Share the Care (When Unlimited LTC Benefits are not an Option)
One of the key options that every long-term-care pro-pect must understand when purchasing long-term care insurance (LTCi) is the policy’s benefit period (BP). It represents the minimum number of years that LTC coverage will be provided, ranging from two to 10 years or even lifetime.
In reality, the number of years in the BP is used to calculate the total pool of money that will be provided for long-term care costs. However, the failsafe option of unlimited benefits, which ensures purchasers that coverage for their LTC will always be available should they need it, comes at a price that few of us can afford.
The truth is that most people are working with a budget that makes life-time benefits an unaffordable luxury.
Shared Care Options Can Help Couples
For couples or partners, a shared care rider is often a practical alternative to costly lifetime benefits—one that can extend individual benefits at a more affordable cost. For partners, regardless of gender, LTC carriers offer the same options and discounts as they do for married couples, thereby providing for the needs of the gay population as well as for other nontraditional partners who are not equally protected in the absence of a marital agreement. Although identical coverage must be purchased under shared care options, the added flexibility and potential to access additional benefits at a more affordable cost has many advantages.
Let’s take the case of Phil and June, ages 60 and 57, who have just begun planning for long-term care. To provide for adequate coverage while staying within their budget, the planner recommended a shared care plan that would offer them extended security along with affordable coverage. And because several different shared care plans are available on the market today, the plan-ner carefully explained the differences in the coverage each of them provided, should Phil and June ever need long-term care.
In general, shared care policies pro-vide two pools of money, one for each individual. If one person exhausts his or her pool, the other’s pool then becomes available, thereby extending the amount of time during which benefits can be provided. Under this plan, Phil and June could access benefits separately or at the same time until the combined benefits paid under the policy exhaust the total available in both their benefit accounts.
With longer BPs such as five years, the $250 daily benefit that Phil and June were considering, and individual pools of money totaling $456,250 each, the shared care option can significantly enhance the benefits available to them. Should June become eligible for benefits, her individual premium would be eligible for a premium waiver while Phil would continue to pay his premium as usual. And if she were to die, Phil would receive her unused benefits, without any change in his individual premium.
In addition, under some shared care plans, if June were to exhaust both pools of money in accordance with the provisions of the shared care option, Phil would be offered the opportunity of purchasing two years of coverage on an attained age basis with no underwriting requirements, provided that he had no claims during the prior two years. Although attained age premiums can be costly, if there is a significant likelihood that the remaining party may also need long-term care, it’s a valuable option to consider.
Shared care plans work well for couples like Phil and June who are considering a five-year BP. For individuals considering coverage with shorter BPs, for instance three years, the shared care option may be of limited value because some of these policies stipulate that a minimum of 12 or 24 months of coverage must remain available for each person.
Had Phil and June preferred a shorter BP, however, an attractive option for them might have been a policy that offered three separate pools of money to be shared by both individuals selecting a three-year BP. With this type of shared care policy, both would have had their own pool of money to cover them had either (or both of them simultaneously) needed long-term care during that period. Had June died before she used the full amount in her pool, however, Phil would have received the unused portion of her coverage and, in addition, he would have had available the third separate pool that either of them could have drawn from once their own benefits were exhausted.
A third type of shared care coverage is a jointly owned policy that provides one pool of money for both insureds in a single contract. Had Phil and June purchased this type of policy with a $900,000 total pool of money for them both, when June needed long-term care and went on claim, the total policy premium would have been eligible for a premium waiver. Had June died after receiving only $50,000 in benefits, Phil would have received the couple’s unused benefits ($850,000), and the premium would have been reduced to cover his portion of the premium alone.
As you can see, there is no “one size fits all” in choosing a shared care plan for LTC. Depending on the couple’s circumstances, all shared care riders in individual policies and jointly owned policies have both pluses and minuses. By understanding the advantages and limitations of each type of coverage, informed consumers can make better choices for themselves. LTC planning specialists typically representing several carriers must fully comprehend all the differences—both the limitations and advantages of the various plans—and be able to direct their clients toward those policies best suited to the individual needs and circum-stances.
Vivian P. Gallo is founder of CHOICES For Long Term Care Insurance, an independent broker and a long-term care planning specialist in Hartsdale,N.Y.