As with all types of insurance, LTC insurance pays benefits when an "insurable event" occurs. With LTC insurance, there are two specific ways you can become eligible for benefits:
Inability to Perform ADLs
A need for long-term care due to requiring assistance with ADLs can result from an accident, deterioration of health from conditions such as diabetes or heart disease, or simply increasing frailty as we age. The complete list of ADLs is: bathing, dressing, toileting, continence, transferring (from bed to chair, etc.), and eating. This is the order in which ADLs are typically lost and the reverse order in which we learn them from birth.
When you make a claim on your LTC insurance policy, an ADL assessment is performed to determine the extent of your inability to function without assistance. LTC insurance policies vary in their requirement regarding the number of ADLs you must lose to become eligible for benefits. For example, some policies require you to lose three of the six ADLs in order to qualify for benefits. Other policies require you to lose only two ADLs in order to collect benefits. Still others require that for skilled nursing home care, two ADLs must be lost, but for care in an assisted living facility or care at home, three or more ADLs must be lost to access benefits.
Recommendation: The best LTC insurance policies pay benefits if you are unable to perform only two ADLs, irrespective of where your care is received. Never consider coverage that requires you to lose more than two ADLs to collect benefits on the policy, even though these policies have a lower premium than superior policies. If you have an LTC insurance policy in force that requires you to lose more than two ADLs in order to receive benefits, consider shopping for a new policy. However, don't cancel your coverage without first undergoing a full assessment of your current health, affordability of new coverage, and other factors. If replacing your old policy is the most appropriate action, continue to make premium payments on any in-force policies until new coverage is issued.
The second way to collect benefits on an LTC insurance policy is to need assistance or supervision due to loss of cognitive abilities. It is important that your policy's eligibility criteria include this benefit trigger. Important: Cognitive impairment must be an allowable benefit trigger regardless of whether or not you need assistance with ADLs. In other words, never consider coverage that requires you to both need assistance with ADLs and have a loss of cognitive abilities.
"Cognitive impairment" can include the onset of Alzheimer's disease. Look for a clause in your policy that specifically states Alzheimer's is covered. The absence of such a clause is a big "red flag," and you should avoid such coverage.
Some LTC insurance policies contain a clause that states Alzheimer's is covered, but also include a clause in the "exclusions" section that states, "Mental and nervous disorders will not be covered unless the disorder is organically demonstrable." This "weasel clause" can cause problems at the time of claim because the insurance company can claim that the cause of the condition cannot be determined. Most states have banned the use of this language in individual policies being issued today, but you should have your financial advisor carefully review in-force policies to assure this clause is not included in the policy language. This clause is still commonly found in some group LTC insurance coverage. Unfortunately, group coverage can be easily sold to individuals who rarely ask an advisor to scrutinize the details of the coverage.
The same recommendation made previously regarding replacement of coverage applies here: If your in-force policy contains the "weasel clause," carefully asses your options and never cancel any in-force policy until new coverage is issued. But an extra recommendation is made with regard to group coverage available to you: Group LTC insurance offered through the workplace normally has "open enrollment" deadlines, which are designed to pressure you into making a quick decision. Time is of the essence when you are being offered LTC insurance with an open enrollment deadline because you don't want to miss an "opportunity" to obtain "guaranteed issue or modified issue" coverage, if you have significant health issues. If you haven't yet discussed risk management with your advisor at this point in the process, you should do so immediately and have him/her perform a policy audit on the group coverage so you may be better advised about how to proceed.
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