Critical Illness As a Supplement to Long Term Care
Long Term Care (LTC) insurance has been one of the most problematic insurance products for insurers. In recent years they have lost tens, and sometimes hundreds, of millions of dollars on this product. Many insurers have exited the market and nearly all have substantially raised rates for both new sales and in-force policies. For those remaining in the market, the product design has tightened considerably: Gone for the most part are zero-day elimination periods, lifetime benefit periods and benefit increasing "perks" for the use of care management services.
Despite this contraction and turmoil in the LTC market, the product remains essential and is needed more than ever. As the last of our Baby Boomers approach retirement age and our government continues to struggle with mounting debt, a private sector solution appears to be the only viable option.
At present, and for the foreseeable future, there is no single comprehensive solution to this issue. Rather, insurance advisors will need to find and cobble together complementary products to provide their clients with viable solutions going forward. One such solution is the packaging of Critical Illness with Long Term Care insurance.
Two of the greatest limitations to LTC coverage today are the longer elimination periods, and the shortened benefit periods commonly available. Critical Illness can help to fill both of these significant gaps in coverage.
Elimination Periods: The elimination period is the length of time an insured must use LTC services before benefits become payable. Critical Illness insurance can partially fill this gap for catastrophic situations by rolling up the elimination period into a lump sum CI benefit.
- For example: Presume that an LTC policy is purchased for $150 per day with a standard tax qualified 90-day elimination period. If an insured purchases a Critical Illness policy for $13,500 ($150 x 90), they would have the equivalent funds of a zero day elimination period, at least when such catastrophic conditions as cancer, heart attack, and stroke occur.
To take this a step further, an insured could substantially lower his or her LTC premiums by purchasing an even longer 180-Day, or even a 365-Day, elimination period and layering a substantial Critical Illness benefit of $27,000 or $54,000 in front of it.
It is important to recognize that Critical Illness insurance will not pay for all the situations one may encounter with long term care, but it does have the added benefit of providing the insured with an unrestricted lump sum benefit when certain serious illnesses and events occur.
Benefit Periods: The benefit period is the length of time, following the elimination period, for which benefits are payable. This can be expressed in terms of calendar days, service days, or as a pool of money. The problem today is that, due to excessive losses in this area, few insurers are willing to provide lifetime benefits. Many limit the maximum benefit period to five years or less. Here too, a Critical Illness policy could substantially help to fill this huge financial gap.
- For Example: Presume an LTC policy was purchased for $150 per day with a five-year benefit period. In most cases, that may be sufficient for one's needs - but, not always. The purchase of a Critical Illness policy for $100,000 or more could provide funding for another year or longer of care in the event of a covered condition.
Long Term Care insurance remains as important as ever. Given the limitations inherent in many of today's LTC offerings, Critical Illness insurance is an excellent complementary product. It will provide many consumers with much needed funding that can be used for the expensive, and often lengthy, cost of long term care services.