One of the key levers agents use to present lower LTC Insurance premiums to their prospective clients is recommending longer elimination periods.
Sometimes called the waiting period, the elimination period is the period of time that must elapse from the time a benefit-triggering event occurs and coverage payments begin.
Conceptually similar to an insurance policy’s deductible, elimination periods are a means of controlling premium costs; the longer the elimination period, the smaller the policy’s premium, all other factors being equal.
Elimination periods generally range from none (zero days) to one year, although some states will not permit more than 180 days. Two-year elimination periods, though not common, are also available.
Some policies may have separate elimination periods for nursing-home and home care. A 90-day elimination period that must run before home-care benefits begin; home-care elimination periods may count only days on which care is administered, and therefore take a much longer time to be met, if home care is not needed every day.
What’s the Cost of Lower Premiums?
Let’s establish a couple of baselines for comparison:
- The average cost in California for a semi-private room in a Nursing Home in 2015 is $245 per day
- 82% of purchasers of LTC Insurance selected a 90 day or greater elimination period as of 2010
Assuming your client selected a 90 day elimination period, how much of the dreaded nursing home event did the client choose to self-insure?
That math is easy – $245 x 90 = $22,050. That’s $7,350 per month for three months.
According to Genworth’s 2015 Cost of Care Study, that’s not the whole story. Nursing home care costs have increased by an average of 4% over the past five years.
Projecting those cost increases into the future, your prospective client would look to pay these amounts during their 90 day elimination period in the years ahead:
- 2020 $298 per day/$26,820 or $8,940 per month for three months
- 2025 $329 per day/$29,610 or $9,870 per month for three months
- 2030 $382 per day/$34,380 or $11,610 per month for three months
- 2035 $442 per day/$39,780 or $13,260 per month for three months
- 2040 $513 per day/$46,170 or $15,390 per month for three months
- 2045 $595 per day/$53,550 or $17,850 per month for three months
Of course not every client will immediately enter a nursing home to satisfy their elimination period. In fact, most clients will initially need care at home or in their community, where the costs of care are significantly less.
All insurers, brokers, agents and others engaged in the business of insurance owe a policyholder or prospective policyholder a duty of honesty, good faith and fair dealing.
Make sure you explain the potential high costs of lower premiums to your prospect client by properly explaining the implications of longer elimination periods.
