What does long term care insurance cover, and when? Under what circumstances do you need LTC insurance? Senior Financial Planner Allison Alley, CFP® lists the 6 activities of daily living and how they play into your long term care insurance plan, how premium costs are determined, and when you can file a claim against your LTC policy and begin receiving benefits.
One of the questions we get quite a bit is what is long term care insurance? Well, long term care insurance is insurance that will help you pay for the costs of long term care. So what’s long term care?
So long term care is care that you might get if you need help with certain things. The rule of thumb is that there are six activities of daily living. They are eating, bathing, dressing, transferring, toileting, continence. And if you need help with those, you might find yourself needing long term care. In addition, if you have a cognitive impairment, dementia or Alzheimer’s, you also might need long term care. Unfortunately, Medicare does not pay for long term care so an option that people will look into is getting insurance to cover those needs.
When you get a long term care insurance policy, there’s a lot of different factors that go into building that policy. You might select a particular daily benefit and add an inflation rider, right? Care gets more expensive over time. You want to make sure that any policy you’re buying today is going to be able to cover the costs when you actually need it down the line. So you’ll have a daily benefit like I said an inflation rider, and then that daily benefit for a certain amount of time: three years, five years, sometimes people get unlimited policies; and then there’s always an exemption period. So, a certain number of days – 30 days or 90 days – that you’ll have to pay out of pocket for those costs until the insurance policy kicks in
The way you build that policy is going to determine how much it costs, right? So the more robust the policy, the more expensive that policy is going to be. Then, once you actually need assistance, that’s when you file a claim and start getting those benefits. So in order to file a claim, you have to have a cognitive impairment or need help with two of those six activities of daily living. Once you qualify that and a doctor signs off on it, file the claim, and hopefully start receiving the benefits to cover those costs of care.
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