Archive for August, 2011

Does A Long Term Care insurance Benefit Period Really Matter?

August 31, 2011

This is a question that comes up with almost every new client.  Although discussed in a previous issue, I thought it a good idea to revisit.

Most long term care insurance policies offer a choice of Benefit Periods.  The Benefit Period can be as short as 2 years and as long as 10 years or even lifetime.  What exactly does, for example, a five-year benefit period mean?

Will the policy pay benefits for exactly five years at which time it is finished? Probably not.

There are two limits on how much a long term care insurance policy can pay you in benefits.  The first limit is the maximum Monthly (or Daily) Benefit Amount.  If your reimbursement policy has a $6,000 Monthly Benefit Limit and you spend $5,000 on qualifying care in a month, you will be reimbursed $6,000 for that month.  If you spend $7,000, you will be reimbursed $6,000.  A higher Monthly Benefit Amount is better, but the premium is proportionately higher.

The second policy limit is the Total Benefit Amount (more commonly refered to as the policy “Pool of Money”).  A policy can continue to pay benefits until the Pool of Money has been exhausted.  Let’s assume you have a policy with a $360,000 Pool of Money and a $6,000 Monthly Benefit Amount.  How long will benefits be paid if you are reimbursed the full $6,000 every month?  Right!  $360,000 divided by $6,000 per month equals 60 months equals 5 years.   Same policy, different rate of reimbursement: Now you only spend $3,000 every month on qualifying care.  How long will benefits be paid in this example?  Correct again!  $360,000 divided by $3,000 per month equals 120 months, equals 10 years.  If this is not clear, please call me (303-699-4172) and I will be happy to explain it one-on-one.

How do we determine the dollar amount in the Pool of Money?  Now we can talk about the Benefit Period.  The Pool of Money = the Monthly Benefit Amount x 12 x the Benefit Period in years.  So in the policy example in the above paragraph, the Pool of Money = $6,000 Monthly Benefit x 12 x 5-year Benefit Period = $360,000.  Simple.  No?

In my opinion, the insurance industry unneccessarily complicated things by introducing the concept of a Benefit Period.  The current trend is for long term care insurance policies to include a Pool of Money (Total Benefit Amount) but not even mention a Benefit Period.  This is much easier to understand.

As we discussed, the Benefit Period is simply one of the factors for determining the dollar amount in the Pool of Money.  I will close by stating the one other useful function of the Benefit Period: It does indicate the shortest time the policy benefits could possibly be paid.

© Raymond Smith, The
Long Term Care Specialist, 2011

Here come the disclaimers:

1. A cash benefit (as opposed to a reimbursement) policy will pay out the maximum Monthly Benefit, once policy requirements have been met, every month, regardless of how much has been spent on care.

2.  The above discussion focused upon the policy initial Monthly Benefit and Pool of Money.  If the policy includes inflation protection, both amount would increase over time.  On some policies with inflation protection, the Pool of Money grows at a different rate after the first claim payments have been made.

3. The above discussion applies to today’s mainstream tax-qualified policies.  There are still some policies that measure maximum benefits in a number of days of care rather than dollars.  Dollars are more flexible.

4. Actual policy language, rather than the contents of this newsletter, always takes precedence.  Long term care insurance policies vary from company to company and within the same company.

5. Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

© Raymond Smith, The longLong Term Care Specialist, 2011

Why Do I Pre-Screen Prospective Clients?

August 31, 2011

Industry-wide, insurance companies decline about 30% of all applications for long term care insurance.  My decline rate is less than 10%.

I know that long term care insurance companies will automatically decline applicants for the following conditions: Major depression, Parkinson’s, amyotrophic lateral sclerosis (Lou Gehrig’s Disease), multiple sclerosis, active cancer, oxygen use, and diabetes with poor control.  So why would I raise a person’s hopes about being insurable and take their time to fill out an application if I know he or she will be declined?

I also know that some medical history combinations will cause someone to be uninsurable.  One example would be a diabetic who, is significantly overweight, and has poor circulation.  Another would be someone who suffers from asthma yet still smokes.  Again, why would I take a person’s time when I know they will be declined?

Most insurance agents and brokers will schedule a meeting with a prospective long term care insurance client without doing any pre-screening.  I won’t.  Before scheduling that first meeting, I ask a lot of questions.  What is your height and weight?  What medications have been prescribed and why do you take them?  Do you have a handicap parking tag?  Do you use oxygen?  Has any surgery been recommended that has not yet been completed?  Then I ask the financial qualification questions: What is your approximate net worth? (If a person does not have assets to protect from Medicaid spend-down, he/she should not buy long term care insurance.)  What is your monthly income? (Can you afford to pay ongoing insurance premiums?)

If it sounds like the person I am speaking with probably qualifies for long term care insurance, we will now schedule that first meeting.

What do I do when I encounter a medical history that I am not familiar with?  Or that I don’t know which insurance companies will accept?  Well, I do what I encourage other insurance producers to do…I call the insurance company underwriters directly.  I give the age, (but never the name or other personally identifiable information), height, weight, and medications.  The question I always ask the underwriter is “If I were to submit an application on this person to your company, what would be your likely decision?”.  The response tells me whether or not my prospective client is insurable and if so, what rate class I should expect.  I repeat this process with a number of insurance companies.

Now my prospective client can fully benefit from my experience and from my being an independent broker.  I have the information needed to talk about only those insurance companies offering the best value* and eliminating those which are unlikely to approve my prospective client.

After all this, why do I still occasionally have an application declined?  There are two reasons:  1. Occasionally an insurance company underwriter will tell me that the presented medical history is marginal and could go either way.  It could still be worth trying.  2. Sometimes medical records will contain a test result or other information the person was not aware of.

*Once I know that someone is insurable and at what rate class, I go to a subscription software program that tells me how much comparable policies from different companies will cost.  This allows me to eliminate the policies that are too costly.

Why do I pre-screen prospective clients?  To save time and energy of those who would not be able to obtain long term care insurance.

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.


© Raymond Smith, The Long Term Care Specialist, 2011