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long-term care insurance glossary imageLong Term Care Insurance Glossary:

 

 

 

 

Activities of Daily Living (ADLs)

 

Everyday functions and activities individuals usually do without help.  ADL functions include bathing, continence, dressing, eating, toileting and transferring.  Many policies use the inability to do a certain number of ADLs (such as two of six) to decide when to pay benefits.

Assisted Living Benefit

Benefits that are paid for qualified care received in an assisted living facility.  The amount of this benefit is usually expressed as a percentage of the nursing home daily benefit.

Benefit Period

The length of time a specific benefit will be paid.  It begins when the policyholder becomes eligible for benefits and ends when the policyholder has been out of claim status for a given period of time.

Benefits

The monetary sum paid or payable to a recipient for which the insurance company has received the premiums.

Benefit Triggers (Triggers)

Term used by insurance companies to describe the criteria and methods they use to determine when you are eligible to receive benefits.

Cash Benefit

A feature in a long-term care insurance policy that allows the policy benefits to be used by the policyholder in any way he/she chooses. A “cash benefit” is often used to pay a family member to provide care. A “cash benefit” can even be used to pay a spouse to provide care. There are usually no (or very few) restrictions on how the policyholder can use the “cash benefit”.

  • A few policies allow for 100% of the benefits to be payable as a “cash benefit”. These are typically called “cash policies” or “cash indemnity policies”.
  • Most policies that have a “cash benefit” feature pay less than 100% of the benefits as a “cash benefit”, typically 33% to 50% of the benefits.
  • This is also called a “cash alternative benefit” or “alternative payment benefit”.
Chronically Ill

A term used in a tax-qualified long-term care contract to describe a person who needs long-term care either because of an inability to do everyday activities of daily living (ADLs) without help or because of a severe cognitive impairment.

Cognitive Impairment

A deficiency in a person’s short-or long-term memory; orientation as to person, place and time; deductive or abstract reasoning; or judgment as it relates to safety awareness.

Custodial Care (Personal Care)

Care to help individuals meet personal needs such as bathing, dressing and eating. Someone without professional training may provide care.

Daily Benefit

The amount of money your long-term care insurance policy can pay for each day that you receive qualified care.

The Daily Benefit is the single-most important feature in your long-term care policy. Choose it wisely!  The Daily Benefit is sometimes referred to as the “Starting Daily Benefit” or the “Original Daily Benefit” because your Daily Benefit will grow according to whichever Inflation Benefit you choose for your long-term care policy. (Or it won’t grow at all if you choose not to have any Inflation Benefit protection in your LTC policy.)

You choose how much you want your Starting Daily Benefit to be. (You also choose the Inflation Benefit.)

Most long-term care policies have many choices for the Starting Daily Benefit. You can choose a Starting Daily Benefit as low as $50 per day to as high as $500 per day. The choices for the Daily Benefit are usually offered in $10 increments.

The higher your Starting Daily Benefit, the higher the premium.  With some policies the Daily Benefit is referred to as a Monthly Benefit. For example, a long-term care policy with a $200 Daily Benefit is similar to a $6,000 Monthly Benefit.

Dementia

Deterioration of intellectual faculties due to a disorder of the brain.

Elimination Period

The number of days you receive qualified care before your long-term care policy will begin to pay benefits.

The Elimination Period is similar to a deductible.  The shorter your Elimination Period, the higher the premium. The longer the Elimination Period, the lower the premium.  Most policies offer several choices for the Elimination Period. Common examples of Elimination Periods you can choose are:

  • 30 days,
  • 60 days,
  • 90 days,
  • 180 days, or even
  • 365 days.
    (Not all Elimination Period choices are available in every state.)

Most policies have “once-per-lifetime” Elimination Periods. That means that that once you’ve satisfied your Elimination Period, you never have to satisfy it again. It is NOT like a medical insurance deductible. You do NOT have to satisfy the Elimination Period every calendar year.

Home Healthcare Tip: Some policies offer a zero-day Elimination Period for care at home. With these policies, the Elimination Period is waived for care at home. Some policies include this feature automatically. Other policies make this available for an extra premium.  If home health care benefits are important to you, then you should consider choosing a policy with no Elimination Period for care at home.

Money-Saving Tip: With some policies, a 90-day Elimination Period can be 20% less premium than a 30-day Elimination Period.  A 90-day Elimination Period for care in a facility can be a particularly good value in those policies that offer a zero-day Elimination Period for care at home.

Elimination Period Type: Calendar Days

The policy’s elimination period is fulfilled by counting each day on the calendar rather than only counting days for which covered services are paid.

Elimination Period Type: Service Days

The policy’s elimination period is fulfilled by counting only days upon which covered services are paid.

Facility Benefit Period

This is used to calculate the limit of how much the policy can pay over your lifetime in facility benefits. This is sometimes referred to as the “policy limit” or the policy’s “maximum lifetime benefit”. It is usually described in terms of “years of benefits”.

Facility Daily Benefit

The amount of money your long-term care insurance policy can pay for each day that you receive qualified care in a qualified facility. It is sometimes referred to as a “monthly benefit”.

Guaranteed Renewable

When a policy cannot be canceled by an insurance company and must be renewed when it expires unless benefits have been exhausted. The company cannot change the coverage or refuse to renew the coverage for other than nonpayment of premiums (including health conditions and/or marital or employment status.) any guaranteed renewable policy, the insurance company may increase premiums, but only on an entire class of policies, not just on your policy.

Hands-On Assistance

Physical assistance (minimal, moderate or maximal) without which the individual would not be able to perform the activities of daily living.

Health Insurance Portability and Accountability Act (HIPPA)

Federal health insurance legislation passed in 1996 that allows, under specified conditions, long-term care insurance policies to be qualified for certain tax benefits.

Home Care Benefit Period (Pooled)

The entire maximum benefit can be used for care received at home.

Many older policies had one “Pool” of benefits for Home Care and another “Pool” of benefits for Facility Care. Today, the vast majority of policies have one “Pool” of benefits that can be used for either Home Care or Facility Care. This added flexibility is very beneficial to the policy holder.

Home Care Daily Benefit

The entire maximum benefit can be used for care received at home.

Hospice Care

This is care that is provided at home or in a facility to terminally ill patients and their families that emphasizes patient comfort rather than cure. A terminally ill person has a life expectancy of six months or less. Hospice care addresses physical and emotional needs such as coping with pain and death.

Inflation Benefit

This is how a long-term care insurance policy’s benefits grow in order to try to keep pace with the increasing costs of care.

The Inflation Benefit is sometimes called “Inflation Protection” or “Benefit Increases” or “Benefit Increase Option”.
Your Starting Daily Benefit will grow according to whichever Inflation Benefit you choose for your long-term care policy.
Your Policy Limit will also grow according to whichever Inflation Benefit you choose for your long-term care policy.

A well-designed policy, with an appropriate Inflation Benefit, becomes more valuable over your lifetime. A poorly-designed policy, with little or no Inflation Benefit, may not be worth much 10 or 20 years from now, so choose your Inflation Benefit wisely.

There are 2 main types of Inflation Benefit:

Type 1: As the benefits increase, your premium also increases.
Type 2: The increases in the benefits each year do not make the premium go up each year.

Be very careful when comparing policies.  One of the most common mistakes made when shopping for long-term care insurance is comparing a “Type 1″ Inflation Benefit from one long-term care policy with a “Type 2″ Inflation Benefit from another long-term care policy. That’s comparing “apples to oranges”.

Inflation Protection

A policy option that provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services.

Lifetime Benefit

This is the maximum amount of benefits a policy can pay in your lifetime. It is usually calculated by multiplying the daily benefit by 365 times the number of years in the benefit period.

Marital Discount

It is a discount given when one or both spouses or domestic partners apply for long-term care insurance. The discount can also be given to siblings or other family members who live together. The availability of this discount varies according to each person’s state of residence.

Maximum Benefit

It is the maximum amount of benefits a policy can pay in your lifetime. It is usually calculated by multiplying the daily benefit by 365 times the number of years in the benefit period. The pool of money increases according to whatever inflation benefit is chosen for the policy.

Medicaid

A joint federal/state program that pays for healthcare services for those with low incomes or very high medical bills relative to income and assets.

“The number of Americans needing long-term care is expected to double in the coming decade as the population ages,” said James Firman, National Council On Aging president & CEO. “Clearly, this is an issue that cannot be ignored.”

Medicaid offers some coverage for long-term care, but individuals must spend-down, often eliminating lifetime savings, in order to qualify for Medicaid. In the process, the healthy spouse and other family members are left impoverished. If there are assets and income streams to protect, then it might be time to talk with a long-term care expert about long-term care insurance.

Medicare

The federal care program providing hospital and medical insurance to people aged 65 or older and to certain ill or disabled persons. Benefits for nursing home and home health services are limited.

Medicare Supplement Insurance

A private insurance policy that covers many of the gaps in Medicare coverage (also called Medigap insurance coverage).

Modal Factor

It is the frequency which you choose to pay your long-term care insurance premium. (ex: annually, semi-annually, quarterly, or monthly)

Monthly Home Care Benefit

This is the amount of money your long-term care insurance policy can pay for each month that you receive qualified care at home.

Non-Forfeiture (Contingent)

If you were to receive a substantial premium increase, you have the right to stop paying premiums and have your policy converted to paid-up status. Your paid-up policy would have a maximum benefit at least equal to the amount of premiums you had paid over your lifetime.

Non-Forfeiture (Shortened Benefit Period)

After having your long-term care policy for three (3) years, you have the right to stop paying premiums and have your policy converted to paid-up status. Your paid-up policy would have a maximum benefit at least equal to the amount of premiums you had paid over your lifetime.

Non-Forfeiture Benefits

A policy feature that returns at least part of the premiums to you if you cancel your policy or let it lapse.

Partnership Qualified Policy

A type of policy that allows you to protect (keep) some of your assets if you apply for Medicaid after using your policies benefits. Not all states have these policies.

Personal Care (Custodial care)

Care to help individuals meet personal needs such as bathing, dressing and eating. Someone without professional training may provide care.

Policy Limit

A limit on how much the policy can pay in benefits over your lifetime.

When buying your long-term care insurance policy, you choose a “Benefit Period”, which is a limit on how much the policy can pay in benefits over your lifetime.

It is sometimes referred to as the “Policy Limit” or the policy’s “Maximum Lifetime Benefit”.

As with any type of insurance, the higher your coverage, the higher the premium. In other words, the higher the Policy Limit, the higher the premium.

The Benefit Period is usually described in terms of “years of benefits”. Most long-term care policies offer several choices. Common choices include:

  • 2 years
  • 3 years
  • 4 years
  • 5 years
  • 6 years
  • 10 years
  • Lifetime/Unlimited

A policy with a “3-year Benefit Period” is designed to pay benefits for at least 3 years while you qualify to receive benefits.

A policy with a “5-year Benefit Period” is designed to pay benefits for at least 5 years while you qualify to receive benefits.

A “Lifetime Benefit Period” (also called an “Unlimited Benefit Period”) is designed to pay the policy’s benefits for as long as you qualify for benefits, regardless of how long it may be.

Pool of Money

This is the maximum amount of benefits a policy can pay in your lifetime. It is usually calculated by multiplying the daily benefit by 365 times the number of years in the benefit period. The pool of money increases according to whatever inflation benefit is chosen for the policy.

Pooled

Pooled means when the policy’s entire maximum benefit can be used either at home or at a facility.

Premium

The amount paid by the policyholder in return for protection against financial loss due to occurrence of an event.

Premium Payment Option

This is how long you choose to pay your long-term care insurance premium. (ex: pay until age 65, 10-year pay, one single lump sum payment, or pay premiums over your lifetime.)

Rate Guarantee

Rate guarantee is the number of years the long-term care insurance premium is guaranteed to remain the same.

Restoration of Benefits

This is a feature in some long-term care policies that restores the policy’s maximum benefit after benefits have been used while on claim. Typically, the benefits are fully restored 181 days after you’ve stopped qualifying for benefits.

Return of Premium

A feature in some long-term care policies where the premium is returned to your heirs upon death. There are many different types of “return of premium” benefits.

Shared Benefits

This allows married couples or domestic partners to share each others maximum benefits. For example, one spouse/partner exhausts his/her policy benefits, he/she can continue to receive benefits from the other spouse/partner’s policy.

Shortened Benefit Period

A non-forfeiture option that reduces the benefit period but retains the full daily maximums applicable until death. The period of time for which benefits are paid will be shorter.

For example, you buy a policy for three years of coverage with a $150 daily benefit, but if you let the policy lapse, the benefit period is reduced to one year, with full daily benefits paid. The exact amount of the reduction depends upon how much premium you have paid on the policy. Unlike extended term benefits, which must be used in a certain amount of time after the lapse, you can use shortened benefits at any time after you let the premium lapse (until death).

Spouse Premium Waiver

A provision in an insurance policy that relieves the insured and insured’s spouse/partner of paying the premiums while receiving benefits.

Stand-by Assistance

A caregiver that stays close to an individual to watch over the person and to provide physical assistance if necessary.

Substantial Assistance

Hands-on or stand-by help required to do activities of daily living (ADLs).

Substantial Supervision

The presence of a person directing and watching over another who has a cognitive impairment.

Tax-Qualified Long-Term Care Insurance Policy

A policy that conforms to certain standards in federal law and offers certain federal tax advantages.

What does the IRS say about qualified long-term care insurance contracts:

A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. The contract must:

  1. Be guaranteed renewable,
  2. Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed,
  3. Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and
  4. Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses.

The amount of qualified long-term care premiums you can include is limited. You can include the following as medical expenses on Schedule A (Form 1040).

  1. Qualified long-term care premiums up to the amounts shown below (for 2011)
    * Age 40 or under – $340.
    * Age 41 to 50 – $640.
    * Age 51 to 60 – $1,270.
    * Age 61 to 70 – $3,390.
    * Age 71 or over – $4,240.
  2. Unreimbursed expenses for qualified long-term care services.

Note. The limit on premiums is for each person.

Also, if you are an eligible retired public safety officer, you cannot include premiums for long-term care insurance if you elected to pay these premiums with tax-free distributions from a qualified retirement plan made directly to the insurance provider and these distributions would otherwise have been included in your income.

Source: IRS Publication 502 (2011)

Underwriting

The process of examining, accepting or rejecting insurance risks, and classifying those selected, to charge the proper premium for each.

Underwriting Class

Your health history determines your “underwriting class”.  Most long-term care insurance policies have 3 different “underwriting classes”: Preferred, Standard, and Substandard. The cost of a long-term care insurance policy is based upon several factors:

  • your age at the time you apply for the policy,
  • the benefits you choose for your policy,
  • your premium payment option (e.g. 10-pay, “pay to age 65”, lifetime pay)
  • your state of residence,
  • whether you live alone or with a spouse, partner, or other family member,
  • and your health history.

Preferred Health Discounts are usually 10% to 15%, but can be as high as 35% with some long-term care policies.  The better your health history, the lower your premium.

Waiver of Premium

A provision in an insurance policy that relieves the insured of paying the premiums while receiving benefits.

Zero-Day Home Care Elimination Period

A feature in a long-term care insurance policy that waives the elimination period for qualified care received at home. The policy can pay benefits for the first day of qualified care received at home.

Ray Voelkle, CLTC

Ray Voelkle, CLTC

LTCi Dictionary