Archive for May, 2017

Stacking: Does It Make Sense To Own More Than One Policy?

May 28, 2017

Maybe.  Let’s say you want long term care insurance that will reimburse you for $6,000 per month.  But you can only afford (for now) coverage for $3,000 per month.  You expect your available income to grow during the next few years.  Buying the $3,000 per month policy today & then another, larger, policy later could be a good strategy provided:

  1. You remain insurable.
  2. You understand that the same policy will cost more per $100 of coverage just because you will be a few years older.
  3. A comparable policy, with a comparable cost structure, may not be offered a few years from now.
  4. Neither of the two policies have a coordination of benefits clause that would prevent you from receiving benefits from both…more on that later.

Here is another situation where “Stacking” policies could work.  Perhaps you have a small, older policy with a very low premium…and you want more coverage.  Should you apply for a single new policy that provides all the protection you are looking for, & discard the old policy?  Or should you keep the old policy & add a new one that makes up the difference?

As your insurance broker, I would conduct an analysis comparing the total cost of both approaches AND the comparative benefits of the old & new policies.  Even if there is a cost savings one way or the other, I (& you) would have to consider any differences in benefits.  For example:

  1. Older policies tend to express the maximum periodic benefit in dollars per day, while current policies almost always use maximum dollars per month.  $200 per day & $6,000 per month may seem like the same thing, but they are not.  $6,000 per month lets you get reimbursed $800 for a twice-monthly speech therapist visit following a stroke (assuming you don’t spend more than $5,200 for other long term care during the month).  If your policy benefit was $200 per day, your reimbursement for the same two $400 visits would only be $400.
  2. Elimination Periods for older policies tend to be expressed as the number of required “service days”.  Newer polices most often use “calendar days”.  The difference?  Service Days only count those days in which you actually incur a charge for care.  Calendar Days count all days (whether or not you actually have paid “service”) starting with the first day you are otherwise eligible (other than having satisfied the Elimination Period).  There is no pocketbook difference if you are in a facility, but it may matter greatly if you are receiving Home Care, for less than seven days per week.  For example: If you were receiving covered Home Care four days per week, starting on January 1st, it would take until about June 7th to satisfy your Elimination Period.  With Calendar Days in the same situation, it would only take until March 31st.
  3. Inflation Protection: Older policies often had “5% compound” inflation protection.  While 5% compound may still be offered in a few cases, it has become so expensive that only 3% compound is usually presented.

My recommendation would be based upon a combination of total (combined) cost & the difference (and there always is a difference) in policy benefits.  You would always be told the pros & cons of either keeping your old policy and adding a new one to it, or applying for a single new policy that would provide all the wanted benefits.  Of course, the decision would always be yours to make.

When would it NOT make sense to stack policies?

  1. If keeping the old policy & adding a new one would be more expensive than a single new policy AND the old policy does not have better benefits.
  2. If there is a “coordination of benefits” clause in either the old or new policies that permits the relevant insurance company to only pay benefits provided by one policy for the same long term care event.  For this reason, I would always recommend that if you do buy two or more polices, they be from different insurance companies.  Then, in the absence of a coordination of benefits clause, each insurance company would be contractually obligated to pay the stated policy benefits.  Note: I have never seen an individual policy with the kind of coordination of benefits clause I have just described.  Perhaps they do exist with some group policies.
  3. Your health has deteriorated to the point you are no longer insurable…here you have no choice but to keep the old policy.  You cannot buy a new policy.

None of the above discussion applies to a situation when someone wants to replace an older (more than about 5 years old) policy with a new one to save money.  You simply cannot get here from there.  Any policy more than a few years old will always be more expensive than a comparable policy available today.  I know, because I have checked this out for many of my clients.


Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary widely from company to company & often 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, 2017