Long-term care is the provision of medical or non-medical assistance to people experiencing a prolonged illness or disability. Long-term care is most frequently needed by elderly individuals, but long-term care can potentially be needed by anyone starting at any age. The costs of long-term care over an extended period of time can be astronomical, so planning for a way to pay for long-term care is important. Many people turn to long-term care insurance to protect against the risk of having to pay for all of the care themselves. People with long-term care insurance receive benefits to help pay for the cost of their care if they ever reach certain health conditions defined in their policies. Long-term care insurance policies have several features which may be unfamiliar to individuals evaluating this type of insurance for the first time. This article will explain the most common features of a long-term care insurance policy.
Type of Care: Long-term care insurance policies may offer options of where the care is provided. Home-based care is provided in your home, which may include skilled medical care or possibly just homemaker services. Adult day care is provided at a facility away from your home during the day, and then an informal care-giver cares for you at home in the evenings. Assisted living care is provided at a facility where you live in a community with others needing long-term care. Nursing home care is also provided at a facility where you live but includes more skilled medical care assistance. You should consider which type of care you want to prepare for and make sure your policy covers that type of care.
Benefit Triggers: To become eligible for long-term care insurance benefits, tax-qualified policies require you to be unable to perform at least two of the six activities of daily living. The six activities of daily living are eating, bathing, dressing, transferring into and out of a bed and a chair, getting to and from the toilet, and control of bowel and bladder function. You may also qualify for benefits if you develop a severe cognitive impairment, such as Alzheimer’s Disease. If you want a policy with more liberal benefit triggers, you may have to evaluate policies that are non-tax-qualified. The disadvantages of non-tax-qualified policies are that premiums are not tax-deductible and benefits may be taxable income.
Elimination Period: Once you reach the benefit triggers defined in your policy, you must wait a number of days before the insurance policy begins paying you benefits. During this waiting period, you must pay out-of-pocket for all of the long-term care you receive. Most policies have an elimination period that ranges between 30 and 180 days. Tax-qualified policies require an elimination period of at least 90 days. After you have been receiving long-term care for a number of days equal to the elimination period, your policy will then begin paying benefits.
Benefit Amount: The benefit amount is usually expressed as a maximum daily benefit. The insurance policy will pay up to a certain dollar amount each day for your long-term care. The daily benefit amount may differ depending on the type and location of care. Benefit amounts commonly range between $100 to $300 per day. The benefit amount may not cover 100% of your daily long-term care expenses, in which case you may still have to pay some costs out-of-pocket. You should evaluate the cost of long-term care in the area where you want to live and decide how much of that cost you are willing to pay versus have the insurance pay.
Benefit Period: The benefit period is usually expressed as the maximum number of years your policy will pay benefits once you begin receiving long-term care. The benefit period may also be expressed as a maximum dollar amount, in which the policy will pay your daily benefit amount until the maximum dollar amount is reached. The benefit period options can range anywhere from one year to a lifetime. A very long benefit period may not be necessary for most people because the average individual utilizes long-term care for less than five years.
Inflation Option: Long-term care insurance policies also offer an option to increase your benefit amount over time to help protect against the rising cost of long-term care. A simple inflation adjustment will increase your benefit amount each year by a percentage of the initial benefit amount. A compound inflation adjustment will increase your benefit amount each year by a percentage of the previous year’s benefit amount. The compound inflation adjustment is much more likely to keep pace with actual inflation.
Nonforfeiture Option: You may elect the option to receive some long-term care benefits even if you decide to cancel your policy. If this option is selected, the insurance policy will provide long-term care benefits until your total long-term care cost equals the dollar amount of premiums you paid into the policy. As an alternative, the policy might provide your daily benefit amount for a shortened benefit period, such as 30 days.
Premium Waiver Option: When you are insured by a long-term care policy, you are normally required to continue paying premiums even after your begin receiving long-term care benefits. If the premium waiver option is selected, you can stop paying for the policy once you start receiving benefits. The premium waiver may not apply for all types of long-term care received, so be sure to determine when this feature would actually apply.
Long-term care insurance policies may have additional options and features not listed here, so fully investigate any policies you are considering before becoming insured. The features of a long-term care insurance policy will directly impact the cost of the policy. Obviously, the more favorable your policy features are, the more expensive your premiums will be. You have to find the right mix of features you desire in a policy at a premium cost you are comfortable with. Remember the purpose of any insurance is to protect against the risk of incurring costs that you could not pay for by yourself. Some people may have enough assets to pay for a potential need for long-term care without any assistance. For the rest of the population, insurance may be the best option to help pay for long-term care.
Sources: Texas Long-Term Care Partnership, Texas Department of Insurance
