Basics of Long Term Care Insurance
The New York State Department of Financial Services requires that at the time of sale of policies covering long term care services, certain optional benefits must be offered. These options (and the types of policies they must be offered with) follow:
An Inflation Protection Benefit must be offered with "Long Term Care Insurance," "Nursing Home Insurance Only," "Home Care Insurance Only" and "Nursing Home and Home Care Insurance". Policies approved under the New York State Partnership for Long Term Care must contain an inflation protection benefit of at least 5% compounded annually, unless the policy is purchased at or after age 80. Remember, a daily benefit amount that is adequate today may not be adequate ten years from now. In an indemnity policy an inflation protection benefit increases the daily benefit amount and/or maximum policy benefit over time to help keep pace with inflation and increased expenses.
A Nonforfeiture Benefit must be offered with "Long Term Care Insurance" policies. The nonforfeiture benefit is designed to ensure that if you lapse your policy (i.e., stop paying premiums) after a specified number of years, you retain some benefits from the policy. There are currently two common types of nonforfeiture benefits being offered with certain insurance policies covering long term care services. These are referred to as a "Reduced Paid-Up Benefit" and a "Shortened Benefit Period." A brief description of these benefits follow:
- Reduced Paid-Up Benefit: If you purchase a reduced paid-up benefit, it will provide that if you lapse your policy after a specified number of years, the policy will continue with reduced daily benefit amounts (some insurers apply this nonforfeiture benefit only to nursing home benefits).
- Shortened Benefit Period: If you purchase a shortened benefit period, it will provide that if you lapse your policy after a specified number of years, the policy will continue to cover the same benefits (amounts and frequency in effect at the time of lapse) that would have been covered under your policy until the nonforfeiturebenefit amount is exhausted. A similar nonforfeiture benefit that was offered in the past was known as an "Extended Term Benefit".
In other words, the "Reduced Paid-Up Benefit" provides reduced benefits for the original term of the policy, and the "Shortened Benefit Period" provides full benefits for a reduced period of time.