Long Term Care Insurance
Long term care insurance is one of the best ways
to protect you and your family from the expenses incurred as a result of the
need for continued care in the future. It can protect your assets and financial
stability and give you independence and freedom of choice. Your individual long
term care insurance plan must be tailored to your individual needs in
consideration of your estate and lifestyle. There are several options and
benefits to consider in determining which plan is best for you.
Selecting a Plan
There are two basic types of long term care
insurance options: “Facility Only” plans and “Comprehensive” plans. “Facility
Only” plans cover your care in a residential or assisted living facility or
nursing home, but not in your home. “Comprehensive” plans combine facility only
coverage with coverage for care in your home and other community care
facilities such as adult day care centers.
The long term care benefits you receive depend on
the plan you select (Facility Only or Comprehensive). Additional important
factors you will need to consider are:
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Benefit amount – the dollar amount the policy pays each day or month.
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Benefit period – the length of time you will receive benefits.
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Elimination period – the period of time you have to wait before the policy
begins paying for your care.
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Tax Qualified vs. Non-Tax Qualified plan – see below for a comparison of these
plans.
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Inflation protection rider (optional benefit) – this rider automatically
increases your benefit amount each year. Simple inflation protection increases
your benefit amount each year by 5% of the original benefit amount. Compound
inflation protection increases your benefit amount each year by 5% of the
previous year’s benefit amount.
Tax Qualified vs. Non-Tax Qualified Plans
TAX QUALIFIED.
Congress passed legislation effective in 1997 giving a tax break to people who
purchase long term care insurance that meets certain federal standards. These
tax-qualified plans use a stricter eligibility standard than standards
established in California for long term care insurance plans (non-tax qualified
plans). Policies that are labeled as “Federally Tax Qualified” use federal
standards for paying benefits (i.e. you must be unable to perform 2 of the
following 6 ADLs without substantial assistance from another person for at
least 90 days: bathing, dressing, continence, toileting, transferring, eating
or when you need help because of severe cognitive impairment). Some or all of
the premiums for tax-qualified plans may be tax deductible as a medical
expense. Benefits received from a tax-qualified plan are not taxable as income.
NON-TAX QUALIFIED.
Policies that use standards established in California are referred to as
non-tax qualified plans. Eligibility standards to pay benefits require you be
impaired in 2 out of 7 ADLs (the same 6 ADLs as listed for the tax-qualified
plan plus ambulating or when you need help because of cognitive impairment).
You also don’t require the certification that you will need care for at least
90 days. The premiums for these plans are not tax deductible. Benefits paid
from the non-tax qualified plans have not been taxed as income, however it is
not clear under federal law if the benefit payments are taxable as income.
What does it cost?
The cost of long term care insurance policies
varies according to the type of policy you select (Facility Only plan or
Comprehensive plan) and the coverage you select. The premium is calculated
based on a number of factors that include the type of policy you select, your
age and health when you apply, the waiting period before the benefits begin,
the benefit amount you select, the length of time the benefit will be paid, and
whether you choose a tax qualified or non-tax qualified plan.
California Partnership for Long Term Care
California Partnership long term care insurance
policies differ from traditional long term care insurance policies in that they
offer a unique asset protection feature. Each dollar your Partnership policy
pays in benefits can protect one dollar of your assets should you ever need to
apply for Medi-Cal for health or long term care benefits. In the absence of
this protection, a person can only retain $2,000 in assets in order to qualify
for Medi-Cal benefits. Should a person with a Partnership long term care
insurance policy exhaust their policy benefits, they won’t have to spend down
their assets to the poverty level before they can receive Medi-Cal benefits.
