What is the Importance of Health?
Leading a healthy life is very important for every human being, be it a child, an adult, or an elderly person. Our lifestyle and health go hand in hand and any discrepancy in one of these will adversely affect the other. As we grow older, our body functions start getting impaired, and slowly disabilities start appearing.
What is Disability?
Disability is a condition of physical or cognitive impairment leading to a limitation in performing Activities of Daily Living (ADLs), such as bathing, eating, or general movement. According to the World Health Organization (WHO), disability has three dimensions— impairment, activity limitation, and participation restrictions. Disability can be of four types— congenital or since birth, due to developmental conditions that become apparent during childhood, caused due to accidents, and developed due to health conditions.
Understanding Long-Term Care
Long-term care is the care that an individual needs to provide a person in order to assist him/her in his/her normal day-to-day activities like getting out of bed, walking, etc. As people grow older, their mobility, dexterity, and overall health in general start deteriorating. They may not be sick but they might require help with their daily chores. In some people, this health issue may lead them to get admitted to a nursing home.
The majority of the senior citizens suffer from a physical or cognitive disability of some form or the other and require long-term care. Since women have a longer life expectancy in comparison to men; so, they require longer-term care in comparison to men.
Need for Health Insurance Coverage
One needs to be prepared to meet the unforeseen medical expenses. The right health insurance will cover all expenses related to hospitalization costs and medical treatment. With the passage of time, the net disposable income available to individuals starts declining. Having proper and sufficient health insurance coverage is important to avoid the eating up of disposable income into medical expenses.
Understanding Long-Term Care Insurance
Long-term care insurance is the insurance coverage available over and above regular health insurance or federal or state-sponsored insurance. The individual health insurance or the insurance coverage provided by the government is not sufficient to cover the rising medical costs. Therefore, it is advisable to have a long-term care insurance policy as well.
Importance of Long-Term Care Insurance
Providing long-term care might become a burden on the family members as they might have to sacrifice their working hours or the job entirely. As per a 2020 datum from the Administration for Community Living (ACL), nearly 70% of people above 65 years of age need long-term care in some form or the other. Regular health insurance is not inclusive of this long-term care. It is here that long-term care insurance comes into the picture.
Benefits of Long-Term Care Insurance
Long-term care insurance has several benefits apart from covering the associated medical costs. It helps us in maintaining the quality of life by taking away the burden of hospitalization and caregiver expenses. Further, long-term care insurance helps us choose how we will be provided the long-term care. One can opt to get long-term care either at home or an old age home or a nursing home. The insurance does away with the need for being transferred to a nursing home. Long-term care insurance further helps us to manage the usage of net disposable income.
Essentials of a Long-Term Care Insurance Policy
- Policy amount: One has the option of choosing the dollar amount of care one requires on a daily or monthly basis. This amount can be tentatively calculated on the basis of the prevalent caregiver rates in the area one resides.
- Elimination and benefit period: The elimination period is the duration of time one has to wait before one starts receiving the benefits covered in the policy. The benefit period is the tenure of the policy. One should look for policies that have a shorter elimination period and a longer benefit period.
- Protection against inflation: An inflationary situation leads to higher medical costs as well as more policy premiums being paid. One should opt for policies that take into account the inflationary costs.
- Activities of Daily Living (ADLs): Activities of Daily Living (ADLs) include activities like bathing, eating, using the washroom, continence as well as cognitive disability like Parkinson's or Alzheimer’s. Long-term care insurance comes into play when one needs help with two or more ADLs for a period of ninety days or more.
- Free look period: One should opt for long-term insurance policies having a standard free look period. The free look period is like a trial period where one can use a policy and if one is dissatisfied with it, then one can return it to the insurer for a full refund of the insurance premium. Most standard long-term insurance policies come with a free look period of 30 days.
- Lifetime maximum benefit: This is the maximum amount of monetary benefits that a policyholder can obtain throughout the policy period. Once this amount is exhausted, no more benefits can be availed by the policyholder.
- Provisions for Skilled care: Skilled care, also known as nursing care, is the highest level of care provided to an individual without requiring him/her to be hospitalized.
- Intermediate care: Intermediate care refers to the nursing or rehabilitative care provided to an individual as per the doctor’s recommendation. People with limited functional ability, not requiring round-the-clock care, are covered under this. Intermediate care is not covered by federal or state insurance coverage like Medicare.
- Custodial care: It is provided to help individuals meet the needs of ADLs, such as bathing, dressing and eating. This care can be provided by people who are not trained professionals. This care is not covered by Medicare. People should look for long-term care insurance policies covering these three types of care giving.
Understanding Long-Term Disability (LTD)
Long-term disability (LTD) refers to the inability to work due to illness or injury. LTD leads to loss of income. So, most employers these days provide employees with long-term disability insurance coverage to compensate for the income loss if any such untoward incidents happen.
Need for Long-Term Disability Insurance
Long-term disability insurance is an insurance policy that safeguards an employee against the loss of income arising due to the inability to work for a period of three months or more owing to illness, accident, or injury.
Essentials of Long-term Disability Insurance Policy
- Individual disability policy vs. employer-sponsored policy: Most employer-sponsored long-term disability insurance policies limit the enforcement of coverage under the federal Employee Retirement Income Security Act 1974 (ERISA). As far as possible, one should try to purchase the policy personally.
- The definition of disability: There are several ways to define disability and there is no uniformity in coverage provided for long-term disability as there is no uniformity in the definition being followed by the insurers. A few insurers include the term “Own Occupation” in the policy. This means that coverage is provided to the insured for being unable to perform his/her duties at his/her place of work or occupation. Some insurers provide coverage for “Any Occupation,” meaning the insured has to prove that he/she is unable to work at any job. People should look for policies providing “Any Occupation” coverage as such policies compensate for up to 60%-80% of salary in case of long-term disability.
- Portability: Having a portable insurance policy means that one can avail of the LTD coverage even when one changes the employer.
- Type of premium available: Some insurers allow a lock-in premium while others do not. There are still others who provide the options of non-cancellable or guaranteed renewal premium. A non-cancellable LTD means that the insured has the option to continue with the coverage and premium without any changes. A guaranteed renewal, on the other hand, lets the insured continue with the same coverage but the premium may fluctuate. One should choose the option best suited to one’s needs and situations.
- Cost of living benefits: Adding this rider to a LTD insurance policy ensures that inflation does not eat up the disposable income. One should look for policies where the cost of living benefits get compounded.
- Future increase: The future increase option rider should be added to the policy coverage if the insured feels that his/her income is going to increase in the future. Without this rider, the insurance coverage will not protect against any increase in income in the future.
- Renewability provision: The duration and terms of coverage of a long-term disability insurance coverage vary from insurer to insurer and also depend on the type of coverage. As discussed in the points above, if the insured opts for a non-cancellable policy, he/she can enjoy the policy benefits without any changes in coverage or premium. On the other hand, a guaranteed renewal policy gives the same coverage to the insured but at a fluctuating premium.
Many times, students end up mistaking long-term care insurance and long-term disability insurance for one another. They should remember that both are not interchangeable. Long-term care insurance is for people who have a problem in performing two or more ADLs, whereas long-term disability insurance is for people who can perform ADLs but have been rendered bedridden by an accident, injury, or some disease.
Context and Applications
This topic is significant in graduate and professional exams, especially for:
Masters of Business Administration (Finance)
Bachelors of Business Administration (Finance)
Bachelor of Commerce
Q1: Identify a type of disability.
(b) Activity limitation
(d) Participation restrictions.
Correct option: (c)
Explanation: The term disability refers to the condition where the body or mind of someone is not able to perform certain activities normally i.e. when there is an activity limitation.
Q2: Identify the party which provides long-term disability insurance.
Correct option: (c)
Explanation: Insured persons, employees, and spouses are not the parties who provide long-term disability insurance. So, the employer is the correct answer.
Q3: Identify the term for the trial period of a long-term disability insurance policy.
(a) Trial period
(b) Policy period
(c) Initial period
(d) Free look period
Correct option: (d)
Explanation: The term for the trial period is known as "Free look period" because this is the time when the insured has the right to terminate the policy.
Q4: Identify the care that an individual needs to provide a person in order to assist him in his normal day-to-day activities.
(a) Disability care
(b) Long-term care
(c) Custodial care
(d) Intermediate care
Correct option: (b)
Explanation: The care provided to assist someone in day-to-day activities is not termed custodial care, disability care, or intermediate care. It is termed long-term care.
Q5: Identify the type of premium that gives the insured the option to continue with the coverage and premium without any changes.
(a) Non-cancellable premium
(b) Guaranteed renewable premium
(c) Cancellable premium
(d) Flexible premium
Correct option: (a)
Explanation: Cancellable premium allows an individual to continue with the coverage while no-cancellable does not. The flexible premium does not allow to continue with the same coverage without any changes.
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