A general guide to the different types of long term care insurance
Long-term insurance is an insurance product made to hedge the risk associated with long term medical expenses, especially those that are not covered by general health insurance, Medicare, Medicaid, etc.
The long-term insurance provides for medical care expenses such as skilled nursing, custodial care, etc. These expenses are usually not covered by other forms of healthcare insurance products.
This insurance can come in different varieties, which can be classified based on the way they relate to US policy in general as well as US tax laws.
In the United States, long term care insurance can be classified into two different types:
1.) Based on US Policies:
a.) Traditional Policies
These are the insurance policies that are traditionally purchased by the vast majority of the people seeking insurance coverage. It is the most common policy offered and consumed in the US market.
The way it works is quite similar to other forms of insurance such as car markets, where one is required to make regular payments on a timely basis, be it monthly, quarterly, half-yearly or annually. In other words, the payments are required to be made by the insured party over the agreed period of time at regular intervals, failing which, the insurance will be nullified.
The insurance premiums are non-refundable, meaning that if they go unused, they will not be returned.
b.) Combination or Hybrid Policies
These are the policies that are a mix of two policies in general. They are increasingly in demand across the US market.
They are a combination of life and long term care insurance. In other words, they cover both life insurance as well as long term care insurance.
Long term care insurance quotes paid are done on a one-time basis or over a set period of time which can be between two to ten years. There is no fixed payment done at regular intervals under this kind of insurance policy.
If the premium remains unused, then they are returned as a form of a tax-free life insurance benefit.
2.) Based on US Income Tax:
a.) Tax-Qualified Policies
These are the policies which require the person being insured to require care for atleast 90 days and be unable to perform 2 or more activities of daily life such as eating, dressing, etc without substantial assistance.
The benefits of this policy are non-taxable.
b.) Non-Tax Qualified Policy
This was formerly referred to as traditional long term care insurance. It often includes a ‘trigger’ called a ‘medical necessity’ trigger, which allows for the patient’s own doctor or a doctor in conjunction with someone from the insurance company to state the at the patient needs care, for which the insurance will pay. This usually requires the patient to be unable to perform just 1 activity.
The Treasury Department hasn’t clarified the status of benefits received under this kind of insurance so the actual benefits are subject to legal interpretation.
While there are various types of long term care available, each one of them have their own set of benefits and drawbacks. Long term care planning must be done after a careful analysis and consideration of all factors and variables.
The decision to choose amid such choice would depend entirely on one’s needs, finances, current health and future expectations.