What is long term care insurance and what does it cover?

Long term care insurance will pay for your care should you be either physically impaired or cognitively impaired.

Long term care insurance pays for the cost of care you receive when you need help with activities of daily living (ADLs), such as eating, bathing, dressing, and mobility— normal activities that you may take for granted today, but due to your natural aging may become more difficult for you in the future.

Long term care insurance will also pay for the cost of your care needed due to a cognitive impairment such as Alzheimer’s disease or dementia.

You may receive your care in any setting--in your home, in an assisted living facility, at an adult day care center; and, of course, in a nursing home.  Most comprehensive long term care insurance policies will pay for the cost of your care received in any setting.

The care that is covered by long term care insurance may be either skilled care, rehabilitative care, or custodial care.

• Skilled care includes nursing care and physical, occupational, respiratory, and speech therapy from licensed healthcare professionals on a daily basis, or on an intermediate rehabilitative basis.
• Custodial care is the most common type of long term care, and includes help with daily activities such as eating, bathing and dressing.

Private health insurance and Medicare will typically pay for skilled care only.  Private health insurance and Medicare specifically exclude custodial care (long term care) from coverage.

Long term care insurance may also cover other items that allow an individual to stay at home such as:

• Home modifications such as building a ramp for a wheelchair, or widening doorways
• Caregiver training
• Medical safety alert systems
• Transportation
• Informal care duties such as cooking, shopping, housekeeping

Many people buy long term care insurance to protect their retirement assets from the high costs of needing care. Long term care insurance benefits are tax free, and the long term care insurance premiums may be tax-deductible.

Long term care insurance allows you to remain independent and receive your care with dignity in the setting of your choosing, without having to burden a spouse or partner, children, or other family members with caregiving duties.

Types of Long Term Care Insurance Policies

There are 3 types of long-term care insurance policies:

• Reimbursement LTC insurance policy
• Indemnity LTC insurance policy
• Cash-based LTC insurance policy

It is important to understand the differences and the costs of the above long term care insurance models.

Reimbursement Long Term Care Insurance policy

The reimbursement model is the most common form of LTC insurance policy.  With the long term care reimbursement model, the policyholder is reimbursed for its out-of-pocket long term care expenses up to the policy's benefit limit.  For example, presume the LTC policy daily benefit is $200.00 and the policy limit is $250,000.  If the policyholder incurs a daily expense of $150.00, the reimbursement LTC policy will reimburse the policyholder $150.00 and the policy limit will adjust to $249,850.  The reimbursement policy is the most affordable long term care insurance policy.

Indemnity Long Term Care Insurance Policy

A few long term care insurance companies will offer an indemnity policy as an additional cost option.  With the indemnity long term care policy, the policyholder is indemnified for the full daily benefit regardless of the actual out-of-pocket amount. Like the reimbursement model, the policyholder does have to submit a receipt for the care that was received.  Take the above reimbursement model example, presume the policy daily benefit is $200.00 and the policy limit is $250,000. If the policyholder incurs a daily expense of $150.00, the indemnity policy will actually indemnify the policyholder the entire $200.00 (not just the expense incurred amount of $150.00) and the policy limit will adjust to $249,800. The indemnity long term care insurance policy costs more than the reimbursement LTC policy.

Cash-based Long Term Care Insurance policy

Like the indemnity policy option, a few companies will offer a cash-based policy.  The cash-based LTC insurance policy is the most flexible long-term care insurance policy.  Like the indemnity policy, the cash-based policy will pay the policyholder the full amount of the daily benefit regardless of the actual out-of-pocket claim amount.  Unlike the indemnity or reimbursement models, though, the policyholder does not have to submit any caregiver receipts.  There are no restrictions with the cash-based policy.  If the policyholder is determined to either have a cognitive impairment or be unable to perform 2 activities of daily living the cash-based policy will pay out the entire policy benefit.  No questions are asked.  There are no restrictions in a cash-based policy.  Family members may provide care; and the care may be received anywhere in the world. 

Of course, having the most flexibility also means the cash-based long term care insurance policy has the highest premium cost.

• Hybrid reimbursement-cash alternatives

In recent years a few reimbursement long term care policies will include a reduced daily benefit cash-based alternative as a no-cost option for reimbursement policy owners to elect should a cash-based benefit meet their needs during their claim.  Typically, the reimbursement model may offer the policyholder a reduced cash payout equal to 40% of the reimbursement daily benefit.  For example a policyholder with a $200.00 daily benefit could elect to receive $80.00 cash "in lieu of" the $200.00 reimbursement benefit.  This flexibility helps the policyholder if possibly a family member or an unqualified caregiver provides care; or if long term care expenses are incurred for which no receipts exist.  These are affordable types of long term care policies offering the policyholder reasonable long term care insurance rates.

Linked Benefit Long Term Care Solutions

Long term care insurance policies are one avenue for you to explore when you are considering your long term care planning needs.  Additional planning options for you to consider are linking your long term care benefits to other kinds of insurance benefits, such as life insurance for example.

A few LTC insurance companies such as Lincoln MoneyGuard or Sun Life Financial will allow you to reposition your assets into a linked-benefit long term care policy that will:

• pay for your long term care expenses should you require care;  
• provide your estate a tax-free death benefit should you not need care
• offer you a money-back guarantee should you change your mind

For example, you may have already set aside $300,000 in your savings should you need long term care.  Let's presume you are a 65 year old female.  As an alternative to self-funding your long term care needs, you could choose to move $100,000 of the $300,000 in your savings into a linked benefit long term care policy.  In doing so you could receive:

• $500,000 of long term care benefits ($7000 month for 6 years) should you need care
• $165,000 tax-free death benefit  to your beneficiaries should you not need care
• $100,000 returned to you should you change your mind

Linked-benefit long term care policies may be worthwhile for you to consider should you have liquid assets available that are not needed for your retirement income.

LTC Partner: Your independent long term care insurance specialists

Long term care insurance companies offer many different options for long term care planning.  The policies can vary greatly in the long term care benefits offered, and the long term care insurance inflation protection afforded. LTC Partner has specialized in long term care planning since 1998. We will help you review your long term care insurance quotes and comparisons and will guide you through your long term care insurance options with the best long term care insurance companies such as Genworth, Prudential, Mass Mutual, Mutual of Omaha, Transamerica.  We can even help you review the pros and cons of long term care insurance and the costs of long term care policies marketed through AARP or your employer.

Please feel free to contact us toll free at 1-800-891-5824 with any questions or long term care insurance quote requests.  We will be happy to provide you with customized side-by-side long term care insurance quote comparisons; or with complete illustrations of linked benefit long term care insurance solutions.

In the meantime, please bookmark our website for your ongoing use. Our website contains a wealth of information on long term care insurance planning, as well as helpful tips and reviews of long term care insurance.  We trust you will continue to utilize our site as your long-term care insurance planning resource.

Thank you.

Jack Lenenberg, J.D., President