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| Plan for Living: Understanding Insurance Lingo: By Kim Stanley, B.A., CFP, CLU, CH.F.C. |
Jargon. There are so many professions that seem to have a language entirely their own. The medical profession is a great example. Unless you have Masters degrees in Latin, biology, and medicine, it’s hard to decipher what they’re talking about. Law is another profession where you need a handy dictionary. And you need to keep a magnifying glass nearby so you can read the fine print. Pharmacists, investment dealers, bankers, computer technicians and hospitals all have their own acronyms and ‘user’ language unique to them. Outsiders feel like, well, outsiders. If you don’t speak the lingo, you don’t belong. You don’t fit in. And if you don’t understand the language, you somehow feel inadequate. Uninformed. Even stupid. When we don’t understand something, our tendency is to shy away from it. Avoid it. Perhaps ridicule it. But most of all, we dismiss it. To a very great extent this holds true when it comes to insurance. The insurance industry has its own unique terminology and acronyms. It utilizes phraseologies that come from other professions, such as medicine, law, accounting and business. It is one of the few industries where its professionals must know at least the basics of all these professions. The problem is, the general public doesn’t always understand the industry’s language. And lack of comprehension can lead to a misunderstanding of products and services. This is a shame, because insurance is a vital piece of all financial plans. The trick is to ensure that you purchase the right plan(s) for your specific needs, goals and objectives. Right now the ‘hottest’ product in the industry is Long Term Care insurance. This plan is designed for people who are approaching retirement or are in early retirement. Simply put, it is a product that provides a guaranteed monthly income should you require home care or facility care, because you can no longer adequately care for yourself. So let’s examine some of the key phrases in the product. By knowing what components are available you will be able to make informed choices and decisions. First of all Long Term Care is a generalized term that includes, among other things, facility care, adult day care, home health care and respite care. Long term care facility care means care or treatment received in a long term care facility. This facility provides extended care, intermediate care and/or personal care, but it does not apply to treatment for drug or alcohol abuse, psychiatric care (other than organic cause, i.e. Alzheimer’s) or a sanatorium. These facilities provide care to individuals who require the care of medical professionals or who require assistance in the activities of daily living. To qualify for your benefits, you must be unable to perform any 2 of 6 ADLs (Activities of Daily Living) or be cognitively impaired. The 6 ADLs are: bathing, eating, transferring (moving yourself from a chair to a standing position, for example), toileting (maintaining personal hygiene), dressing and continence. Long term care insurance also provides coverage should you require home care. A licensed home health care professional or a nursing specialist is required to assist you at home with your daily living needs. Coverage can also include home health care, where a professional service is provided in an individual’s home. Among the covered services are: nursing, physical therapy, speech therapy, respiratory therapy and palliative care. You have a choice of the amount of benefit you can purchase. Unlike other types of insurance, you purchase a ‘daily’ amount. Which means, once you are eligible for a claim, the insurance company will pay you the chosen amount on a per day basis. You can purchase as little as $20.00/day or as much as $300.00/day. The most common amounts chosen are between $100 and $150/day. This approximates one month’s cost of facility care. Some companies may require receipts for services, while others will pay the amount you purchased automatically, after the claim is approved. Be sure you know which way the company pays. You can also choose how long you want to receive your benefits: 2 years, 5 years or lifetime. The longer the benefit period, the higher the premium. Lastly, you choose your elimination or waiting period. This is the length of time that must elapse before you are eligible to make a claim. The services you receive during this time are your responsibility. The longer the waiting period, the lower the premium; the shorter waiting period, the higher the premium. You can have no elimination period at all so that benefits are paid right away, or you can choose to wait either 30, 60 or 90 days. Be aware that for almost all the policies currently available, premiums are only guaranteed for the first 5 years. After that the insurance company may increase premiums. They cannot pick and choose which policies they’ll increase premiums for; they must increase the premiums for an entire group, such as all the policies issued in a specified year. A few carriers contractually state that they cap their increases at a specified amount, such as 50% of the original premium. Remember all benefits paid are tax free. Insurance jargon can be confusing and intimidating. Be sure to ask your advisor to explain all the plan’s features before you sign on the dotted line. Understanding the fine print now will save you a lot of frustration later on. |
| Kim Stanley, B.A., CFP, CLU, CH.F.C., The Canadian Living Benefits Centre Ltd., kstanley@canadianlivingbenefits.com
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