What Should I Look for When Evaluating a Long-Term Care Insurance Policy?
Long-term care insurance can be complex, and knowing what to look for in long term care insurance before you commit to a policy can help you avoid coverage gaps and unexpected costs later on.
Below are the key questions to ask when comparing a long term care insurance policy, so you can better understand the costs, coverage, and benefits involved.
What Types of Facilities Are Covered?
A long-term care insurance policy can cover a range of care settings, including:
- Nursing home care
- Home health care
- Respite care
- Hospice care
- Personal care in your home
- Assisted living facilities
- Adult daycare centers
- Other community-based care facilities
Many policies cover some combination of these settings rather than all of them. Before choosing a policy, ask specifically which facilities and care types are included — this is especially important for Southwest Florida residents planning around local eldercare and assisted living options.
What Is the Daily, Weekly, or Monthly Benefit Amount?
Policies typically pay coverage and benefits on a daily, weekly, or monthly basis. Before committing to a policy, it’s worth evaluating how much eldercare facilities in your area charge for their services, so you can compare those costs against what the policy would actually pay out.
What Is the Maximum Benefit Amount?
Most policies cap the total benefit they’ll pay over the life of the contract. This limit may be expressed either:
- As a number of years, or
- As a total dollar amount
Be sure to ask about this limit directly, since it determines how long the policy’s benefits will last if you need extended care.
What Is the Elimination Period?
Long-term care benefits don’t necessarily begin the moment you enter a nursing home or start receiving care. Most policies include an elimination period — a timeframe during which the policyholder is fully responsible for the cost of care before benefits kick in.
In many policies, elimination periods range from about 20 to 100 days after nursing home entry or the onset of disability.¹
Does the Policy Offer Inflation Protection?
Adding inflation protection to a policy typically increases its cost, but it can be an important feature to consider. The cost of extended care may rise significantly over time, and inflation protection helps ensure your benefit amount keeps pace with future care costs.
When Are Benefits Triggered?
Each insurer sets its own criteria for benefit triggers. Commonly, a long-term care policy pays out benefits once the insured person is unable to perform 2 to 3 out of six activities of daily living (ADLs) without assistance.
The six ADLs most insurance companies use include:
- Bathing
- Caring for incontinence
- Dressing
- Eating
- Toileting
- Transferring
A medical diagnosis of Alzheimer’s disease or another form of dementia may also qualify the insured for benefits.²
Is the Policy Tax Qualified?
A tax qualified long term care insurance policy may make the policyholder eligible for a federal or state tax break. Under federal law — and some state laws — premiums paid on a tax-qualified policy may be considered deductible medical expenses once certain thresholds are met.
A few things to keep in mind:
- The older you are, the more you may be able to deduct under federal law.
- You must itemize deductions to qualify for this tax break.³
This information is for general purposes only. Consult a qualified tax professional before making any decisions about your long-term care insurance strategy.
How Strong Is the Insurance Company?
Several independent firms analyze the financial strength of insurance companies. Reviewing these ratings can give you helpful perspective on an insurer’s ability to pay claims over the long term — an important consideration since long-term care policies are often held for many years before benefits are used.
Choosing the Right Policy for You
There are many factors to weigh when reviewing a long-term care insurance policy. The right coverage for you will depend on your individual circumstances, health, budget, and financial goals — which is why it’s worth carefully comparing policies rather than choosing based on a single factor.
Frequently Asked Questions
What should I look for in a long-term care insurance policy?
Key factors include which facilities are covered, the daily/weekly/monthly benefit amount, the maximum benefit amount, the elimination period, whether inflation protection is included, how benefits are triggered, whether the policy is tax qualified, and the financial strength of the insurance company.
What is an elimination period in long-term care insurance?
An elimination period is the timeframe during which the policyholder is responsible for the full cost of care before the policy’s benefits begin, often ranging from 20 to 100 days.
What are ADLs in long-term care insurance?
ADLs, or activities of daily living, are basic self-care tasks — such as bathing, dressing, eating, toileting, transferring, and managing incontinence — used by insurers to determine when benefits are triggered.
Why does inflation protection matter in a long-term care policy?
Inflation protection helps ensure that a policy’s benefit amount keeps up with rising care costs over time, since the cost of extended care can increase significantly in the years before a policy is used.
What does it mean if a long-term care policy is tax qualified?
A tax-qualified policy may allow premiums to be treated as deductible medical expenses under federal and some state tax laws, once certain thresholds are met and deductions are itemized.
How do I know if an insurance company is financially strong?
Independent rating firms evaluate insurance companies’ financial strength, and reviewing these ratings can help you assess an insurer’s ability to pay claims over the long term.
- PayingforSeniorCare.com, 2020
- Investopedia.com, 2021
- AALTCI.org, 2021
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
