Long Term Care Insurance Restoration of Benefits – Long Term Care University – 10/15/10

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Long Term Care University – Question of the Month – 10/15/10
Research
By Aaron Skloff, AIF, CFA, MBA

Q: Some of the long term care insurance policies I am researching allow for a restoration of benefits.  Can you explain what that means and what advantages it may provide?

The Problem – Your Long Term Care Insurance Claim Exhausts a Significant Portion of  Your Policy’s Benefits, You Healthcare-cost-concept-steth-39775696-32Recover and Now Only Have a Modest Amount of Benefits Remaining for Future Long Term Care Insurance Claims

Most long term care insurance policies behave like a savings account that only permits withdrawals.  When the insurance company pays your claim it reduces your pool of money (savings account), leaving less money available for future claims.  One expensive claim can exhaust the majority of your benefits, leaving you with a fraction of the benefits you would have had otherwise

The Solution – Restoration of Benefits

Some long term care insurance policies include or provide the option to add a restoration of benefits.  If you receive benefits from your pool of money, and then recover and are no longer eligible for benefits for a period of time (180 days with many companies) while your policy is in force, your pool of money will be completely restored to the amount that would have applied if no benefits had been paid.  That’s like a savings account that replenishes itself if you need to take money out for an emergency. Some companies do not even place a limit on the number of times your benefits can be restored to the full value, as illustrated below.

Policy Without Restoration of Benefits Policy With Restoration of Benefits
Initial Pool of Money                                     $300,000 Initial Pool of Money                                    $300,000
Less Amount Used for a Claim                     ($200,000) Less Amount Used for a Claim                     ($200,000)
Remaining Pool of Money                             $100,000 Remaining Pool of Money                              $100,000
Plus Restoration of Benefits – 1st Time           $200,000
New Remaining Pool of Money                    $300,000
Less Amount Used for a Claim                     ($100,000) Less Amount Used for a Claim                     ($100,000)
Remaining Pool of Money                             $         0 Remaining Pool of Money                             $200,000
Plus Restoration of Benefits – 2nd Time          $100,000
New Remaining Pool of Money                    $300,000
Less Amount Used for a Claim                     ($300,000)
  Remaining Pool of Money                             $          0
Total Benefits Paid by Policy          $300,000 Total Benefits Paid by Policy          $600,000

Action Step – Protect Yourself with Restoration of Benefits

When you purchase a long term care insurance policy with restoration of benefits you gain the right to have the benefits you exhaust restored if you no longer need them for a short period of time (often 180 days).  As seen above, this feature can greatly increase the total amount of care for which your policy can pay.

Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a NJ based Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.

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