What Is Long-Term Care Insurance?

How Does Long-Term Care Insurance Work?

Long-term care insurance reimburses policy owners or pays directly for long-term care services related to daily living assistance. With long-term care insurance, these benefits are paid as a daily amount up to a predetermined limit. 

Long-term care services, whether they’re provided at home or at a facility like a nursing home, are not covered by Medicare Part A or B. Long-term care insurance helps fill this gap in coverage, as many seniors who get health insurance from Medicare also require long-term care services.

To receive the benefits of a long-term care insurance policy, you must meet two criteria: the benefit trigger and the elimination period.

Insurance companies use “benefit triggers” to determine if a policyholder is eligible for long-term care benefits. The determination is made via an assessment of the policyholder’s condition by a qualified medical professional. Policy conditions vary, but most require that the policyholder needs help with two or more of the Activities of Daily Living (ADLs) or has a cognitive impairment.

Once the assessment has been conducted, the insurer will have a care manager develop a Plan of Care recommending which benefits the policyholder is eligible to receive. After the benefit trigger occurs, the policyholder enters the “elimination period”.

The elimination period is the time that must pass before the policyholder can begin receiving payment for long-term care services. The policyholder may have to wait 30, 60 or 90 days from when they purchased the policy, depending on their insurer. During that time, the policyholder is responsible for the cost of any services they receive.

Long-term care insurance may ultimately be the most important insurance product a retiree owns as it can protect themselves and their family from a devastating combination of physical, emotional, and financial costs of long-term care services.

Daniel J. Adams, MBA, CFP®, CLU®Founder and President of CEG Life Insurance Services

As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.

What’s Covered?

Long-term care insurance covers personal care services older people need if they struggle to complete daily activities. You can use the daily benefit provided by your long-term care insurance policy for services conducted at the following care facilities.

Facilities Covered by Long-Term Care Insurance

• Adult Day Care Service Centers
• Hospice Care
• Respite Care
• Assisted Living Facilities
• Alzheimer’s Special Care Facilities
• Nursing Homes

Source: U.S. Department of Health and Human Services

A comprehensive long-term care insurance policy also covers services provided in a home setting, including skilled nursing care; occupational, speech, physical and rehabilitation therapy; and personal care services.

In addition, some policies may cover homemaker services such as meal preparation or housekeeping if these are provided in conjunction with personal care services.

Types of Long-Term Care Insurance

There are three main types of long-term care insurance on the market: traditional long-term care insurance, hybrid long-term care insurance and life insurance with a long-term care rider.

Traditional long-term care insurance is also known as standalone long-term care insurance. This type of policy exclusively covers expenses related to long-term care services. “Traditional long-term-care insurance policies are pay-as-you-go, so they may be more affordable,” said Rona Loshak, a long-term care insurance specialist. Loshak also pointed out that traditional policies have generous business deductions and most of the premium is tax-deductible.

A hybrid long-term care insurance policy combines long-term care coverage with the death benefit a life insurance policy provides. If you never need long-term care, the premium is returned along with the death benefit to your beneficiaries when you pass away.

The third option is to purchase a life insurance policy with a long-term care rider. Loshak recommended this option for younger people who are already in the market for a life insurance policy. Usually, you’ll receive long-term care benefits as a small percentage of your death benefit, usually about 2-4%. If your death benefit expires, as some life insurance policies do, you’ll also lose the long-term care benefits of the rider, so Loshak advised a policy that’s guaranteed until at least your 90s.

“If you’re buying a long-term care rider on a life insurance policy, it’s important that you work with an advisor that’s very familiar with long-term care insurance.”

Rona Loshak, Founding Partner at Karp Loshak Long Term Care Insurance Solutions

How Much Does Long-Term Care Insurance Cost?

The cost of long-term care insurance varies significantly based on a few factors. Generally, you’ll pay a pre-set premium for your policy. You are not usually expected to continue paying the premiums while you receive long-term care services.

To give you an idea of how much long-term care insurance could cost, here are some average annual premiums for different ages and sexes. The rates below represent an initial pool of benefits totaling $165,000 at age 55 that increases 1% yearly to total $222,400 by age 85.

Average Long-Term Care Insurance Premiums

Impacting Factors

As you can see from the table above, the age and sex of the policyholder have a significant impact on how much long-term care insurance costs. Age and health status are generally the most important factors in calculating long-term care insurance premiums.

“Buying it younger and healthier will always cost you less, annually and cumulatively,” Loshak said. Loshak explained that people often believe they are saving money by waiting to purchase long-term care insurance later because they won’t pay premiums for as many years. But the cost of waiting until you’re older is paying much higher premiums, which can add up to paying more for coverage in the long run.

Additionally, sex plays a role in determining a policyholder’s premium cost; women tend to have higher premiums. Because women live longer on average, they are more likely to need long-term care services, so they’ll likely be charged a higher rate. Long-term care insurance claims are more common among women than men.

If you and your spouse are seeking long-term care insurance, you might be able to save some money by purchasing a joint policy that covers both of you. Generally, purchasing one policy with joint coverage costs less than purchasing two individual policies.

Benefits of Buying Long-Term Care Insurance

As Americans are increasingly living to be older and older due to medical advancements, long-term care insurance has become more important. “Cognitive impairments have grown dramatically because we’re living longer lives,” said Loshak. “As people live into their 90s, the chronic conditions of aging really kick in.”

Purchasing long-term care insurance can safeguard your financial future during your later years. Long-term care costs can add up quickly, and many people aren’t prepared for how fast their retirement funds can be depleted if they or their spouse require long-term care services. Medicare and many private health insurance plans do not cover long-term care costs, so many retirees end up paying out of pocket for expensive services.

Having long-term care insurance coverage means you won’t have to put pressure on younger family members to provide or pay for care when you need it. Loshak said this is a common reason why clients who have adult children choose long-term care insurance. “These are people with modest means who dedicated their life to their children and don’t want to burden them,” Loshak said. “A lot of women are in this situation; they don’t want to be a burden to their family.”

If you choose a hybrid long-term care insurance policy or life insurance with a long-term care rider, you can get the benefits of two types of insurance with one policy. Each of the options provides coverage for long-term care costs and a death benefit to leave a legacy for your loved ones.

Finally, many people choose long-term care insurance so they can have a greater variety of care options to choose from. Public health programs like Medicaid don’t offer as many options for where to receive care. Additionally, long-term care insurance can be used to supplement personal savings dedicated to long-term care so you can “upgrade” to a nicer facility or add more services you may not be able to afford on your own.

Who Is Best Suited for Long-Term Care Insurance?

Long-term care insurance can be beneficial for so many people that it might be easier to first discuss who is not best suited for this product. 

For example, if you expect to have a great deal of money when you need long-term care services, you may not need long-term care insurance. Experts estimate that if you have a net worth of at least $1.5 million, not including your home’s value, you’ll probably be able to pay for long-term care expenses out of pocket.

Conversely, you may have so little money by the time you need long-term care service that you qualify for Medicaid. Medicaid will pay for long-term care expenses, so long-term care insurance won’t benefit you as much besides offering you a greater choice of care options. 

However, you might still consider long-term care insurance if you live in California, Connecticut, Indiana, New York or Washington. These states have partnership programs for long-term care that provide additional benefits to people who purchase long-term care insurance.

If you have a history in your family of cognitive impairments such as Alzheimer’s or dementia, you may want to consider getting long-term care insurance. Loshak recommended that people with a family history of these conditions purchase a long-term care insurance policy as soon as possible. Otherwise, Loshak said the most common age when people purchase long-term care insurance is when they’re in their late 40s or 50s, around the time when one’s children might be getting ready to go off to college.

Loshak highlighted the importance of long-term care insurance for women. “Women make up two-thirds of long-term care insurance claims,” Loshak said. “They should be protected whether they’re solo aging or if they’re married because they’ll likely be the caregiver for their husband. Women are the most vulnerable to long-term care issues, whether they are caregivers or the ones needing care.”

Alternatives to Long-Term Care Insurance

If you can’t qualify for long-term care insurance due to pre-existing medical conditions, there are some other products you could look into as alternatives to long-term care insurance.

Annuities are one alternative to long-term care insurance. When you purchase an annuity, you’re signing up for a guaranteed income stream you can’t outlive. This can be an ideal way to supplement other forms of retirement income to pay for long-term care services should you need them.

Some annuities even come with a long-term care rider, which allows you to access long-term care benefits in addition to your annuity payout. However, Loshak pointed out that many annuity providers still use medical underwriting to approve long-term care riders. So, if you have a condition that prevents you from accessing long-term care insurance, you might also struggle to find coverage with a long-term care rider on an annuity. 

Another option for those who may not be able to qualify for long-term care insurance is a short-term care insurance plan. These policies cover care for a year or less, and usually have no elimination period before the benefits kick in. Short-term plans also don’t charge more for women, and older people or those in poor health can still qualify, though their premiums will be higher.

Read More: 28% Unaware of Their Parents’ Long-Term Care Plans

Frequently Asked Questions About Long-Term Care Insurance