WHAT IS LONG-TERM CARE INSURANCE?
• POLICY LIMITS
• BENEFIT LIMITS
• DAILY BENEFIT PAYMENT TYPES


WHAT IS LONG-TERM CARE INSURANCE?

Long Term Care insurance provides coverage that is not covered by health insurance. It
provides varied services, such as health and maintenance services like long-term
nursing, in the event of an insured becoming ill or disabled. This type of insurance pays
coverage on a per-day basis. In view of increasing health costs in the future, most
policies offer some sort of inflation adjustment.

BENEFITS

Here are some of the benefits provided under this insurance plan:
􀂃 Nursing Home Services: Nursing home services must be provided by a
licensed nursing facility.
􀂃 Assisted Living Services: Assisted living services must be provided by a
licensed assisted living facility.
􀂃 Home Health Care Services: Home health care services must be provided by a
licensed home health agency. Covered services may include part-time skilled
nursing care, physical therapy, and assistance with activities of daily living.
􀂃 Adult Day-Care Program Services: These programs provide daytime care to
individuals who do not need to live in a nursing home. Typical benefits include
nursing or therapeutic care, social and educational activities, or personal
supervision because of "cognitive impairment," such as Alzheimer’s or a similar
disease. Daily benefit amounts for home health care and adult day-care are
usually lower than for nursing home care. However, total benefits for home health
care and adult day-care must be at least one half of the total nursing home
benefits for a year.
􀂃 Other Services: A policy may include other benefits or offer them as options.
These could include:
􀂃 respite care (care provided so that family members who are normally
caregivers can have time off)
􀂃 recovery period benefits (care after a stay in a hospital)
􀂃 home assistance services (help with chores like cleaning and shopping)
􀂃 training for family members
Benefit Eligibility Triggers
The policy must provide coverage for long-term care services listed in the policy if the
insureds are unable to perform the specified number of Activities of Daily Living or if the
insureds require supervision and services due to cognitive impairment.
􀂃 Activities of Daily Living (ADLs): Activities considered essential to a normal
lifestyle - bathing, continence, dressing, eating, toileting, and transferring (moving
around).
􀂃 Cognitive Impairment: A loss in intellectual capacity that requires the insured to
have substantial supervision to maintain the safety of himself/herself and others.

POLICY LIMITS

Many states allow long-term care insurance policies to exclude coverage for some
conditions. Some conditions may be excluded for a limited period of time, while other
conditions may be excluded completely from coverage.
􀂃 Pre-existing Conditions: A pre-existing condition is an illness or disability for
which you received medical advice or treatment during the six months before you
apply for long-term care coverage. A long-term care policy can delay coverage of
a pre-existing condition for up to six months after the policy´s effective date.
Some policies, however, exclude them for less than six months.
For example, if an insured took prescription medicine or was treated by the
doctor for arthritis during the six months before the policy was purchased, the
insurance company could refuse to pay benefits during the first six months that
the insured has the policy if the insured needs long-term care due to arthritis.
After the first six months, the company would have to cover such care.
􀂃 Mental and nervous disorders: A long-term care policy can exclude coverage
of some mental and nervous disorders, but the policy must cover Alzheimer’s
disease and other age-related disorders. However, a person already suffering
from Alzheimer’s probably will not qualify for a long-term care policy under a
company´s underwriting guidelines. A long-term care policy also must cover all
serious mental illnesses and brain diseases that are biologically-based, such as
schizophrenia or major depressive disorders. The diagnosis must be made by an
appropriately licensed medical practitioner.
􀂃 Family Members: Most policies will not pay members of the insured’s family
for caretaking. Some policies, however, will pay to train family members to be
care providers.

Standard Policy Exclusions

Texas long-term care policies may exclude coverage for conditions resulting from:
􀂃 alcoholism and drug addiction
􀂃 illness caused by an act of war
􀂃 care already paid for by Medicare or by any government program, except
Medicaid
􀂃 attempted suicide or intentionally self-inflicted injuries
􀂃 service in the armed forces
􀂃 aviation activities, if you are not a fare-paying passenger
􀂃 participation in a riot, felony, or insurrection

BENEFIT LIMITS

There are many variables that should be considered before buying a long-term care
policy. The policy should meet the insured’s possible future needs, but still fit his/her
budget. The choices about basic benefit features, the level of benefits, and the
elimination period, as well as the insured’s health at the time of application, will affect
the premium. The following lists typical benefit ranges for nursing home coverage:
􀂃 A daily benefit may range from $50 to $250 per day.
􀂃 An elimination period (the waiting period before benefits begin) usually ranges
from zero to 100 days. The most common options available start benefits at zero,
20, 30, 60, 90, or 100 days after the insured enters a nursing home or begins to
receive other covered services.
Note: Some policies have only one elimination period, while others require an
elimination period for each new "period of care."
􀂃 A maximum benefit period (payment period) may range from one year to a
lifetime. The most common benefit payment periods are one, two, three, or five
years, or for the insured’s lifetime.

DAILY BENEFIT PAYMENT TYPES

Generally, policies pay benefits using either an "actual expenses incurred" or an
"indemnity" basis. An expense incurred policy pays the charges when the insured
receives eligible services. For example, assume that the insured has a policy with a
daily benefit of $100, and the nursing home charges only $65 per day. An expense
incurred policy will pay only $65 per day since the actual charge is less than the $100
daily benefit. An indemnity policy pays a set daily benefit, without regard to the cost of
the services that the insured receives. For example, if the insured’s policy is an
indemnity policy with a $100 daily benefit and the nursing home charges only $65 per
day, it will still pay $100 per day.
For either policy, benefits will be paid to the insured, or the insured may "assign" his/her
benefits to be paid directly to the nursing home or other provider providing the service.

BENEFIT OPTIONS
o Inflation Protection
o Non-forfeiture Benefits
o Other Optional Benefits

BENEFIT OPTIONS

All policies must offer certain optional features for an additional premium.
Inflation Protection
Many states require companies to offer inflation protection. If the insured decides not to
buy inflation protection, the offer must be rejected in writing. The offer of inflation
protection must include a graphic comparison of benefits on a policy with and without
inflation protection over a 20-year period.
Inflation protection must be offered in at least one of the following three ways:
1. Benefits automatically increase by at least 5 percent each year, compounded
annually. For example: A $70 daily benefit that increases by a "simple" 5 percent
a year will provide $140 a day in 20 years, but will provide $186 a day when
compounded annually.
2. The insured’s original benefit amount increases by at least 5 percent
compounded each year on the policy’s renewal date. If the increase is not
desired, it must be rejected in writing within 30 days after the policy renewal date.
3. The policy can cover a specified percentage of actual or reasonable charges for
as long as the insured owns it, with no maximum daily limit or policy limit.
Nonforfeiture Benefits
Companies must offer the insured a guarantee that some benefits that were paid for will
be received even if the coverage is lost or cancelled. This guarantee is called
"nonforfeiture benefits." In most cases, the longer the insured pays premiums on the
policy, the larger the nonforfeiture benefit. For example, if the insured paid premiums on
a long-term care policy with a nonforfeiture benefit for 10 years, and then cancelled it,
the insured might get 50 percent of the daily benefit if long-term care services in the
future are needed. Or, the insured might get a full daily benefit, but only for one-third or
one-half as long as the original benefit period.
A nonforfeiture benefit can significantly add to a policy’s premium, depending on factors
such as the insured’s age at the time of purchase, the type of benefit offered and
whether the policy provides for inflation protection.
Methods vary for determining the type and amount of nonforfeiture benefits the insured
receives, and each method has a different cost.
Note: If you decide not to buy a nonforfeiture benefit, you must reject the offer in writing.
In Texas, after July 1, 2002, the company must explain its "contingent lapse benefit" if
the insured chooses not to buy a nonforfeiture benefit. The company must also offer a
contingent lapse benefit each time it raises the insured’s premium substantially. A
contingent lapse benefit allows the insured to choose a reduced benefit amount so that
premiums will not increase or to convert the policy to a paid-up status. The paid-up
status will be either a total sum of all premiums paid for the policy or 30 times the daily
nursing home benefit amount at the time the policy lapsed.
Other Optional Benefits (Some companies may charge an additional premium)
􀂃 Waiver of Premium: Many policies include a waiver of premium provision. This
provision allows the insured to stop paying premiums once the insured is in a
nursing home and the insurance company has started to pay benefits. Some
companies waive the premium as soon as they make the first benefit payment.
Others wait 60 to 90 days. This provision may not apply if the insured is receiving
benefits under certain provisions of the policy (for instance, if the insured is
receiving home health care or adult day-care).
􀂃 Refund of Premium Benefits: Under this option, some or all of the premiums,
minus any claims paid under the policy, will be refunded to the insured if the
policy is cancelled. The refund will be made to the insured’s beneficiary if the
insured dies. Usually, the insured must have paid premiums for a certain number
of years before this benefit becomes effective.
􀂃 Restoration of Benefits: Some policies offer to restore benefits to the original
maximum amounts after a period of long-term care if the insured is treatmentfree
for a certain period of time, often 180 days.
􀂃 Bed Reservation Benefit: If the insured is hospitalized during a nursing home
confinement that is covered by the policy, some policies will pay to reserve the
insured’s bed in the nursing home for a specified number of days or until he/she
returns.

UNDERWRITING IN LTC POLICIES
o UNDERWRITING CRITERIA
• LTC POLICY PROVISIONS
o MANDATORY LTC POLICY PROVISIONS
UNDERWRITING IN LTC POLICIES

Much of the information required by the insurance company for the underwriting process
is obtained by one the following sources:
􀂃 The Application itself
􀂃 The Insurance Agent
􀂃 Verification Reports which are investigative in nature and sometimes highlight issues
that do not surface from other sources
􀂃 Medical Records of the applicant.
Underwriting Criteria
Policies that are a standard risk to the insurance company are called standard or
submitted; these policies attract standard premiums. Often, however, the applicant is
required to pay an amount that exceeds the standard premium to make the risk of that
particular policy acceptable to the insurance company.
Insurance companies employ several criteria to assess the risks they are likely to incur
with each additional policy. Some of these criteria are:
􀂃 Age
􀂃 Current, historical and an assessment of future medical conditions
􀂃 Pre-existing conditions

POLICY PROVISIONS

To promote equity and fairness, the Uniform Policy Provision Law established and
categorized certain policy provisions. These were divided into two parts; those that are
mandatory and are required by law to be a part of every policy, and those that were
deemed to be optional.
Mandatory Provisions
Entire Contract
This includes all attached papers, riders and endorsements. All changes are to
be approved and executed by an officer of the company.
Period of Incontestability
This is usually two years in length. In the event that there are fraudulent
statements in the policy, the period of contestability extends to the life of the
contract. Only in the case of a guaranteed renewable policy will the policy remain
uncontestable once the specific period has expired.
Reinstatement
A policy may be reinstated after it has lapsed and the specified procedures are
followed. Reinstatement discretion lies with the company.
Claim Forms
The law requires insurance companies to supply the insured a claim form within
15 days of the claim being lodged. If this is not done, a proof of loss may be
submitted in any form.
Grace Period
A company normally allows the insured about 31 days to submit late premium
payments, after which the policy will lapse or terminate.
Notice of Claims
A policy holder is required to notify the company within 30 days.