Tuesday, February 28, 2006

Insuring Mrs Cleaver, Part 2...

In Part 1, we outlined the financial challenges facing homemakers who may become disabled. The post was inspired by an article written by Thrivent’s Kim Anderson, who also sent me some helpful occupational class information (more on this shortly).
Since there doesn’t seem to be a non-fraternal carrier offering this cover, we got to thinking about creative solutions to the problem. What we’ve developed is imperfect, but it is at least a solution.
Let’s start with a premise: I’ve always described Long Term Care insurance as “disability insurance for retired folks.” In a sense then, disability insurance could be viewed as “LTCi for working folks.” Why, then, couldn’t a SAHS (Stay at home Spouse) purchase a Long Term Care policy to replace the economic value of his/her contributions?
There are, of course, many different LTCi plans available. Without getting too technical, we'd use an “indemnity” type plan, rather than a “reimbursement” one. Indemnity plans pay out the specified amount each month, regardless of actual expenses; reimbursement plans pay out based on how much was actually spent on LTC. In the “regular” LTCi market, there is some debate as to which is more appropriate, but in this application, it seems obvious that the indemnity plan works best.
Disability insurance benefits and premiums are based (in large part) on the occupation class of the proposed insured. These classes are determined by the carriers, and typically range from 4A (e.g. attorneys, physicians, the producer of Desperate Housewives) down to B (e.g. butcher, blacksmith, pool boy on Desperate Housewives).
Ms Anderson told me that Thrivent assigns homemakers a 2A rating. A typical policy available to this class would define disabled as “unable to perform all the important, substantial and material duties of your occupation due to illness or injury, and you require the care of a doctor.” This would be the test to determine whether one is eligible to receive benefits.
The eligibility test for a Long Term Care policy is quite different, at least superficially: in order to receive benefits, one would need substantial assistance to perform at least 2 Activities of Daily Living (ADL): bathing, continence, dressing, eating, toileting and transferring.
Almost like two different languages.
And yet…
The physical conditions described in both definitions seem pretty similar. And there's this: according to the Government Accounting Office, 40% of those receiving long term care are "Working-Age Adults."
So here's my thinking: if a 30-something owned both a DI policy and a LTCi policy, and she was eligible for benefits under one, it seems likely to me that she’d meet the test of the other, as well. Flawed, yes, but not (IMHO) fatally so.
Perfect? No. Acceptable? Let’s see.
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