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Many critical illness (CI) plans offer long-term care benefits - so why buy LTC insurance? Can critical illness replace LTC plans?
The short answer is no. Long-term care insurance is still a must have. However, critical illness insurance can help supplement LTC coverage and keep premiums down. Unfortunately, most brokers and consumers know very little about critical illness insurance, how it works and what it covers.As you are aware, long-term care insurance is designed to cover long-term care services and support. This includes personal and custodial care in a variety of settings such as your home, assisted living facility and a nursing home. If your clients need assistance with their activities of daily living or if they're cognitively impaired, they are able to access benefits under the policy to reimburse them for their covered daily long-term care insurance (LTCI) expenses.
Critical illness insurance pays a lump sum benefit on a diagnosis of a covered illness such as cancer, heart attack and stroke. It is designed to help cover the medical expenses that health insurance won't cover. This includes deductibles, copays, non covered prescription drugs, alternative treatments and out of town care. The money can also be used on non medical expenses, like mortgage or rent, utilities, car payments and insurance, health insurance premiums and lost income.
Critical illness and long-term care are not the same in what they cover, but newer CI policies do pay out benefits for some traditional long-term care needs.
American General Insurance Company provides a definition for “loss of independent living,” which is the permanent loss of ability to perform two or more of the six designated activities of daily living (ADLs). The six ADL's are bathing, dressing, eating, toileting, transferring and continence.
Assurity Life Insurance Company provides a definition for “advanced alzheimer’s,” which is a cognitive impairment that requires substantial assistance in performing at least three of the six activities of daily living.
So to be clear, if a policyholder had a $50,000 CI policy and was diagnosed with a definition above, they would be paid the $50,000 in one lump sum. That is a significant amount to start towards covering their needs, but no where near the nearly $250,000 that many LTCI policies would cover.
In some cases, planning to live can be as challenging as all the planning we do in the event that we die. The solution is really not just critical illness or long-term care insurance, it's what is appropriate for your client based on their age, health and needs that they have at certain points in life. Calling a professional brokerage organization to ask what is appropriate for your client is a good place to start.
