In light of the COVID-19 crisis, do you have the necessary Directors and Officers coverage?
With the addition of the global COVID-19 pandemic, an already tumultuous D&O insurance environment has the potential to get much worse.
A number of variations on benefit design of a long-term care (LTC) contract exist, each with its own unique set characteristic targeting a particular need for coverage. Let us focus on a single sample design and discuss key features that are worth considering. Consider the following LTC policy contract:
There are several ways in which the plan maximum benefit can be arranged. In the sample plan above, the maximum benefit is expressed in terms of total amount of dollars available to the policyholder; $200,000 in this case for LTC services (other option would be in terms of days/years of care) that is referred to as ‘pot of money’ design. This form of policy allows the participant to save the “salvage” amount (the difference between a larger daily benefit and the smaller actual cost of the daily service) for later use. Currently, the pot of money approach is the most popular one. The maximum benefit can be integrated (as is the case in this plan) meaning that both nursing home and home health care services are counted against the maximum, or there can be separate maximums for nursing home and home health services.
The maximum cost per day allowed by the plan can have an important impact on the usefulness of the plan. In the pot of money design, daily maximum amounts represent a ceiling on the benefit and hence provides an implicit protection against using up the benefits too quickly. For example, in the plan above, the daily maximum of $4,000 would guarantee you at least 50 ($200,000/$4,000) months of continuous coverage in a nursing home (longer, if less than $4,000 per month are spent), and at least 66.7 months of home health coverage with $3,000 monthly maximum ($200,000/$3,000).
Elimination period of 90 days in the current plan is a very typical option. This feature acts as a deductible and reduces the cost of the policy. Elimination periods between 20
With relation to inflation protection, this is a crucial element in any insurance contract expected to be held for a long period of time. Compound indexing option (such as 5%) is the best way to ensure the benefits keep up with the future inflation. Some design inflation as a guaranteed purchase option, but in our experience, the options are rarely taken and therefore the benefit is not as valuable.
The features listed above are common to all current LTC insurance contracts. What makes True Group policies different are such key elements as employer/employee contributions split, waiting and vesting periods. Contribution level would be determined by the employer and is essential for the program to achieve adequate participation levels. Waiting and vesting periods further reduce costs for employer by limiting coverage to the most loyal and valuable employees.