Q A relative of mine has a long-term care insurance policy that has a 20-day “elimination period.” What’s an elimination period? How long are elimination periods on long-term care insurance policies?
The elimination period is defined as the waiting period from when your claim is made to when the policy begins to pay benefits. The elimination period sometimes is referred to as the “deductible.”
However, the difference is that instead of a dollar amount (like most insurance policies you may be familiar with), the deductible in this case is defined by the number of days for which you'll have to pay for your own care. In general, the period ranges from coverage right away (zero-day elimination) to 365 days.
The elimination period is calculated in two ways.
One method is “calendar day,” which means that the period starts on the first day you receive care, and every day afterward counts whether you actually receive care on that day or not. So in your relative’s case, he or she will be responsible for paying for 20 days of care out of pocket. On the 21st day, his or her care will be covered by long-term care insurance. This is the faster of the two methods.
The other method is “days of service,” where only days when you receive care are counted toward the elimination period. So in this case, your relative would be responsible for the first 20 days of care, then the 21st day (and the days afterward) would be covered by insurance. As you can imagine, this could end up being a longer period before benefits start, so make sure you understand the particular terms of your policy.
Zero-day elimination periods have become somewhat less common, but you might see 30-, 60-, 90-, 180- and 365-day periods. The shorter the elimination period, the more expensive the policy premiums will end up being. Choosing a longer elimination period (180 or 365 days) will keep the cost of long-term care insurance premiums much lower, but remember that you'll be responsible for all costs during that period. For a good number of people, this may not be affordable.
When choosing your elimination period, it’s helpful if you have an idea of how much you’ll be able to afford for out-of-pocket expenses. For example, if you can figure out potential costs for daily care (whether in your home or in a facility), you can determine how long you'll be able to pay these costs on your own. That can help you pinpoint the ideal elimination period to fit your circumstances.
If you’re not sure of the costs, there are tools that can give you the average cost of long-term care in your area so that you can make a reasonable estimate. Once you’ve come to a decision, be sure that the appropriate funds are set aside for the type of policy you've chosen.