The five foundational features of most LTCI policies are:
- the daily benefit
- the benefit period
- the benefit setting
- the elimination period
- the inflation protection benefit
All five of these features are very important and have a major impact on the care you will receive under the policy guidelines. But for today’s post we will focus on the daily benefit as this is one of the most flexible features of the policy. It’s very important to get it right the first time!
The daily benefit simply states how much the policy will pay out in benefits per day that you need care. Some policies pay out benefits based on a daily limit and others multiply that daily amount by 30 to establish a monthly benefit amount. But whatever method the policy uses, the process always begins with figuring how much you will need on a daily basis to pay for care. So how do you select your daily benefit?
You can easily determine a reasonable daily benefit amount by calling local nursing facilities and home health care agencies to find out what the cost for these services average locally. When calling local facilities, be sure to ask what the costs are for long-term care room rates, not short-term rehabilitation room rates—as they can be much more expensive. Also, ask for rates for both private and semi-private rooms, as there can often be a considerable cost difference. It is important that your daily benefit adequately covers facility care costs, which is sometimes the greatest expense.
Once you have a good idea of what daily expenses will be involved in local long-term care, the next step is to decide how much of that daily amount you feel that you could reasonably co-insure out of your own funds. When making this calculation, keep in mind that whatever funds you will provide for your own care must be kept in a readily accessible investment vehicle so that you can access them easily if and when you need to.
Some folks think that they have to over-inflate the daily benefit amount to be sure that they can keep pace with the rising costs of care in this industry. And it is true that long-term care costs are rising so rapidly that a suitable daily benefit today may be only half of what is needed in just fifteen years or so. However, keeping the daily benefit current with rising costs is usually the function of one of the other foundational features of a well-designed LTCI policy, the inflation protection benefit.
The effectiveness of the inflation protection benefit is closely connected to making sure that the daily benefit that you choose at the inception of the LTCI policy is as correct as possible. So, do your homework and use the suggestions given above to select a meaningful and appropriate daily benefit for your LTCI policy in order to have the protection you need, not only now but many years into the future as well.
Until next time...Duane
Duane Lipham is a Certified Long-Term Care (CLTC) consultant.