Short-duration LTC

Submitted by ,

For years, buyers of long term care (LTC) insurance typically chose the “unlimited benefit,” which means that the policy’s benefits pay out indefinitely as long as one’s condition qualifies to receive benefits. LTC insurance applicants considered the awful stories they’d heard about Alzheimer’s patients lingering in nursing homes for 10+ years and opted for the peace of mind that unlimited coverage offers.

Then, starting in 2002-2003, the price of quality LTC insurance policies jumped significantly and is continuing to climb today. In response, LTC insurance buyers have shifted strategy. More and more are bypassing an unlimited benefit and purchasing less expensive “limited pool” policies (benefit pools that are used up over a period of time chosen by the buyer). Often, a husband and wife add to this limited pool policy
a rider that enables them to access the other’s benefits should they use up their own pool.

Now, a new study commissioned by Sales Creators, Inc. a publishing and marketing firm in California, and conducted by Milliman, Inc., a consulting and actuarial firm based in Seattle, confirms the wisdom of the limited benefit approach.

Milliman asked four LTC insurance carriers: “What percentage of claimants actually used up the entire insurance policy benefits available to them?” They found that the percentage is surprisingly small. Of those with a three-year benefit period, only 8% exhausted their policy. Of those with a four-year benefit period, 5.1% used up their benefits, and the percentage drops to 1.5% for those with a five-year benefit period.

What’s the take-away here?

• It makes good sense to use more affordable, limited-benefit LTC insurance policies strategically to manage the majority of your LTC risk, and to rely on investments and savings if you’re unlucky enough to fall in that 8% that used up their benefit pool. Those with Alzheimer’s or types of dementia strongly present in their family’s medical history may still want to consider an unlimited benefit.

Source: The Wall Street Journal Online, “Guide to Long-Term Care”, by Glenn Ruffenach, May 8, 2005.

is a health and long term care insurance advisor with Benefit Management Consultants, Inc., a three-person family business operating out of its Edina "home" office. Contact her at 952-922-6625.