What is Long-Term Care Insurance?
Unlike traditional health insurance, long-term care insurance is designed to cover long-term services and supports, including personal and custodial care in a variety of settings such as your home, a community organization, or other facilities variety of settings such as your home, at adult day care, or in a residential facility.
Long-term care insurance policies reimburse policyholders a daily or monthly amount As an alternative to Reimbursement-style policies, some policies pay benefits on a Cash Indemnity basis. Instead of reimbursing in the dollar amount of covered losses, these plans pay out the full benefit each month regardless of actual expenses. Whichever payment style is chosen, you can select a range of care options and benefits that allow you to get the services you need, where you need them
Types of Long-Term Care Insurance
Traditional, stand-alone plans are the original type offered and date back to the 1970’s. Like auto insurance, homeowners insurance or health insurance, they pay when covered losses occur but nothing when they don’t. For this reason, traditional plans are the least expensive. Plans purchased more than a decade ago have experienced rate increases, sometimes dramatic ones. However, that problem has been mitigated for today’s buyers. With corrected pricing assumptions, policies sold today have been re-priced for long-term stability.
Hybrid plans also known as Combo plans, Linked Benefit plans or Asset-based plans offer additional layers of protection. A multi-dimensional approach makes it possible to pay a benefit whether or not care is ever needed. Should the insured die without having used the policy, a Return of Premium feature via a death benefit will pay a named beneficiary. Other advantages of a hybrid typically include Guaranteed Permanent Rates and Cash Value growth. Subject to a vesting period, it is even possible to cancel and get money back. Limited-Pay options make it possible to have a paid-up policy after only one lump sum payment or a specific number of annual payments.
Hybrids also come in the form of special annuities designed to pay for long-term care. LTC Annuities are purchased with a lump sum and primarily by people with below average health. That’s because they are easier to qualify for.
Individual Plans are medically underwritten. People who put off applying for coverage until after they’ve begun losing their health may become ineligible or charged extra as high risk applicants. For that reason, it’s better to apply 10 years too soon than one day too late. They are purchased through insurance agents, not directly from insurers.
Group Plans are available to eligible Employer groups and Associations. They typically come with a discount. Employers can offer on a voluntary basis to all employees at no cost to the company. Or employers can make LTC insurance a fringe benefit to attract and retain highly valued personnel. Any employer contributions are tax-deductible, even if only made for the leadership.
The cost of your Long-Term care policy is based on:
- How old you are when you buy the policy
- The maximum amount that a policy will pay per day
- The maximum number of days (years) that a policy will pay
- The maximum amount per day times the number of days determines the lifetime maximum amount that the policy will pay.
- Any optional benefits you choose, such as benefits that increase with inflation
If you are in poor health or already receiving long-term care services, you may not qualify for long-term care insurance as most individual policies require medical underwriting. In some cases, you may be able to buy a limited amount of coverage, or coverage at a higher “non-standard” rate. Some group policies do not require underwriting.
Many long-term care insurance policies have limits on how long or how much they will pay. Some policies will pay the costs of your long-term care for two to five years, while other insurance companies offer policies that will pay your long-term care costs for as long as you live—no matter how much it costs. But there are very few that have no such limits.