated that they had been providing care for one to four years and 31% for more than five years, including 15% who have been caregivers for 10 or more years.6

All caregivers of adults who responded to the NAC survey said that they assist their care recipient with at least one Instrumental Activity of Daily Living (IADL), and, on average, they assist with 4.4 out of seven IADLs. The chart of Assistance with IADLs shows the percentages of caregivers who assist with each IADL.7

As noted above, more than half of all caregivers (58%) assist with at least one Activity of Daily Living (ADL), and on average, caregivers provide help with 1.6 of the six ADLs. The chart of Assistance with ADLs shows the overall percentage of caregivers who help with each of the ADLs.8

 

1 “Caregiving in the U.S. 2009,” (n.p.: National Alliance for Caregiving in collaboration with AARP, November 2009), 4. Internet, August 17, 2010. Available: http://assets.aarp.org/rgcenter/il/caregiving_09_fr.pdf.
2 Ibid, 5.
3 Ibid, 22, figure 17.
4 Ibid, 28.
5 Ibid, 28, figure 22.
6 Ibid, 20,figure 14.
7 Ibid, 24, figure 18.
8 Ibid, 22, figure 17.

A survey published in November 2009 by the National Alliance of Caregiving in collaboration with AARP, revealed the following:

  • 65% had been giving care for 1 or more years and 15% had been caregivers for 10 years or more. 1
  • 48% of caregivers of adults were employed full-time, while 10% were employed only part-time. 2
  • 69% of working caregivers of adults reported having to make changes in their work situation. Most typically, such changes related to cutting back on hours worked: 65% of such caregivers reported going in late, leaving early, and/or taking time off work. 3

The NAC study also found that caregiving results in physical strain, emotional stress, reduced time for friends and other family members, and financial hardship. The impact of caregiving on any given individual varies depending on the level of care being provided, with 14% reporting a high degree of physical strain,4 31% reporting that they were highly stressed,5 52% reporting reduced time for family and friends,6 and 13% reporting a high degree of financial hardship.7

 

1 “Caregiving in the U.S. 2009,” (n.p.: National Alliance for Caregiving in collaboration with AARP, November 2009), 20, figure 14. Internet, August 17, 2010. Available: http://assets.aarp.org/rgcenter/il/caregiving_09_fr.pdf.
2 Ibid, 53, figure 49.
3 Ibid, 54, figure 50.
4 Ibid, 49, figure 44.
5 Ibid, 50, figure 45.
6 Ibid, 51, figure 46.
7 Ibid, 51, figure 47.

“The MetLife Caregiving Cost Study: Productivity Losses to U. S. Business,” published in July 2006, considered the impact of lost productivity due to employees who are caregivers. This study estimated that 15,933,0001 Americans work full-time and care for someone over the age of 18; and that 44% of these caregivers (7.0 million)2 have intense, or “high burden” caregiving responsibilities.

The study went on to estimate that the likely cost of caregiving to US businesses ranges between $17.1 billion (the estimated cost only for “intense” caregivers) and $33.6 billion (for all working caregivers), due to the various adjustments working caregivers make to balance work and caregiving. These estimates are as follows:

 

  “Intense” Caregivers3 All Caregivers4
Replacing employees who quit $2,822,461,694 $6,585,310,888
Absenteeism 3,430,263,991 5,096,925,912
Arriving late or leaving early 824,512,465 1,923,730,754
Workday interruptions 2,832,971,162 6,282,281,750
Eldercare crises 1,628,347,501 3,799,217,477
Supervisor time 780,268,472 1,796,385,842
Unpaid leave 1,447,420,001 3,377,082,202
Reducing from full-time to part-time 3,349,727,407 4,758,135,522
Total $17,115,972,695 $33,619,070,346

 

1 “The MetLife Caregiving Cost Study: Productivity Losses to U.S. Business,” (Westport, CT and Bethesda, MD: The MetLife Mature Market Institute and National Alliance for Caregiving, July 2006), 12. Internet, August 23, 2010: Available: http://www.caregiving.org/data/Caregiver%20Cost%20Study.pdf
2 Ibid, 6.
3 Ibid, 11.
4 Ibid, 17.

When employees are faced with a long term care need – either for themselves or their family – it impacts their productivity. It is estimated that the cost to business of caregiving in terms of lost productivity is between $17.1 and $33.6 billion per year.1

Employees who provide care for a family member often experience increased absenteeism and may even stop working to provide such care. With long term care insurance in place, employees are better able to focus on their work responsibilities, without neglecting their family responsibilities.

Corporate-sponsored LTC insurance plans also offer employees the advantage of guaranteed issue coverage. This feature can make it possible for employees who would otherwise be uninsurable due to pre-existing conditions (e.g., multiple sclerosis, diabetes, or even loss of one or more activities of daily living) to obtain long term care insurance. Obviously, employees perceive great value in such a benefit!

 

1 “The MetLife Caregiving Cost Study: Productivity Losses to U.S. Business,” (Westport, CT and Bethesda, MD: The MetLife Mature Market Institute and National Alliance for Caregiving, July 2006), 11 and 17. Internet, August 23, 2010: Available: http://www.caregiving.org/data/Caregiver%20Cost%20Study.pdf

Nine basic features are key components of any LTC insurance plan:

While many LTC plans offer other benefit features, these are the most important features, which are essential elements of any plan design.

The daily benefit amount is the maximum amount you can expect to receive for any day on which you are eligible for benefits. In designing your LTC insurance plan, you want to choose a daily benefit that will cover most, if not all, of your likely cost of care when you become benefit eligible. With many types of insurance, one minimizes the cost of the insurance by accepting some level of risk in the form of copayments. However, with LTC insurance, we recommend that any such self-insurance be in the form of (1) an elimination period or (2) a limited benefit duration (i.e., lifetime maximum benefit). As a general rule, a “short and fat” LTC plan – i.e., one with a large daily benefit and a somewhat short benefit duration – is better than a “long and thin” one.

Most LTC plans pay benefits by reimbursing you for costs incurred for covered services. With such plans, it is important to determine (1) how costs are accumulated for reimbursement purposes and (2) which costs will be considered to be “covered services.” For example, a plan that accumulates costs throughout the month and compares them to the daily benefit times the number of days in the month will pay as much or more than a plan that reimburses only on a day by day basis. Likewise, if only covered services are paid for, it is important to understand the definition of covered services to ensure that benefits will be payable for all of your anticipated costs of care.

For instance, does the policy pay benefits for caregiver training? Emergency response systems? Home modifications?

By contrast, plans that pay a flat per diem amount – also called “indemnity based” or “cash benefit” plans – pay benefits without regard to the cost of services received. Such plans typically require less paperwork and are easier to understand at time of claim. Some cash benefit plans even pay benefits if all care is provided free of charge by friends and/or family members. Because such plans are much more user-friendly, they typically cost more than traditional reimbursement-based plans.

LTC insurance plans typically pay benefits until you use up the plan’s lifetime maximum benefit (also known as the “pool of benefit dollars.” Often, plans will also speak of a benefit duration in terms of calendar days or years. However, that stated benefit duration is simply a multiplier that is used to calculate the lifetime maximum amount. As long as the lifetime maximum has not been used up, benefit payments can continue. This means that benefit payments may continue well beyond the stated calendar duration.

Some LTC plans offer an unlimited lifetime maximum benefit or “lifetime” benefit duration. Under such plans, one can receive benefits indefinitely – as long as one is alive and benefit eligible.

In selecting your benefit duration, you should consider how long you are likely to need care. For example, an individual with a family history of longevity and Alzheimer’s disease will want a longer benefit duration than an individual whose family members have all died at a somewhat younger age.

Your age when you purchase your coverage will also affect your decision as to benefit duration: the younger you are when you apply, the longer the benefit duration you should consider. A young person (i.e., someone age 50 or less) needs to purchase coverage that will be adequate even if he or she requires care at a young age, perhaps due to an accident, but will still have enough benefits left to address LTC needs later in life.

To date, no comprehensive and integrated study has addressed the question, “How long does the need for long term care last?” However, statistics suggest that an elderly person will spend an average of 2¼ years in a nursing home1 and that family caregivers will care for loved ones in a home setting for 4½ years.2 Therefore, as a general rule, we recommend that a benefit duration of five to seven years is likely adequate for most individuals. However, a lifetime benefit duration will offer even greater peace of mind.

1 Jones AL, Dwyer LL, Bercovitz AR, Strahan GW. The National Nursing Home Survey: 2004 Overview. (National Center for Health Statistics. Vital Health Stat 13(167). 2009), 11. Internet, July 20, 2010. Available: http://www.cdc.gov/nchs/data/series/sr_13/sr13_167.pdf.
2 “Caregiving in the U.S. 2009,” (n.p.: National Alliance for Caregiving in collaboration with AARP, November 2009), 19. Internet, August 17, 2010. Available: http://assets.aarp.org/rgcenter/il/caregiving_09_fr.pdf.

Increases in the cost of long term care have historically exceeded the consumer price index. Accordingly, if an LTC benefit is to keep pace with the rising costs of care, it is important to include a strong inflation protection feature in the plan. The most common and generally most generous inflation protection option is automatic 5% compound inflation protection, with no limit on inflation increases. With this option, both the daily and lifetime maximum benefits increase by 5% of the prior year’s inflated benefit amount, while premiums do not increase due to benefit increases. Alternatively, many carriers also offer a 5% simple inflation protection option. This option increases benefits annually by 5% of the original benefit amount.

In addition to automatic inflation options, many carriers offer a “future purchase option” (FPO), under which insureds are offered the option to purchase additional benefits annually (or triennially), without providing evidence of insurability. However, with FPO coverage, whenever you accept an increase offer, your premiums increase based on your attained age when you purchase the increased coverage. Thus, a plan with FPO can look very inexpensive initially, but typically, by the time you reach your late 60s, the cumulative premiums for FPO will exceed premiums for automatic 5% compound inflation protection and the monthly premium may be as much as 10 times what the starting premium was.

Which inflation protection option to choose depends largely on your age when you purchase your coverage. The average age at time of claim is approximately 77, and the cost of care has been increasing faster than the consumer price index. Therefore, ideally one should plan to have benefit that is equal to the anticipated cost of care at age 77. With automatic 5% compound inflation protection, your initial benefit will double after approximately 15 years, whereas with simple inflation protection, it takes 20 years to double. Accordingly, we recommend compound inflation protection for applicants who are age 70 or younger and simple inflation protection for individuals above that age. We do not recommend the future purchase option other than in very limited circumstances.

How much does LTC insurance pay for care received in different care venues – e.g., in a Skilled Nursing Facility, in an Assisted Living Facility, or at home?

As a general rule, the stated daily benefit amount applies to care received in a skilled nursing facility (SNF). Accordingly, it is important to understand what benefit amount is paid if care is received either in some other kind of residential care facility (e.g., and assisted living facility). Many plans pay the same monthly benefit for ALF care as for SNF care, but some plans tie the ALF benefit to the home care amount.

LTC insurance coverage typically describes any home care benefit in terms of a percentage of the daily benefit for SNF care. This percentage is applied to the daily benefit amount – not the cost of covered services for the day. Thus, if you have a plan with a $300 daily benefit amount that pays 75% for home care, then the most you can receive for a day of care at home is $225. If your cost of home care for the day is $225 or more, you will receive that full $225.

Historically, many LTC plans paid a lesser benefit for home care than for SNF care, on the assumption that SNF care included housing costs, which are already covered if one receives care at home. However, because most people prefer to receive care at home, most modern LTC plans pay 100% for SNF, ALF, and home care. There is even one carrier that offers a 150% benefit for home care.

LTC insurance plans typically include a time-based deductible, known as an “elimination period.” The elimination period is a period of time after one has met the benefit eligibility criteria, during which benefits are not paid. The most common elimination period for group LTC insurance is 90 days. However, in designing your LTC plan, you should consider how long you could afford to self-fund your need for care and balance that against the incremental cost of shortening the elimination period.

In evaluating a proposed elimination period, also consider whether the policy requires that you satisfy an additional elimination period for each separate episode of care. Most quality LTC products only require you to satisfy the elimination period once in your lifetime.

Elimination periods can be fulfilled in a variety of ways. Some plans only count days on which covered LTC services are paid for to fulfill the elimination period. Under such a plan, if care is received only every other day, it will take twice as long to fulfill the eliminiation period. Other plans will count one full week for each calendar week during which care is received on at least one day. In still other plans, the elimination period is fulfilled based on days of benefit eligibility, without regard to whether care is paid for. These nuances can significantly affect the ease or difficulty of fulfilling the elimination period.

Several carriers now offer an option of waiving the requirement to fulfill an elimination period if care is received at home. Such “zero day home care elimination period” plans are very appealing, but may increase costs substantially. When considering such an option, it is important to remember that (1) not all LTC needs begin with care being received at home and (2) other sources (e.g., Medicare) may very well cover the cost of care during some portion of the elimination period.

Note that regardless what elimination period you choose, a tax-qualified LTC policy will only pay benefits if your need for care lasts at least 90 days. Thus, for example, if you have hip replacement surgery from which you fully recover in 60 days, that 60-day need for LTC will not result in any benefit payment – regardless of the elimination period you choose – nor will it count towards fulfilling your elimination period. Such surgery could only help to fulfill your elimination period if you needed assistance with activities of daily living for at least 90 days.

Unless otherwise indicated, most LTC plans require that you pay premiums any time you are not on claim, for the life of the policy. However, LTC plans also exist which limit the duration of premium payments. For example, plans may require a specified number of annual payments (typically 1, 5, or 10 years) or may require payments until a specified age (typically age 65).

As a general rule, limited premium durations may provide two benefits: (1) protection against possible future rate increases and (2) a higher tax deduction for premiums paid.

  • All LTC insurance in the market today is “guaranteed renewable,” which means that the carrier has the right to request a rate increase if its original pricing assumptions are proved inappropriate based on actual experience. Most current LTC plans are subject to rate stabilization and therefore are much less likely to experience increased rates than older policies were. However, with a limited premium plan, once the final premium has been paid, any rate subsequent increases will not affect the policyholder.
  • If premiums are tax deductible – for instance, if they are paid by a C-Corporation on behalf of an employee – it may be desirable to pay all of the premiums for the coverage while the insured is still working, so as to take maximum advantage of that tax deduction.

The answer to this question depends on the waiver of premium feature included in your policy. Most policies provide that when you are on claim and receiving benefits, your premiums are waived. If/when you recover and stop receiving benefits, premium payments begin again. Some coverage will waive premiums as of the first day of benefit eligibility, regardless of the elimination period. Although most policies waive premiums as of the first day for which benefits are paid.

Some LTC policies offer a feature that allows two spouses or partners to receive benefits from each other’s policy. The logic of such a provision is that if one spouse dies before using his or her lifetime maximum benefit, the other spouse has access to those dollars; or if one spouse has a much greater need for care, the benefits can be given to that spouse.

Naturally, adding shared care to a policy increases the premiums fairly significantly. The risk with shared care is that one partner will use up all the benefits, leaving the other spouse with no LTC insurance. While statistics suggest that only 60% of Americans will need LTC, one cannot assume that this means that only one partner in any couple will need care. Instead, one’s plan must be adequate if both partners need care. As a result, it is usually more cost effective to purchase somewhat longer benefit durations without shared care than to add shared care to a policy.

While the nine plan design features discussed above are essential components in any plan, many policies will offer or automatically include one or more of the following features. Most of these features are considered “nice to have,” but generally are not deciding factors in plan design:

  • Bed reservation: this plan provision ensures that you can return to the same nursing facility or assisted living facility after a hospital stay or other absence from your nursing facility, by paying necessary charges to reserve your space in that facility. Plans typically include 14 to 30 days per year.

  • Respite care: most policies will include some amount of benefit which is available to give a primary informal caregiver (e.g., a friend or family member) a break from his or her caregiving responsibilities. This benefit is typically limited to 14 to 30 days per calendar year.

  • Restoration of benefits: some policies offer a feature that restores your benefits to their original level if, after a period of receiving benefits, you fully recover and do not receive benefits for a specified period of time (usually 180 days). However, this feature increases the premium, typically by four to ten percent. Also, if you exhaust your benefit pool before recovering, this feature is generally invalidated. This feature is not relevant with a lifetime benefit period.

  • Return of premium at death: some policies include an automatic feature that returns all premiums you have paid, net of any benefit payments received, if you die before a specified age – usually age 65. These policies typically phase out the return of premium by reducing the percentage returned for each year you live beyond age 65, such that by age 75, no premiums are refunded. Given that current US mortality exceeds age 75, this feature is of limited value. Other policies offer a special feature that returns premiums paid net of any benefits received regardless of the age at time of death. This feature typically increases the premium for the policy. We generally do not consider it to offer a good value.

  • Contingent nonforfeiture: Most newer LTC policies include a feature that is designed to protect you if the policy is subject to a significant rate increase. If rates increase over the life of the policy by more than a specified percentage, then you have the option to exercise this contingent nonforfeiture option, by stopping paying premiums but retaining a reduced lifetime benefit equal to the total premiums you paid over the life of the policy. The specified percentage increase varies depending on your age when you purchased the policy. While this feature is nice to have, it is one that offers little value, because the nonforfeiture benefit is so small and because the specified increase percentages are relatively high.

  • Nonforfeiture option: While contingent nonforfeiture is built into most current policies, one also has the option of purchasing an enhanced nonforfeiture option that provides that if you lapse your coverage for any reason whatsoever, you can nonetheless retain the rights to a reduced lifetime benefit equal to the total premiums you paid over the life of the policy. Typically, your coverage must be in force for at least three years before you can exercise this nonforfeiture option. Typically such a “shortened benefit period” or “reduced paid up” feature increases premiums anywhere from 10% to 58%. This option only adds value if you lapse your coverage, which occurs to less than 2% of all policies. Also, because LTC insurance premiums are usually minimal in comparison to the cost of care, this benefit is likely to be negligible. Accordingly, we do not believe this feature offers good value.

  • International coverage: Most LTC plans limit payment of benefits if you receive care outside of the United States. If you are contemplating retiring outside the US, you should read these provisions carefully. In particular, note that some carriers that say they cover care received outside the US may place substantial limits on the benefits for such care – e.g., benefits may be limited to no more that 1 year over the life of the policy, or may be limited to as little as 25% of the US home care benefit.

Costs for long-term care can be significant, and statistics show that of 9.3 million Americans receiving assistance with activities of daily living or instrumental activities of daily living, 77% have been receiving care for more than one year and of that number, 29% have been receiving care for more than 5 years.1

By purchasing long-term care insurance, you accomplish four key objectives:

  1. You provide yourself with greater control over how and where you will receive care. You are not limited by the options available through Medicaid.
  2. You reduce your dependency on family members, and avoid becoming a burden to them.
  3. You preserve your assets – very important if you will recover from this disability, if you have a surviving spouse, or if you want to leave a legacy to your heirs.
  4. You increase the likelihood that all of your needs for assistance will be met. A government study found that “lacking the necessary assistance with ADLs, approximately one half of those in need experienced a serious negative consequence such as burns from bath water, weight loss, or being chair- or bed-bound.” 2

Therefore, unless you have a net worth in excess of $5 million, chances are you should buy long-term care insurance coverage. Even individuals with net worth in excess of $5 million may want to purchase LTC insurance, if any of the objectives listed above are important to them.

 

1 J. M. McNeil, “Americans with Disabilities: 1994-95,” P70-61, n.pag., detailed table 12. Internet, August 14, 2000. Available: http://www.census.gov/hhes/www/disable/sipp/disable9495.html.
2 Health, United States, 1999 with Health and Aging Chartbook, (Hyattsville, MD: National Center for Health Statistics, 1999), 60.

One of the most common misconceptions about long-term care insurance is that only the elderly need long-term care. In reality, many working age adults experience disabling injuries and illnesses that require ongoing care. Consider the following statistics:

  • In 1995, approximately 25.6 million Americans not living in long-term care facilities were severely disabled1 This represents 9.9% of the total population.
  • An estimated 12.8 million Americans need long-term care. Of these, 10.4 million (81%) live at home or in community settings and 2.4 million (19%) live in institutions;2
  • 5.1 million (40%) are working age adults between the ages of 18 and 64.3
  • 6.2 million (48%) have difficulty performing one or more of the activities of daily living (ADLs), including 3.8 million adults who live outside of institutions.4

 

1 J. M. McNeil, “Americans with Disabilities: 1994-95,” P70-61, (Washington, DC: U.S. Department of Commerce Economics and Statistics Administration, August 1997), 6, table 1. Internet, August 14, 2000. Available: http://www.sipp.census.gov/sipp/pubsmain.htm.
2 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 5. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.
3 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 5. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.
4 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” GAO/HEHS-95-26, (Washington, DC: General Accounting Office), 6. Internet, August 15, 2000. Available: http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?filename=he95026.pdf&directory=/diskb/wais/data/gao.

If you are over age 18 and can afford the premiums, it is never too soon to buy long-term care insurance. Remember that not only the elderly require long-term care: of the 12.8 million Americans who need long-term care, 5.1 million (40%) are working age adults between the ages of 18 and 64.1

If you delay your purchase, you may be unable to qualify for the insurance when you want to buy it. If you become ill or disabled, you may be turned down for long-term care insurance or your premiums may be rated (i.e., you may be charged a higher monthly amount).

In addition, because premiums are determined based on your age, the younger you are when you buy long-term care insurance, the lower your premiums will be. As shown in the chart,2 waiting to buy insurance ultimately costs significantly more, not to mention the risk that you will not qualify for the insurance at a later age.

 

1 Jane L. Ross, “Long-Term Care: Diverse, Growing Population Includes Millions of Americans of All Ages,” 5.
2 Chart is based on the cost for a 35-year old resident of Illinois to buy $6,000 monthly nursing home benefit with 75% Total Home Care, 6-year benefit period, and 5% compound no cap inflation protection. Premiums used for older ages are based on premiums to purchase the compounded monthly benefit amount the 35 year old will have at those older ages.

Disability insurance is intended to replace your income in the event of a disability. Long-term care insurance is intended to pay for expenses incurred when long-term care is needed. A good disability insurance policy will provide enough income to allow you to maintain your standard of living while recovering from a long-term disability. However, it will not necessarily provide enough money to cover the increased expenses of long-term care. Such expenses will need to be covered by health insurance (which only rarely covers any portion of LTC), out-of-pocket payments, or long-term care insurance.

Health insurance only pays for acute - as opposed to chronic - medical care; i.e., care that is intended to restore your health. When it is determined that you have recovered as much as possible from an injury or illness, and that further medical care will not further restore your health, health insurance benefits will cease. Most health insurance plans do not pay for LTC. Some provide a small benefit for skilled care services (restorative in nature), but not for custodial care.

Long-term care insurance benefits, on the other hand, cover chronic needs for care that do not necessarily require professional services. For example, a person who has been injured in an accident or a stroke victim may require assistance with activities of daily living such as dressing, bathing, and eating. Such individuals will likely require physical or supervisory assistance for an extended period of time. However, because this type of care is not considered skilled medical care, and because it is not restorative in nature, it generally is not covered by health insurance.

Doesn’t Medicare or Medicaid pay for long-term care?

One of the most common misconceptions about long-term care is that government programs will cover such expenses. Medicare, which is a health insurance program for people over the age of 65, fully covers only 20 days in a Medicare-approved skilled nursing facility, and only if the nursing facility stay is immediately preceded by a three-day hospital stay. From the 21st day through the 100th day, a co-payment of $97 is required. Considering that the average daily cost for care in a skilled nursing facility was $1361 in 1997, Medicare coverage doesn’t go very far!

In addition, Medicare only covers restorative care – not chronic or maintenance care. Thus, as soon as doctors determine that your condition will not improve, Medicare coverage is terminated – potentially before even the end of the 20 days that are theoretically “fully covered.”

After 100 days, Medicare does not cover skilled nursing care – regardless of your health status. As shown in the chart2, Medicare pays only 9% of the long-term care facility expenses for its beneficiaries.

Medicaid is a federal and state funded welfare program. Historically, Medicaid programs have paid approximately 44% of long-term care facility expenses. However, to become eligible for Medicaid benefits, recipients must first spend their assets down to the poverty level. Furthermore, once qualified for Medicaid, recipients have little or no choice in determining where care will be provided. While a healthy spouse will be allowed to keep a personal residence and a limited amount of assets for his or her lifetime, upon the death of the surviving spouse, Medicaid is required by law to attempt to recover from the estate any Medicaid benefits that were paid to the Medicaid-qualified spouse.

1 Celia S. Gabrel, “An overview of nursing home facilities: Data from the 1997 Nursing Home Survey. Advance data from vital and health statistics; no. 311,” (Hyattsville, Maryland: National Center for Health Statistics, 2000), 10, table 8. Internet, June 9, 2000. Available: http://www.cdc.gov/nchs/products/pubs/pubd/ad/ad.htm.
2 Health and Health Care of the Medicare Population (1996),” (n.p.:Health Care Financing Administration, 2000), Table 4.7. Internet, August 8, 2000. Available: http://www.hcfa.gov/mcbs/PublDT.asp.

If needed, the costs of long-term care will easily exceed the amount that could be accumulated by saving and investing the premium dollars. For example, consider the following average annual cost statistics1:

  • Skilled nursing facility care in the United States costs approximately $49,600

  • Residential care facility (i.e., a facility providing only low level care) costs more than $35,300

  • Skilled nursing facility care in the Northeast costs approximately $64,300

A survey conducted by the MetLife Mature Market Institute found that the average cost of a nursing facility ranges from a low of $90 per day in Louisiana ($32,850 per year) to a high of $413 per day ($150,745 per year) in Alaska.

By comparison, even for a 59-year old, premiums to purchase long-term care insurance with a $6,000 monthly nursing home benefit are only $3,308 per year. On this basis, one year of care in a residential (low level) care facility will cost more than 10 years of premiums.

1 Celia S. Gabrel, “An overview of nursing home facilities: Data from the 1997 Nursing Home Survey. Advance data from vital and health statistics; no. 311,” 10, table 8.

One of the most common misconceptions about long term care (LTC) is a belief that health insurance or a government program will pay for LTC.

Health insurance is designed to reimburse expenses associated with medical costs, including tests, medicines, doctor visits, and other specific services. In the case of accident or illness, it only covers the costs to help you get well. Once you have recovered as much as possible, it will not pay the ongoing cost of any chroninc, custodial care which is the most common type of LTC.

As shown in the chart below,1 government programs that help pay for LTC are both restrictive and very limited:

  • Medicare fully covers only 20 days in a skilled nursing facility, and only if the nursing facility stay is immediately preceded by a three-day hospital stay. From the 21st day through the 100th day, a daily co-payment of $137 is required. Considering that the average daily cost for care in a skilled nursing facility was $2192 in 2009, Medicare coverage doesn’t go very far!

    After 100 days, Medicare does not cover skilled nursing care – regardless of your health status.

    In addition, Medicare only covers skilled nursing care – not chronic or maintenance care. Thus, as soon as your doctor decides that you no longer need skilled nursing care, Medicare payments for the skilled nursing facility are terminated – potentially before even the end of the 20 days that are theoretically “fully covered.” This is true regardless of whether you are able to return to your own home and live independently at that time.

  • Medicaid programs pay 41% of long term care skilled nursing facility expenses. However, to become eligible for Medicaid benefits, recipients must first spend their assets down to the poverty level. Furthermore, once qualified for Medicaid, recipients have little or no choice in determining where care will be provided.

  • The new Community Living Assistance Services and Supports provisions of the Health Care Reform bill of 2010 create a government plan intended to help individuals pay for LTC. However, this plan is expected to cost substantially more than private LTC insurance and to provide lesser quality benefits when it is implemented in 2012.

Accordingly, the best means of planning for and affording your likely costs of LTC is by purchasing private LTC insurance, either through your employer or in the individual LTC market.

 

1 National Health Expenditures by type of service and source of funds, Calendar Years 1960-2007. Internet, December 22, 2009. Available: http://www.cms.hhs.gov/NationalHealthExpendData/downloads/nhe2007.zip.
2 “The MetLife Market Survey of Nursing Home and Assisted Living Costs,” October, 2009, (Westport, CT: MetLife MatureMarket Institute). Internet, January 4, 2010. Available: http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-market-survey-nursing-home-assisted-living.pdf?SCOPE=Metlife#Page=3

Average annual costs for long term care vary widely, depending on geography and the type of care received. The monthly base rate for Assisted Living Facilities (ALFs) averaged $3,100 in 2009.1 However, only a limited number of services are included in that based rate. For example, the average annual cost of ALF care for Alzheimer’s or dementia was $53,200.2 Skilled nursing care ranged from $48,900 (in Louisiana) to $213,200 (in Alaska) annually, with a nationwide average of $79,900.3 The map below shows average costs of care in 2009.4

Home- and community-based care costs also vary depending on the type and frequency of care required. The MetLife Mature Market Institute found that the average hourly cost of home health care aides ranges from a low of $13 per hour in Shreveport, LA ($14 per hour in Jackson, MS and Birmingham, AL) to a high of $25 per hour in Phoenix, AZ, Rochester, MN, and Madison WI.5 At this rate, as little as 20 hours of assistance each week could cost from $13,500 to $26,000. (A study by the National Alliance for Caregiving found that on average, family caregivers provide 19 hours of care per week.6)

 


1 “The MetLife Market Survey of Nursing Home and Assisted Living Costs,” October, 2009, (Westport, CT: MetLife MatureMarket Institute),25. Internet, January 4, 2010. Available:  http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-market-survey-nursing-home-assisted-living.pdf?SCOPE=Metlife#Page=3
2 Ibid, 9.
3 Ibid, 14-19. Cost is statewide average cost of a private room in a skilled nursing facility.
4 Ibid, 14-19.
5 Ibid, 26-31.
6 “Caregiving in the U.S. 2009,” (n.p.: National Alliance for Caregiving in collaboration with AARP, November 2009), 5. Internet, August 17, 2010. Available: http://assets.aarp.org/rgcenter/il/caregiving_09_fr.pdf.

Yes. However, LTC insurance premiums are based on your age and medical history when you apply for insurance. These rates can only be increased if the appropriate state insurance commissioner approves an increase and if rates for all similar policyholders are also raised. Furthermore, if rates are raised, your new premium will continue to be based on your original age (i.e., your age at the time of purchase – not your age at the time of the rate increase).

While many carriers have requested and received approval for rate increases on existing policyholders, most such increases have been on older products that were priced before the carrier had any real basis for pricing this type of insurance. Such products were often priced very low, due to erroneous assumptions about lapse rates on LTC insurance as well as other factors. Because some of the early products were subject to extremely high rate increases, the National Association of Insurance Commissioners created Rate Stabilization regulations, designed to reduce the likelihood of rate increases on LTC insurance. Most LTC insurance products in the market today are subject to rate stabilization, and are therefore less likely to be subject to rate increases in the future. However, currently, all LTC insurance is “guaranteed renewable,” which means that rates could increase in the future. The only way to limit the possibility of future rate increases is by electing a plan design that includes a limited premium duration – e.g., one which only requires premium payments for 10 years or one that requires you to pay premiums to a specified birthday.

Most insurance carriers allow policyholders to reduce their coverage, and thereby lower their premiums. For example, if you originally purchased a $6,000 monthly nursing facility benefit with lifetime benefits, you might reduce the monthly benefit amount to $5,000 or shorten the benefit period to 6 years.

Most newer LTC policies include “contingent nonforfeiture,” a feature that is designed to protect you if the policy is subject to a significant rate increase. If rates increase over the life of the policy by more than a specified percentage, then you have the option to exercise this contingent nonforfeiture option, by stopping paying premiums but retaining a reduced lifetime benefit equal to the total premiums you paid over the life of the policy. The specified percentage increase varies depending on your age when you purchased the policy. While this feature is nice to have, it is one that offers little value, because the nonforfeiture benefit is so small and because the specified increase percentages are relatively high.

All policies also offer a “nonforfeiture option,” which guarantees you a certain level of coverage, even if you stop paying premiums entirely. However, such options typically raise premiums significantly and typically are not cost-justified. For an additional price, if, after at least three years, the insured stops paying premiums, he or she will receive a nonforfeiture benefit equal to the monthly benefit under the long term care insurance policy, but limited to the amount of premiums paid to the insurance company over the life of the policy. Because LTC insurance premiums are usually minimal in comparison to the cost of care, this benefit is likely to be negligible.

Historically, LTC costs have increased in excess of the consumer price index. For example, according to a MetLife study which has been performed annually, the nationwide average annual cost of skilled nursing care increased from $61,000 in 20021 to $79,900 in 20092 – an increase of 31% in just 8 years. During the same period, the consumer price index rose only 19%.3

Furthermore, with a “silver tsunami” of baby boomers about to reach the age when they are likely to need LTC, we anticipate that a high demand for caregivers will make the cost of long term care rise even more rapidly over the coming years.

 

1 Corporate Press Release dated April 26, 2002, Metropolitan Life Insurance Company. Internet, February 4, 2003. Available: http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P2572%257ES349,00.html.
2 The MetLife Market Survey of Nursing Home and Assisted Living Costs,” October, 2009, (Westport, CT: MetLife MatureMarket Institute), 19. Internet, January 4, 2010. Available:  http://www.metlife.com/assets/cao/mmi/publications/studies/mmi-market-survey-nursing-home-assisted-living.pdf?SCOPE=Metlife#Page=3
3 Based on comparison of the “all items” category in the Annual Average Indexes reports for 2009 and 2002, as published by United States Department of Labor at http://www.bls.gov/cpi/cpi_dr.htm.

As soon as you become benefit eligible – by losing the ability to perform two of the six Activities of Daily Living or by becoming severely cognitively impaired – you should file a claim, assuming that you benefit eligibility is expected to last at least 90 days. Once you file your claim, the carrier will need to review your claim and obtain medical records supporting your benefit eligibility as well as doctor certification that your need for care will last 90 days. Also, you will need to obtain a written plan of care. These processes typically require at least one month, and often longer to complete. Therefore, by filing your claim as early as possible, you can expedite your initial benefit payment.

The answer to this question depends on the coverage that you elect:

  • If you elect a lifetime benefit duration (i.e., an unlimited lifetime maximum amount), then your benefits will continue as long as you are eligible to receive them (i.e., as long as you have lost two or more activities of daily living or have a severe cognitive impairment)

  • If you elect a shorter benefit duration (e.g., 3 or 6 years), your benefits will continue until you are no longer eligible to receive benefits or you have received your maximum lifetime benefit amount, whichever comes first.

Note that this may mean that you will receive benefits for longer than your chosen benefit period. For example, assume that you purchased $6,000 monthly benefit with 75% home care and a 6-year benefit period; this gives you a maximum lifetime benefit amount of $432,000. Under this plan, you could receive the following:

  • Nursing facility benefits of $6,000 per month for 6 years; or

  • Home care benefits of $4,500 per month (75% of $6,000) for 8 years ($432,000 divided by $4,500); or

  • Any combination of nursing facility and home care benefits that total up to $432,000, regardless of the time period over which they are paid out.

Your interest in your pool of benefit dollars is not vested. Therefore, your right to those funds terminates at your death. This factor is built into the cost of the insurance, resulting in lower premiums.

The respite care benefit is intended to pay for care in order to allow a primary caregiver to take a much-needed break. For example, to go on vacation, a family caregiver might have to hire a caregiver to stay with their loved one, or might arrange for their loved one to check into an assisted living facility for that time. The respite care benefit covers such costs.

Note that this benefit is less relevant if your long-term care insurance policy pays for informal home care (i.e., care provided by family members or other unpaid caregivers) based on an indemnity or cash benefit model. In such cases, the full monthly home care benefit is payable regardless of who provides the care, and the respite care benefit typically only covers respite care required during the elimination period.

The Eldercare Locator is a public service of the Administration on Aging, U.S. Department of Health and Human Services It is a nationwide service that connects older Americans and their caregivers with information on senior services in their area. On-line information can be found at http://www.eldercare.gov/ or you can call 1-800-677-1116. In addition, a number of web sites can assist in your search for information:

  • The National Association for Home Care and Hospice web site offers a Home Care/Hospice Agency locator, containing a database of more than 20,000 home care and hospice agencies across the country. See http://www.nahcagencylocator.com/index.asp. The web site also offers publications entitled, “How to Choose a Home Care Provider” and “All About Hospice: A Consumer’s Guide,” available to download.

  • The web site of the American Association of Homes and Services for the Aging (AAHSA) states that AAHSA “is an association of 5,500 not-for-profit organizations dedicated to expanding the world of possibilities for aging. We advance policies, promote practices, and conduct research that supports, enables and empowers people to live fully as they age.” At http://www.aahsa.org/choice.aspx you can find information designed to help you find the right kind of aging services, or, at http://www.aahsa.org/section.aspx?id=280 you can search AAHSA’s member database for homes and services for the aging in your area.

Finally, many religious organizations own and/or operate residential care facilities. Your local clergy may be able to refer you to residential care facilities and other resources in your area.

Yes. Self-employed individuals – including sole proprietors, partners, and individuals who hold more than 2% of the shares of a subchapter S corporation – can deduct “eligible premiums” paid for qualified long term care (LTC) insurance plans as a business expense. As shown in the table below, LTC insurance premiums eligible for deduction are subject to certain age-based limits that are adjusted annually based on increases in the medical care component of the Consumer Price Index.

Age Before Close of Tax Year Premium Deduction limit for
2009 Tax Year 2010 Tax Year
40 or younger $320 $330
41 to 50 $600 $620
51 to 60 $1,190 $1,230
61 to 70 $3,180 $3,290
71 or older $3,980 $4,110

No. The tax code stipulates that the value of employer-provided health coverage (including long term care insurance) is excludable from an employee’s gross income.

Yes. LTC insurance premiums paid for any non-owner employees are fully deductible.

Benefits paid to an individual under a federally tax-qualified LTC insurance plan are excluded from taxable income as long as they don’t exceed the greater of either the IRS’s tax-free cap on benefits ($280 per day in 2009) or actual long term care expenses. Benefits up to the tax-free cap will always be tax-free, regardless of expenses incurred. Benefits in excess of the tax-free cap will be tax-free to the extent that they do not exceed actual long term care expenses.

For benefits exceeding the cap to be tax-free, they must be applied to long term care expenses. If the insured cannot demonstrate that the benefits were spent on such expenses, a portion of the benefits may be taxable. For example, if an insured receives an annual benefit of $110,000 but only spends $90,000 on long term care, up to $20,000 could be taxable. If the daily tax-free cap for the year in question is $290 per day ($105,850 annually), then $4,150 of the benefits will be taxable (the difference between the $110,000 received and the tax free cap of $105,850). On the other hand, if the daily tax-free cap in the year is $310 per day ($113,150 annually), then none of the benefits will be taxable.

Benefit payments under an indemnity contract are tax free up to a daily cap or the cost of actual services, whichever is greater. The tax-free cap may be reduced by other reimbursements, such as another LTC insurance policy or Medicare. For the tax year 2009, the tax-free cap is $280/day. Benefit payments from a reimbursement contract have no tax-free cap, because such benefits will never exceed actual expenses. Reimbursement contract benefits are also required to coordinate with Medicare.

Long term care insurance plans that meet certain legal requirements qualify for certain federal tax benefits. These benefits relate both to the deductibility of premiums paid (either by an employer or an individual) and to taxability of any benefits received.

For most individuals, a TQ plan will offer the best option and most plans available in the LTC market today are tax qualified. Therefore, before purchasing an NTQ plan, you should carefully review its features to ensure that it meets your needs. Ordinarily, you will be able to find the most important benefit features in a TQ plan, and such a plan is likely to meet your needs best.

I have a long term care insurance policy that was issued prior to the Health Insurance Portability and Accountability Act (HIPAA). What is the tax treatment and can I make changes to the policy.

Under HIPAA, all long term care insurance policies issued before January 1, 1997 were grandfathered, and automatically receive favorable tax treatment. However, under IRS regulations, a change to a grandfathered LTC insurance policy may jeopardize its tax-qualified status. Before making a change to any grandfathered LTC insurance policy, you should consult your tax advisor and assess the impact of the change on the tax-qualified status of the policy.