Short-term care can fit a client’s needs when LTCi isn’t an option

By Susan Rupe

When long-term care insurance isn’t an option because of a client’s health or because of costs, it’s good to know there is another tool to fill that gap.

That was the word from Jamie Sarno, vice president of Medicare Supplement and specialty health products with Amerilife. Sarno spoke during a recent event, “Don’t Be Scared of Long-Term Care” by the National Association of Insurance and Financial Advisors’ Limited and Extended Care Planning Center.

Short-term care insurance “can resurrect the sale” when a client is unable to obtain LTCi, Sarno said. He described a typical scenario.

A husband and wife both apply for long-term care coverage. The husband qualifies but the wife is declined due to a health reason. This can result in several issues, Sarno said.

The person who is declined is hurt, he said. “They feel even worse if they are declined. Then their spouse says, ‘If they can’t get coverage, I won’t get it either.” That’s one of the worst things that can happen. They open themselves up to potential financial harm. No one wants that.
The chances that one or both spouses will be declined increases as they age. Morningstar research showed that 20.4% of people ages 50-59 are declined for LTCi and that percentage increases to 38.2% for those ages 65-69.
In addition, most LTCi carriers won’t accept an applicant in their 80s. “Your clients who have made it into their 80s now have nothing at all,” he said.

Short-term care, sometimes called recovery care, has a much lower decline rate, Sarno said. The decline rate for people ages 50-59 is 8.7%, with 12.2% of those ages 75-79 declined and 91.6% of those ages 85-89 accepted into coverage.

Long-term care insurance is designed for care lasting 365 days or more, he said, while short-term care covers care of 360 days or less.

The underwriting process for LTCi differs from that for short-term care in the following ways, he said.

LTCi underwriting looks at the applicant’s medical records and prescription drugs. It requires a phone interview, cognitive testing, paramedical and medical exams. Short-term care underwriting requires a yes/no application and a three-year lookback on the applicant’s prescription drugs.

One point Sarno made about short-term care is that length of stay is relative to the daily dollar benefit amount received.

For example, a short-term care policy that covers 360 days of care, pays $400 a day and has a zero-elimination benefit pays a total benefit of $144,000 and costs nothing to the insurance because of that zero-elimination benefit. Meanwhile, a long-term care policy that covers three years of care, pays $150 a day and has a 100-day elimination period pays a total benefit of $164,250 yet costs the insured $27,583 because of the 100-day elimination period.

“Short-term care is an indemnity plan and will pay the entire amount regardless of the cost of the facility,” Sarno said. “In this example, the insured would get the full $400 a day even if the facility charges less.”

Short-term care can be customized for a client’s needs, Sarno said. A home care rider can be added to a short-term care policy, adding up to 52 weeks of covered care.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.