What is long-term care insurance?
Long-term care insurance (LTCI) is an agreement between you (the insured) and an insurer. Generally, the insurer promises to pay a daily benefit toward the cost of long-term care (nursing home care, home health care, etc.) in exchange for your premium payments. However, there are many variations on this theme, so you'll see policies that pay benefits in different ways. The reason? LTCI is a relatively new type of insurance product. It is not as standardized as older products such as homeowners insurance and auto insurance, so there are many subtle differences between available policies.
Why do you need it?
Recent studies indicate that 40 percent of Americans over age 65 will need nursing home care at some point during their lives. With Americans living longer every year, this figure is likely to increase. The national average cost of a year in a nursing home is estimated at over $45,000; in some areas, the cost is more than twice that amount. Nursing home care is not covered by regular health insurance, and Medicare covers only minimal nursing home expenses. Consider, also, that 90 percent of long-term care services are provided outside of a nursing home setting: in homes, adult day care centers, assisted living facilities, etc. Medicare provides little or no coverage for these types of care.
What you need to know about long-term care insurance
What it covers
As was mentioned above, LTCI policies are not standardized, so there is a great deal of variation from policy to policy, and from insurer to insurer. That being said, there are some types of coverage that are fairly common. Most LTCI policies cover skilled, intermediate, and custodial care in licensed nursing homes. Many policies also provide coverage for home care services (skilled or nonskilled nursing care, physical therapy, homemaking assistance, etc.). Some policies may cover assisted living, adult day care and other community-based services, respite care, hospice care, and more. Alzheimer's disease and other cognitive disabilities are typically covered under long-term care policies.
Benefits may be available for special medical care and treatment, or medically necessary modifications to your home. For instance, a LTCI policy might cover nontraditional medical treatment or the construction of ramps to accommodate a wheelchair. In special circumstances like these, a health care professional must develop a plan and the insurer must approve it.
What it doesn't cover
All long-term care policies contain certain limitations and exclusions, because a policy that covers every conceivable condition and type of care would carry astronomical premiums. Although the specific limitations and exclusions you will find in any given policy vary, the following items are excluded from coverage under most long-term care policies:
Some insurers place some type of limitation on care related to a preexisting condition (a problem you had before you purchased the insurance). For example, you may have to wait a certain length of time (e.g., six months) after purchasing insurance coverage before the policy will pay for care of the preexisting condition.
When you become eligible for benefits
Most policies require you to satisfy one of three conditions before benefits are paid. In order to receive benefits under a LTCI policy, at least one of the following must be true:
In the past, LTCI policies typically required a hospital stay before paying nursing home benefits, but this is no longer true. LTCI policies also used to require you to stay in a nursing home for a certain length of time before home care would be covered, but this practice has also been abandoned.
When to buy it
If you're between the ages of 40 and 84, there's no time like the present. (Most insurers do not write policies for individuals under age 40 or over age 84.) If you do decide to purchase it you can save a significant amount of money by buying sooner rather than later.
Premium costs rise dramatically if you wait until you're older to purchase a policy, because the likelihood that you'll need long-term care is directly related to your age. As an example, a 65-year-old purchasing LTCI might pay three times more than a 50-year-old would pay for a policy providing the same benefits. An 80-year-old might pay ten times more than a 50-year-old for the same level of coverage.
Once you purchase long-term care insurance, you'll always pay the same rate as someone who is currently as old as you were when you purchased the policy. The insurance company can increase your premiums, but only if they raise the rates for an entire class of policyholders. For example, if you purchase a long-term care insurance policy when you're 55, you'll always pay the same rate as a 55-year-old buying a new policy.
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.