Traditional Plans
Step Three:
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Overview
Traditional long-term care insurance plans were developed in the late 1970s and peaked in popularity in 2002 when there were over a hundred companies offering this type of insurance. Today, we have fewer than 15 companies who offer these types of plans.
- Traditional plans work like homeowners or auto insurance. You decide how much coverage you need and pay your premiums to keep the policy in force. Once you go “on claim,” your premiums will stop and you will start receiving the benefit based on how you set your plan up.
- Traditional plans can be one of the least expensive ways to pay for care, especially if you go “on claim” early on.
- Traditional plans also work with the State Partnership Program which gives you an extra level of protection by allowing you to protect your assets from Medicaid spend-down rules should you need care beyond the coverage of your long-term care plan.
- Traditional plans offer inflation protection. The policy and benefit amount grow over time so you can keep up with rising costs.
- Many plans also offer shared care policies which allow a husband and wife or partners to share the benefits of the plan.
- Traditional plans offer a wide degree of customization so you can design a plan that works specifically for your situation.
- Traditional plans pay claims on a reimbursement basis, meaning they will reimburse for the actual cost of your care up to either a daily or monthly limit.
- Traditional plans work with the state partnership program
- Premiums are considered deductible as medical insurance
- Once you are “on claim,” benefits come back to you tax-free
- Once you are “on claim,” you stop paying premiums
Here’s How It Works
1. You pay a monthly or annual premium to the insurance company.
2. This gives you a bucket of money for long-term care.
3. Over time your long-term care coverage will grow with inflation.
Here’s How You Can Fund a Traditional Plan
Retirement
Account
Home Equity
Health Savings
Account
Savings
Income
Take a Look at Some Examples
Traditional Plan Funded with Income/Cash
Female, 48, in excellent health, sets up a state partnership long-term care plan with annual payments of $3,068.86 which provides her with an initial benefit of $292,000. She can access this amount over a minimum of 4 years. This plan will grow by 3% each year which will also increase the amount she can access.
Note: This is a cash or indemnity policy that provides the full monthly benefit to the client once she is on claim regardless of how much she is spending on care. The client has a growing amount of coverage each year, a death benefit, and she can always get her premiums back after she has finished paying into the plan. She also has a guaranteed death benefit of $31,091 which is paid to her estate even if she uses all the long-term care benefit.
Traditional Plan Funded with Income/Cash
Husband, 58, and Wife, 57, set up a State Partnership Program for an annual payment of $3,118.37. The initial long-term care benefit is $250,000 and will grow by 3% each year. The clients can each access the plan as it is a shared care policy. Clients also have the option to choose 40% of the monthly benefit as a cash option (indemnity).
Note: This is a more flexible plan than most traditional plans since it has a cash option. This comes in handy as most long-term care situations start in the home and may not require the full monthly benefit that is available. Since traditional plans reimburse you for actual costs, by having a cash option the clients don’t have to wait to get reimbursed and they can spend the money as they see fit. Regardless of how they choose to draw out the money, the policy will pay out the entire long-term care balance.