Choosing the right amount of long-term care insurance (LTCI) coverage can be a challenging task. It's difficult to think about the fact that you might someday need long-term care. Even more difficult is anticipating how much that care could cost, and how long you might require care. But these are the questions you must consider in order to purchase the correct amount of insurance.
Benefit amount
How it works
When you purchase a LTCI policy, you will have to choose the amount of coverage you want. Most policies provide a maximum dollar amount for each day of nursing home care. This is called a daily (or "per diem") benefit. Daily benefits are typically available in amounts ranging from $40 to $250 or more. The cost of nursing home care varies tremendously from one facility to another, and from one geographic region to another. So it is important to thoroughly investigate the cost of local nursing home care before purchasing LTCI.
The daily benefit specified in a LTCI policy typically applies only to nursing home care. Home care and assisted living care may be covered at a lesser rate (typically 50 to 80 percent of the daily benefit amount). However, some policies do not cover home care and assisted living care unless you add these coverages by purchasing a rider.
Some newer LTCI policies offer "pooled benefits" rather than per diem benefits, which means that the policy provides a total dollar amount which may be used for different types of long-term care services. Pooled benefit policies usually include a daily, weekly, or monthly limit on covered expenses.
Choosing the right amount
Variations in the cost of long-term care make it difficult to recommend a specific amount of coverage. However, you should generally buy enough insurance to cover 50 to 100 percent of nursing home costs in whichever facility you choose. If you will have a continued income and you expect to be able to cover a large portion of nursing home expenses, 50 percent coverage may be adequate. However, if you will not be able to supplement insurance coverage with your own income, your coverage should be closer to 100 percent of nursing home costs.
Inflation riders
Most experts recommend purchasing an optional inflation rider to offset the rising cost of long-term care. With an inflation rider, your benefit amount will increase each year the policy is in effect (although the rate of the increase varies from policy to policy). The amount of the annual increase may be a percentage of the original benefit amount (a "simple inflation rider") or a percentage of the previous year's benefit amount (a "compound inflation rider"). Without an inflation rider, the benefits provided by your policy could be completely inadequate by the time you actually need them. But inflation protection is not cheap. In fact, adding this coverage normally increases your premiums by at least 40 percent, and in some cases it can double the premiums.
Benefit period
How it works
When you purchase a LTCI policy, you will probably also need to choose a benefit period, which is the maximum length of time that benefits will be provided (e.g., one year, three years, five years, etc.). After the applicable time limit has been reached, no further benefits are paid. Lifetime benefits are also available, but as you would probably expect, LTCI premiums are higher for policies with longer benefit periods.
Some policies have different benefit periods for different types of care. For example, a policy might offer five years of nursing home coverage and two years of assisted living coverage. Other policies impose their benefit limits on a "per occurrence" basis, so each time you require long-term care you would be covered for up to the benefit period (e.g., one year for each nursing home stay). Pooled benefits policies do not have specific benefit periods at all, but instead place a lifetime limit on the dollar amount of benefits you can receive. This means that using less expensive services (home care vs. nursing home) will cause your benefits to last longer.
Choosing the right benefit period
Most insurance companies offer several options for benefit periods. To decide the length that's right for you, you'll need to analyze the likelihood of an extended need for home care or a stay in a nursing home. Is there a history of debilitating illness (such as Alzheimer's disease) in your family? If not, a lifetime benefit is probably not advisable, because the drastic increase in premiums would not be warranted. When choosing a benefit period, keep in mind that the average nursing home stay does not exceed three years. In most cases, a policy with a higher daily benefit and a shorter benefit period will be sufficient.
Please Note: The information contained in this Web site is provided solely as a source of general information and resource. It is a not a statement of contract and coverage may not apply in all areas or circumstances. For a complete description of coverages, always read the insurance policy, including all endorsements.