Long-Term Care (LTC) insurance

Is a policy designed to cover the costs associated with long-term services and support.2 These services are needed when an individual can no longer perform basic activities of daily living (ADLs) on their own due to a prolonged illness, disability, or cognitive impairment like Alzheimer's disease.3

1. What Long-Term Care Is (and What It Isn't)

LTC is not the same as medical care.4 It is primarily custodial care, which includes assistance with everyday non-medical tasks.5

Covered by LTC InsuranceNot Typically Covered by LTC InsuranceActivities of Daily Living (ADLs): Bathing, dressing, eating, toileting, continence, and transferring (moving in and out of a bed or chair).Hospital stays, doctor visits, or prescription drugs (covered by standard health insurance/Medicare).Care in a Nursing Home or Assisted Living Facility (ALF).Short-term rehabilitation services (e.g., up to 100 days covered by Medicare after a qualifying hospital stay).Home Health Care, including services from a home health aide or visiting nurse.Services outside of the US (though some policies offer international riders).Adult Day Care and Respite Care (care to give a primary caregiver a break).Care for Severe Cognitive Impairment (e.g., Alzheimer's or dementia).

Crucial Point: Medicare and standard health insurance policies generally do not cover custodial long-term care.6 Medicaid does cover long-term care, but only for individuals who have spent down almost all of their assets to qualify as low-income.7 LTC insurance is designed to protect personal savings and assets from these potentially high costs.8

2. How LTC Insurance Works (Key Policy Components)

LTC insurance policies are highly customizable. You choose several parameters that determine the premium and the eventual payout.9

A. Benefit Triggers (When Coverage Starts)

To be eligible to receive benefits, a doctor must certify that the insured person meets one of two conditions:10

1. Inability to perform 2 out of 6 Activities of Daily Living (ADLs) without substantial assistance for an expected period of at least 90 days.11

2. Severe Cognitive Impairment (e.g., Alzheimer's) that requires substantial supervision for the individual's own safety.12

B. The Elimination Period (The Deductible in Time)

This is the waiting period that starts when you qualify for benefits, during which the policyholder must pay for care expenses out-of-pocket before the insurance company begins its payments.13

• Common options are 30, 60, or 90 days.14 A longer elimination period results in a lower premium.15

C. The Daily/Monthly Benefit

This is the maximum dollar amount the policy will pay for care services in a single day or month.16

• The amount is chosen when you purchase the policy, and it should align with the average cost of care in your area.17

D. The Maximum Lifetime Benefit (Benefit Period)

This is the total amount of money the policy will pay out over the life of the policy, essentially a "pool" of money. It is typically expressed as a dollar amount or a number of years (e.g., 3 years, 5 years, or lifetime).18

• Maximum Lifetime Benefit = Daily Benefit $\times$ 365 days $\times$ Benefit Period (in years)

E. Optional Riders (Add-ons)19

• Inflation Protection: This is one of the most important riders.20 It increases your daily/monthly benefit amount each year to keep pace with the rising cost of care.21 Options are typically a 3% or 5% compound or simple annual increase.22

• Non-Forfeiture Benefit: If you stop paying premiums, this allows you to retain a reduced level of benefits instead of losing all coverage.

• Shared Care: For couples, this allows one spouse to draw from the other spouse's maximum lifetime benefit once their own policy pool is exhausted.

3. Types of Long-Term Care Policies

There are two primary categories of LTC insurance available today:23

Policy TypeDescriptionProsCons1. Traditional (Stand-Alone) LTCA "use it or lose it" policy, similar to auto or homeowners insurance. You pay an annual premium for future coverage.Generally the lowest initial premium for a given level of coverage. Very customizable.Premiums are not guaranteed and may be raised by the insurer (with state approval). If you never use it, the premiums paid are lost.2. Hybrid (Linked-Benefit) LTCCombines long-term care coverage with a permanent life insurance policy or an annuity.Guaranteed Premiums (they cannot be raised). If you never use the LTC benefit, the policy pays a guaranteed life insurance death benefit to your beneficiaries.The upfront cost is significantly higher, often requiring a lump-sum payment or payments over a short, defined period (e.g., 10 or 20 years).

4. Cost and Affordability

The cost of an LTC policy is heavily influenced by three main factors:

1. Age at Purchase: Premiums are significantly lower the younger you are because you are statistically less likely to need care soon.24 The best time to buy is often considered to be in your mid-50s.25

2. Health Status: The insurance is medically underwritten.26 Poor health or pre-existing conditions can result in a higher premium or a denial of coverage.27

3. Coverage Choices: The size of your daily benefit, the length of your benefit period, the elimination period, and the inclusion of an inflation rider all directly impact the premium.28

5. Is LTC Insurance Right for You? (Considerations)

Deciding on LTC insurance depends on your financial situation and planning goals:

Purchase LTC Insurance If...Consider Self-Insuring (or not buying) If...You want to protect a substantial nest egg for your spouse or heirs.You have minimal assets (you may qualify for Medicaid if needed).You want to choose your care setting (home, assisted living, specific facilities) rather than being limited to those that accept Medicaid.You are very wealthy and can comfortably absorb years of $100,000+ annual care costs without impacting your financial security (you can "self-insure").You want to avoid burdening family members with the physical, emotional, and financial strain of caregiving.You cannot afford the premiums or you worry about a rate increase on a traditional policy.