What is Long-Term Care Insurance?
Different from health insurance, long-term care insurance is designed to pay for long-term services, including custodial care. The care can be provided in your home, an assisted living facility or nursing home.
Long-term care insurance can help protect your savings from the high cost of long-term services and your family from the burden of caregiving.
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How Much Does Long-Term Care Insurance Cost?
Long-term care insurance policies provide great flexibility in benefit design. This lets you choose the amount of protection that best suits your personal needs and budget. The cost of your long-term care insurance policy is based on:
- Your age when you buy the policy
- Your health
- The maximum amount the policy will pay
- The maximum amount the policy will pay per day (or month)
- Elimination period (a deductible in days)
- Any optional benefits such as inflation protection
Professional Tip: Did you know you can pay LTC insurance premiums from your IRA?
Understand Long-Term Care Benefits
Similar to life insurance, you select a long-term care insurance policy value such as $250,000, $500,000 or a $1,000,000.
The LTCi Benefit Multiplier table below illustrates the flexibility you have with choosing your long-term care coverage. This lets you select how much risk you want to transfer to an insurance company.
Your long-term care advisor will make suggestions and some choices will vary by company. We also provide details on several ways to lower your LTC Insurance premiums.
LTC Insurance Benefit Multiplier ( A x B = C ) | ||
| (A) Maximum Daily Benefit | (B) Benefit Period | (C) Policy Maximum Amount |
|---|---|---|
| Select a Maximum Daily Benefit from $50 to $500 per day. This selection is generally based upon the cost of care in your area. We have detailed cost of long-term care information to assist you. | Select a Benefit Period. • 2 Years (730 days) | Your Policy Maximum Benefit will equal the Maximum Daily Benefit Multiplied by the Benefit Period you select. For Example: $100 (Maximum Daily Benefit) x 730 days (2 year Benefit Period) = $73,000 Policy Maximum |
| Sample Policy One: $200 Daily Benefit X 3 Years (1,095 DAYS) = $219,000 Policy Maximum Sample Policy Two: $300 Daily Benefit X 5 Years (1,825 DAYS) = $547,500 Policy Maximum Sample Policy Three: $500 Daily Benefit X 6 Years (2,190 DAYS) = $1,095,000 Policy Maximum | ||
Long-Term Care Benefit Trigger
Your long-term care insurance benefits are typically triggered by one of the following:
- Physical impairment requiring assistance with activities of daily living (ADL’s) such as: bathing, continence, dressing, eating, toileting and transferring.
- Cognitive impairment such as dementia or Alzheimer’s disease. For example, an individual may be able to physically take care of their activities of daily living, but forget to turn off the stove or cannot remember where they live.
Types of Long-Term Care Benefits
Indemnity vs Reimbursement LTC Insurance
Let’s look at Indemnity Vs Reimbursement long-term care coverage. There’s also a Cash Benefit plan described below, which is closely related to the Indemnity long-term health insurance policy. Each type has its advantages, generally based on the needs of the insured at time of claim.
Understanding Indemnity vs Reimbursement differences before you buy insurance allows you to make the best choice for your future needs.
Reimbursement LTC Policies
Reimbursement long-term care policies pay for the actual daily (or monthly) long-term care costs. For Example, if your selected daily benefit is $100 and your long-term care services cost $90, your long-term care coverage will pay $90. Any excess daily benefit remains for your future care needs. If your care cost is $120 daily, you will receive $100 per day and you must pay the excess out of pocket.
A potential advantage to this type of policy is that your benefits can last for a longer period of time, if your actual long-term care costs are less than your daily benefit. In other words, the 3 year plan referenced above could pay benefits over 5 or more years, depending on how fast you draw down the policy maximum.
What is an Indemnity Policy?
Indemnity long-term care insurance pays your daily benefit as soon as you qualify for benefits. You receive this amount regardless of long-term care costs. For example, during early stages of home care a person may incur a lower care costs due to more limited needs. Or care costs could be lower because a spouse is providing some care.
A reimbursement plan pays the actual cost of care, while an indemnity plan pays the maximum daily (or monthly) benefit. Indemnity plans even allow you to put money in the bank.
The advantage of an indemnity long term care plan is the potential to receive more money each month than you incur in expenses.
Cash Benefit Long-Term Care Insurance Policies
Cash Benefit long-term health insurance policies pay a cash benefit regardless of your actual expense. This allows you to use the payment for anything or anyone (caregiver can even be a family member), even anywhere in the world. There is little difference between an indemnity policy and a cash benefit policy when receiving care in an expensive nursing home or assisted living facility.
Yet, there could be a big difference between a cash benefit and a reimbursement policy when receiving care at home. Because a cash benefit policy will pay for anyone or anything. For example, typical reimbursement and indemnity long-term care plans exclude payments for family members providing care. But a cash benefit policy would not limit you in this respect. It pays your “cash benefit” as soon as you qualify for benefits.
Note: The availability of Reimbursement, Indemnity and Cash Benefit plans will vary by state, provider and type of plan
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About the Author: Craig Matesky
Reviewed by: Mike Berger