A Detailed Look at a Long Term Care Policy
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There are many facets to a long term care policy. Insurance experts estimate that the majority of bad blood between insurers and policyholders – and the litigation that often follows – could be avoided if consumers understood their policies and the type of coverage they had. While insurance agents should explain every facet of the policy, the reality is that few do. We took a typical long term care insurance policy and broke it down into the following sections:
Definition of Terms
Eligibility for the Payment of Benefits
Limitations and Exclusions
Here’s what each of those sections is about:
Definitions of Policy Terms
This section defines the terms that are commonly used in your policy. This is a very important section, which is often overlooked by policyholders. Insurers generally apply these policy definitions verbatim (exactly as written) and claims are commonly denied when your situation doesn’t match what’s defined in the policy.
For example, if a policy allows for long term care in a “facility” that is defined as a “nursing facility, residential care facility, or hospice facility,” care is strictly limited to facilities that meet those definitions. Unsuspecting policyholders may think that their policies cover any kind of long term care. However, their claims will likely be denied if they try to obtain reimbursement for care in other situations, such as adult day care or a caretaker in the home.
Typical definitions in a long term care policy are:
- Activities of Daily Living: this generally means bathing, dressing, transferring (moving around), continence (bladder control), and eating.
- Elimination period: The time between the filing of the claim and the time benefits are received. This is also called a waiting period.
- Facility: defines the type of facility where a policyholder can obtain care.
- Nursing care: defines the types of services that require the professional skills of a nurse or licensed practical nurse – generally under the supervision of a physician.
- Nursing facility: defines what a nursing facility is and is not.
- Personal care services: defines the types of services that a policyholder may receive under the policy such as help moving around, bathing, grooming, dressing, feeding, etc.
Important note: The above list is not inclusive of all the terms that may be in a long term care policy. What’s important to understand is that policyholders should become familiar with these, and all, terms in their policies, and they should question their insurers about anything that might affect their coverage. For further information, see our section in the Insurance Center on other features of Long Term Care Insurance policies
Eligibility for the Payment of Benefits
This section of your policy describes what must occur for you to receive benefits. Rest assured that insurers will construe the details of this section literally. This section will not only cover how eligibility is defined, but will also provide strict instructions about what a policyholder must do to be eligible for benefits. For example, you might have to contact the insurance company within a certain amount of time after you become incapacitated, wait out the elimination period, and show other events have happened before your benefits will be payable. These requirements are generally very specific, and if you fail to follow the procedures, you could forfeit important benefits.
The elimination period is the time between the filing of the claim and the time benefits are received. This is generally called a waiting period. Insurers include an elimination period because a majority of expenses occur at the beginning of an illness or injury. If expenses are incurred within the waiting period of your policy, you will have to pay them yourself. Generally speaking, the longer the elimination period, the cheaper the premium will be. You should make sure your agent explains the cost differences for different elimination periods before you decide which period works best for you.
You should be aware of several important areas in the benefits section of your policy, including payment of benefits, contingencies, benefit increases / decreases, and extensions. Here’s an overview of each:
This part of the policy explains exactly what the insurance company will pay. If there is any confusion, get it clarified beforehand to make certain that you’re getting what you need and what you paid for. Your policy will also specify what conditions must be met in order for payment to be made on the policy in general, such as satisfying any waiting or elimination period and being eligible for benefits. You can’t receive more benefits than the total lifetime amount named in this section of your policy. Make sure this amount is high enough to meet your needs.
This section of your policy will also explain what will be paid for specific policy benefits, such as:
- Basic Daily Benefits
- Facility Daily Benefits
- Bed Reservation Benefits
- Needs Assessment Benefits
- Contingent Benefits Upon Lapse
- Eligibility for Contingent Benefits Upon Lapse
- Contingent Nonforfeiture Coverage
- When Contingent Nonforfeiture Begins
Benefit Increase / Decrease
The policy may contain a provision that allows you to increase or decrease your benefit amount. This must normally be done in writing and you may be required to make the change within a certain time or while you’re still healthy.
Extension of Benefits
The policy may allow you to extend your benefits under certain conditions, such as if your policy lapses or if you have requested that your policy be canceled and you are confined to a long term care facility. The policy’s usual waiting or elimination period will still apply and an extension of benefits will specify a date when benefits will end, such as if you’re no longer eligible for benefits, no longer confined to a facility, or if your total lifetime benefit amount has been paid.
Limitations and Exclusions
This section specifies what is not covered under the policy. Typical exclusions include injuries or sickness that result from war; participation in a felony, riot, or insurrection (an uprising); or any intentionally self-inflicted injury. You should clear up any confusion about what is not covered in your policy before you buy it, just as you clarify what is covered. It will be nearly impossible for you to receive benefits on an item that is excluded from the policy.
Note: some states do not allow insurers to limit or exclude coverage for pre-existing conditions. Check with your state’s insurance department to verify the law in your state.
Premiums are the payments you must make to keep your policy active. This section explains what your premium is based upon when it is due, how it must be paid, the grace period, any waivers that may apply, and whether or not the premium amount can be changed. This section will generally refer you to a premium schedule located within the policy. It will also explain what happens if you don’t pay your premiums and will include information on when and how the policy may be reinstated if it lapses.
This section explains how you must file a claim with the insurer to receive benefits and to whom those benefits will be paid. There will generally be a specific time period listed (e.g., 20 days) in which you must file a claim; however, the policy may also say that a claim may be reported “as soon as reasonably possible” (usually when the insured has become incapacitated.).
This section may also list what forms are needed to file a claim, along with information the insurer will need to begin the claim process, such as your name, address, policy number, and the type of care you are receiving. Written proof is often required; however, the policy may contain exceptions to that rule for those who are incapacitated.
This section may also provide information on any physical examinations that might be required, notices of claim approval and denial, and how to appeal a claim denial.
This part of the policy is a “catch all” that provides general information about the policy or information that doesn’t fit into another section. A typical policy includes information regarding:
- General information about the contract
- Assignment issues
- Cash value of the policy
- Premium refunds
- Refunds for overpayment of benefits
- What happens to unpaid claims should you die before receiving them
- How changes to the policy can be made and who can make them
- How statements you make may affect the policy
- How misstatements affect the policy
- When legal action may commence against the insurer
- Policy termination issues
- Legal information concerning state laws
- Financial information concerning tax laws
- Duplication of benefits (i.e., what happens if you receive duplicate payments from Medicaid or another long term care program)
- Who to contact with questions
As you can see, long term care policies can be quite lengthy and complicated. Not all policies are identical. Consumers should make their best effort at understanding exactly what coverage they have and don’t have and if possible, contact a qualified attorney before purchasing the policy to make sure they are getting what they need.