Coverage conundrum

By Janet Freedman | August 8, 2006 | Last updated on August 8, 2006
6 min read
  • Waiver of premium
  • Return of premium
  • Cost of living protection
  • Future purchase option/option to increase

    Some policies will pay out the daily amount to the policyholder once a physician’s diagnosis is received, regardless of how the money is to be spent. This gives total control to the policyholder or family to hire care providers and services and allows for the use of non-licensed caregivers, taxis for transportation, or paying a neighbour to provide some homemaking. The care level provided by licensed and trained caregivers may be superior to that of untrained help, but the costs are generally higher. And sometimes the quality isn’t there either. If local agencies are unable to meet the demand, sometimes it’s best to go outside the system.

    In other cases, caregivers may be properly trained but not necessarily honest. (In my own case, one agency care provider got hold of my and my daughter’s credit cards and ran up more than $2,000 in charges before we caught on.) On the flipside, if the insured is unable to oversee the hiring and firing of caregivers, family members may step in and skimp to save cash. For clients who will remain in major urban centres, a policy requiring licensed providers may be the best option. The liberal caregiver benefit may, however, be suitable for those in remote areas.

    Limits on the length of time benefits are paid — two years or five years — are common and of course reduce the premium. Others provide lifetime payments. Surprisingly, lifetime benefits may not always be the way to go. According to recent U.S. research, the average length of stay in a nursing home was 2.4 years. This would suggest a lifetime payment plan is not necessarily the best option. At the same time, who would want to take the risk and advise a client to take only five years?

    Of late, there’s been much discussion of liability at conferences and educational sessions. Just how should advisors protect themselves? Since not all insurance agents actively promote LTC, the best advice seems to be to include a disclaimer in the disclosure letter given to each client stating he or she was offered the opportunity to apply for LTC, CI, or DI and has declined; or that the agent does not sell LTC and if the client wishes to purchase or investigate these products, she must do so elsewhere.

    Reallocating premium dollars to LTC when life insurance or DI is no longer needed is an answer many advisors are looking for. A product that offers life insurance with an option to designate part as CI is a good start — letting it convert at a later age to an LTC policy would be even better. Mutual Life has a universal life policy which can be used for LTC purposes. And one of my single clients is using the premiums that paid for a whole life policy, which she had owned for years, to fund LTC. Another advisor has on his wish list a joint policy with premium discounts for couples.

    LTC Checklist Review policies to ensure they provide adequate coverage.
    Does a long-term care policy meet your client’s needs? Answer these questions to find out:

    [ ] What triggers payment of benefits? (In most cases, benefits don’t get paid unless the client is unable to perform activities of daily living stated in the policy, or suffers mental incapacity that might result in harm coming to them if they’re not cared for.)

    [ ] What type of plan is it: reimbursement plan, indemnity plan, fixed-income plan?

    [ ] What is the benefit amount?

    [ ] Will coverage include both home care and facility care?

    [ ] What is the waiting period: 30 days, 90 days, 180 days?

    [ ] How long will benefits last: one year, three years, five years, or life?

    [ ] How long will premiums have to be paid — for the life of the policy or for a set period?

    [ ] Are premiums annual or monthly?

    [ ] Does the policyholder have control over who provides care, or are caregivers provided through a service contracted by the insurance company?

    [ ] Is there flexibility as to the purposes for which benefit payments can be used?

    [ ] Is there a return of premium feature? What are the conditions?

    [ ] What riders are available?

    [ ] What are the exclusions on the policy?

    Source: Hit by an Iceberg: Coping with Disability in Mid Career, by Janet Freedman and Marie Howes, Trafford, 2003.

    This article originally appeared in Advisor’s Edge. Janet Freedman, CFP, R.F.P., is president of Finance Matters, a fee-only financial planning firm in Toronto.

    (08/08/06)

    Janet Freedman

  • Respite care
  • Waiver of premium
  • Return of premium
  • Cost of living protection
  • Future purchase option/option to increase

    Some policies will pay out the daily amount to the policyholder once a physician’s diagnosis is received, regardless of how the money is to be spent. This gives total control to the policyholder or family to hire care providers and services and allows for the use of non-licensed caregivers, taxis for transportation, or paying a neighbour to provide some homemaking. The care level provided by licensed and trained caregivers may be superior to that of untrained help, but the costs are generally higher. And sometimes the quality isn’t there either. If local agencies are unable to meet the demand, sometimes it’s best to go outside the system.

    In other cases, caregivers may be properly trained but not necessarily honest. (In my own case, one agency care provider got hold of my and my daughter’s credit cards and ran up more than $2,000 in charges before we caught on.) On the flipside, if the insured is unable to oversee the hiring and firing of caregivers, family members may step in and skimp to save cash. For clients who will remain in major urban centres, a policy requiring licensed providers may be the best option. The liberal caregiver benefit may, however, be suitable for those in remote areas.

    Limits on the length of time benefits are paid — two years or five years — are common and of course reduce the premium. Others provide lifetime payments. Surprisingly, lifetime benefits may not always be the way to go. According to recent U.S. research, the average length of stay in a nursing home was 2.4 years. This would suggest a lifetime payment plan is not necessarily the best option. At the same time, who would want to take the risk and advise a client to take only five years?

    Of late, there’s been much discussion of liability at conferences and educational sessions. Just how should advisors protect themselves? Since not all insurance agents actively promote LTC, the best advice seems to be to include a disclaimer in the disclosure letter given to each client stating he or she was offered the opportunity to apply for LTC, CI, or DI and has declined; or that the agent does not sell LTC and if the client wishes to purchase or investigate these products, she must do so elsewhere.

    Reallocating premium dollars to LTC when life insurance or DI is no longer needed is an answer many advisors are looking for. A product that offers life insurance with an option to designate part as CI is a good start — letting it convert at a later age to an LTC policy would be even better. Mutual Life has a universal life policy which can be used for LTC purposes. And one of my single clients is using the premiums that paid for a whole life policy, which she had owned for years, to fund LTC. Another advisor has on his wish list a joint policy with premium discounts for couples.

    LTC Checklist Review policies to ensure they provide adequate coverage.
    Does a long-term care policy meet your client’s needs? Answer these questions to find out:

    [ ] What triggers payment of benefits? (In most cases, benefits don’t get paid unless the client is unable to perform activities of daily living stated in the policy, or suffers mental incapacity that might result in harm coming to them if they’re not cared for.)

    [ ] What type of plan is it: reimbursement plan, indemnity plan, fixed-income plan?

    [ ] What is the benefit amount?

    [ ] Will coverage include both home care and facility care?

    [ ] What is the waiting period: 30 days, 90 days, 180 days?

    [ ] How long will benefits last: one year, three years, five years, or life?

    [ ] How long will premiums have to be paid — for the life of the policy or for a set period?

    [ ] Are premiums annual or monthly?

    [ ] Does the policyholder have control over who provides care, or are caregivers provided through a service contracted by the insurance company?

    [ ] Is there flexibility as to the purposes for which benefit payments can be used?

    [ ] Is there a return of premium feature? What are the conditions?

    [ ] What riders are available?

    [ ] What are the exclusions on the policy?

    Source: Hit by an Iceberg: Coping with Disability in Mid Career, by Janet Freedman and Marie Howes, Trafford, 2003.

    This article originally appeared in Advisor’s Edge. Janet Freedman, CFP, R.F.P., is president of Finance Matters, a fee-only financial planning firm in Toronto.

    (08/08/06)