Benefit Triggers for LTC Ins.

LTC Insurance Benefit Triggers

It is important to understand what must occur before an LTC insurance policy begins to pay benefits. This could be thought of as the definition of disability or the benefit trigger. New, tax-qualified policies will pay benefits when a person is chronically ill, further defined as:

  • A person must be unable to perform, without substantial assistance from another person, at least two ADLs for a period expected to last at least 90 days OR
  • A person must require substantial supervision to protect themselves from threats to their own or someone else’s health and safety due to severe cognitive impairment.

Not all insurance carriers define ADLs the same way. While the main categories (bathing, continence, dressing, eating, toileting, and transferring) may be the same, it is the definition of each of these terms that determines benefit qualifications.

Also, policies may differ in what constitutes assistance. Certainly direct, physical, hands-on help with ADLs would qualify in every case, and new policies consider assistance to simply be standby assistance-that is, the need for another person to be present while the activity is done to ensure the safety of the person needing care. This standby measure is a significantly better definition of an ADL loss.

The HIPAA, tax-qualified LTC policies provide better definitions of benefit triggers, assurances for consumers regarding the tax status of their LTC benefits and at least the potential for a premium tax deduction. Today, very few policies do not meet the federal tax code’s criteria to be tax-qualified. These few policies, called non-tax qualified, generally may offer the consumer more liberal benefit triggers. Non-tax qualified policies do not have to base their ADL trigger on the expectation that the need for care will last at least 90 days, thus potentially being able to pay for short-term care claims where recovery is expected. Such policies also may trigger benefits after a person loses one ADL (versus two with tax-qualified). And non-tax-qualified policies may add a third trigger, called medical necessity, allowing for a medical exception to get benefits paid when a person doesn’t qualify under a physical ADL or cognitive trigger (Medical necessity as a separate trigger is not allowed in tax-qualified policies.) However, remember that the majority of LTC policies sold today are tax-qualified.

Many advisors do not have a clear understanding of these very important concepts and their impact on when and how benefits are paid under the terms of a tax-qualified or non-tax-qualified long-term care insurance contract. Talking with a long-term care insurance specialist will help clear up any misunderstanding.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved.