Once you’ve decided on the best long-term care solution for your loved one, the next step is to figure out how to pay for it. If you or your loved one bought long-term care insurance (or are planning to) — congratulations, you’ve already taken one big step to prepare for this moment!
About 49% of men and 64% of women reaching age 65 today will need significant long-term care during their remaining years, according to a 2022 study from the federal Department of Health and Human Services (HHS). With the rapidly rising cost of living, the average cost of long-term care is estimated to be $120,900, according to the HHS report.
Unfortunately, regular health insurance doesn’t cover long-term care, and Medicare policies don’t cover as much as one may think. Long-term care (LTC) insurance can provide much-needed financial support with the rising costs of long-term home and health care, especially if you plan ahead and buy your policy as you or your loved one approaches your 50s. But, deciding whether long-term care insurance is the right choice for your family depends on your family’s situation and preferences.
Understanding the various benefits and restrictions of your long-term care insurance policy is essential for making informed decisions about what policy and long-term care solution is right for you, as well as maximizing what you get from your policy.
Types of Long-Term Care Coverage
There are several different types of LTC insurance coverage policies, each with its own pros and cons. Understanding what each plan covers will help you pick the one that feels right for you.
Traditional vs. Hybrid Plans
- Traditional plans: Traditional LTC policies work much like policies for auto or home insurance:
- You pay premiums, usually for as long as the policy is in effect, and make claims if you ever need the covered services.
- Because the premiums are ongoing, they can, with the permission of state regulators, rise over time.
- But if you stop paying the premiums before the need arises, you usually lose the coverage.
- And if you never use the coverage, the insurance company keeps and invests your money to pay for other people’s claims and earn profits.
- Hybrid policies: Combine long-term care insurance with life insurance or annuities, which offer benefits whether or not long-term care is needed. According the AARP:
- You pay one lump sum or a fixed amount broken into several annual payments, eliminating the risk of rising premiums.
- In return, you get long-term care coverage, along with some amount of life insurance that will go to your heirs if you never use the long-term care benefits.
- The life insurance payout is reduced or eliminated if you do use long-term care benefits.
- These are usually more expensive than traditional policies
Comprehensive vs. Facility-Only Plans
- Comprehensive plans: Cover care both at home and in a facility, including nursing homes, assisted living, adult day care, and hospice care:
- Comprehensive plans are designed to allow people to stay home longer and assist in the transitions to other levels of care as needed
- These are more expensive as the policy includes both home care and facility care, allowing your family more options.
- Comprehensive plans account for the majority of plans sold.
- Facility-only plans: Focus on care provided in a licensed care facility but may not cover home care:
- Facility only plans are designed for those that are unable to stay home.
- These plans help cover the costs for assisted living or nursing home care, but will not cover any in-home care costs.
- Facility only plans are less expensive than comprehensive plans, but do not allow for one the flexibility to stay home as long as possible.
When Can You Start Using Your Long-Term Care Policy?
Under most long-term care insurance policies, you're eligible for benefits when you can’t do at least two out of six activities of daily living (called ADLs) on your own, or you suffer from dementia or another cognitive impairment. The six activities of daily living are:
- Bathing
- Dressing
- Toileting (getting on or off the toilet)
- Transferring (getting in or out of a bed or a chair)
- Eating
- Continence
Once you’ve reached a point when you feel like you may need care and want to make a claim, the insurance company will review medical documents from your doctor and may send a nurse or other examiner to do an evaluation. It’s important to remember that before you commit to a particular care plan, your insurer will want to approve your plan of care before they approve your claim.
Don’t Forget About the Elimination Period
You first need to meet the elimination period before your long-term care insurance policy starts to pay for care. The elimination period is the period of time that you’re paying your long-term care insurance premium without receiving any benefits. The most common elimination period for a long-term care insurance policy is 90 days. That means usually, you’ll need to pay your LTC insurance premium for at least a few months before you can apply for benefits. Once that is met, you can apply to use your long-term care insurance if you experience a severe cognitive impairment or are unable to perform at least two activities of daily living such as dressing or feeding yourself. Some policies will let you pick between a 30, 60, and 90 day elimination period. The longer the elimination period, the lower your monthly premium — that’s why it’s often better to buy your LTC insurance way before you need it.
Understanding Your Policy
It’s important to fully understand your long-term care insurance policy to make sure filing your claim goes as smoothly as possible. With most long-term care insurance plans, you'll still likely have to pay upfront for the services you need — but you'll get reimbursed for all qualifying services by your LTC insurance provider.
Pre-Set Daily & Monthly Limits
Most policies will reimburse your costs up to a pre-set daily or monthly limit until the lifetime maximum is reached. Look for the daily or monthly benefit amount that the policy will pay for care. This is the maximum the insurer will pay per day or per month. Compare that amount to the typical cost of care in your area, so you can choose a policy that covers a significant portion of your estimated long-term care costs.
Maximum Lifetime Benefit
The maximum lifetime benefit (MLB) of a long-term care insurance policy is the maximum amount of money the policy will pay for long-term care needs during the insured person’s lifetime.
Benefit Period
Policies generally offer benefit periods from 2 years to a lifetime. A longer benefit period provides greater coverage but can be more expensive. The average long-term care claim lasts about 3 years, so consider your personal situation and risk factors when choosing a benefit period.
Spousal Policies
Many insurers offer a "shared care" option for couples. If one spouse uses up their benefits, they can tap into the other's remaining coverage. This is helpful for couples who want flexibility in how benefits are used.
Exclusions and Limitations
Review the policy’s exclusions carefully. Some long-term care insurance policies may exclude coverage for preexisting conditions or certain types of care, such as:
- Certain psychiatric conditions
- Alcoholism
- Drug addiction
- War injuries
While other preexisting conditions may not prevent you from getting insurance coverage, the policy may not cover care related to that condition for a certain amount of time after your policy goes into effect.
Other Benefits
An elder and estate lawyer says to also look for any other benefits that may be covered. Other benefits that may be included in or offered as options with basic long term care policies are:
- Ambulance
- Caregiver training and supervision
- Hospice care
- Bed reservation
- Care coordination
- Personal Emergency Response Systems
- Respite care
- International coverage for up to 30 days
- Waiver of premium
- Home modifications to allow applicants to stay home
- Equipment that is medically necessary
- Spousal discounts
- Restoration of benefits
Thoroughly understanding the benefits and limitations of your long-term care insurance policy is crucial for selecting the right policy and care solution for your needs, as well as ensuring you maximize the value of your coverage.
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