Long-term care (LTC) insurance policies are not standardized. As a result, there are several items in every policy you should consider that will determine the type of benefits to be paid, the care that will be covered, and how easily you can access and start using your LTC benefits.
Topics on this page
- Duration of Benefits
- Benefit Triggers
- Waiting Periods
- Daily Benefit Amount
- Maximum Policy Benefits
- Inflation Protection
- Insurance Agents
Long-term care (LTC) policies are typically sold for 12 or more months of care. You can buy a policy that pays benefits for only 1 year or one that pays for 2, 3 or 5 years. Companies have stopped selling benefits for as long as you live.
The premium you will pay is based on the benefit package for each year of LTC coverage you buy, your age and gender and other factors. In general, the longer the benefits last, the more expensive the policy premium will be. Most people balance the amount of premium they can afford with the benefits they choose to buy.
Before LTC insurance companies will pay benefits, certain conditions must be met. Benefits are triggered when you aren’t able to perform a specified number of the normal activities of daily living (ADL), such as bathing, dressing or eating, or when you have a cognitive impairment or dementia caused by Alzheimer’s disease or other conditions. These functional or cognitive impairments are determined by measuring a person’s ability to perform the ADLs, or by testing their cognitive abilities. When a person can’t perform a specific number of ADLs, or has a cognitive impairment or dementia that requires assistance or supervision, benefits may be payable.
Policies sold in California must pay covered benefits for nursing home care, assisted living and home care when you can’t perform 2 of the ADLs listed in the policy, or when you have a serious cognitive impairment or dementia such as Alzheimer’s. Older policies may have different benefit triggers.
Tax qualified (TQ) policies use a list of 6 ADLs:
Non-tax qualified (NTQ) policies use a list of 7 ADLs — the 6 above plus ambulating (walking), with a separate, more specific set of definitions included in the policy information.
In general, a TQ policy is more restrictive than an NTQ policy. The soonest a TQ policy can pay benefits is when you are unable to perform 2 ADLs. With a list of 7 ADLs that includes walking, NTQ policies may make it easier to qualify for benefits.
A waiting period for LTC insurance works like a deductible. Also known as an elimination or deductible period, it is the amount of time before a policy will begin paying benefits, after someone is eligible to receive them. Some people choose not to have a waiting period, so their policies pay from the first day they are eligible for benefits. Other people decide to pay for the first 30, 60 or 90 days of their care, so their policies don’t begin paying benefits until the waiting period has expired.
Some companies sell policies with a specific dollar amount as the policy deductible instead of a waiting period. In this case, benefits will begin once you have met the benefit trigger for care and paid for that amount of your care.
Some companies count only the days you receive paid care against the waiting period (service day waiting period); others count every day from the first day you become eligible for and receive care (calendar day waiting period). Some companies require you to meet this waiting period only once in your lifetime; others require you to meet it within a specific number of days or months, or each time you qualify for benefits and need LTC assistance. Most companies will not count the care you receive from family members as part of the waiting period.
Be sure you understand how the company calculates the waiting period for the policy you are considering. Otherwise, it can be very expensive both now and in the future. If you choose a 30-day waiting period and the company only counts each day you receive care toward the waiting period, the number of days before the policy begins paying benefits could be much longer than you expect. For example, if you receive home care for 3 days each week, it could take 10 weeks, or 70 days before you meet the 30-day waiting period. If you require care in a nursing home, you would need to pay for the first month (30 days) of care. The cost for nursing home care increases each year with inflation. According to one insurance company’s study, nursing home costs over the last 9 years costs have gone up about 3.5% annually.
The daily benefit amount is the maximum amount LTC policies will pay for each day of care. Some policies pay this amount when you are in a nursing home, but only a percentage of that amount for all other types of care. For example, if the maximum daily benefit amount for nursing home care is $100, the daily benefit for assisted living in California must be 70% of that amount ($70) in policies sold after 1999. Benefits for home care must be no less than 50% of the nursing home benefit but not less than $50. Some companies will pay up to 100% of the daily benefit amount in each place covered by the policy, or the daily cost, whichever is less. A company will usually not pay the daily amount you are charged if that cost is greater than the daily benefit you bought. Some companies pay the home care benefit on a weekly or monthly basis so care can be planned, scheduled and financed more efficiently and economically. It is important to understand how a daily benefit is calculated and paid, as well as the amount a policy promises to pay.
Maximum policy benefits equal the total dollar amount an LTC policy will pay for your care once you begin using your benefits. California companies are required to use a pool-of-money method (also known as a total dollar amount) to pay these benefits, which means they must define the maximum benefit the policy will pay by a single dollar amount paid over the life of the policy for all covered benefits.
For example, if you bought a policy that paid $100 per day for 3 years, your maximum policy benefits would be $109,500 (365 days x 3 years x $100 per day). If you used the full benefit amount every day, your total benefits would last 3 years. However, if your care costs less or you only used the home care benefit at $50 per day, your total benefits could last much longer.
When you buy an individual LTC insurance policy in California, companies and agents must show you the cost of inflation over time and offer you an inflation protection benefit. If you decline this offer, you must sign a rejection notice acknowledging that you understand your benefit will not keep up with the cost of care in the future. You should carefully weigh your ability to pay the difference between the daily benefit you choose now and the cost of care in the future. Benefits without inflation protection will steadily erode over time.
Companies are required to offer you at least 2 ways to protect your original investment:
- Built-in 5% compounded inflation protection. If you choose this type of protection, the premium will be higher than it would without this protection. With 5% compounded inflation protection, a $100 daily benefit will double to $200 per day in 14 years. Without this protection, that same benefit will only be worth half its original value in 14 years, and you will need to pay the difference between that amount and the cost of your care, which will also have increased over the same period of time.
- Adding inflation protection at periodic intervals decided by the company. If you decide to add the offered inflation protection later, the current cost of that benefit at your current age will be added to your premium. As you get older, you may find you can no longer afford to exercise this option because the cost of adding inflation protection becomes too expensive. If you reject this option, you could eventually lose the right to have it (typically after you reject it 3 times).
Most insurance agents are professional, well-trained individuals who will not pressure you to make a purchase decision before you are ready. When buying LTC insurance, it’s important to work with an agent you trust. You will need to work with your agent later if you want to change any benefits in your policy, you have a rate increase or you need to file a claim. Your agent should be easily reachable and able to answer questions about your policy years after you buy it, if necessary. If you are not comfortable with a particular agent, you should find someone else. Note: Many insurance agents are independent, paid by commission and are not salaried employees of a specific insurance company.
Look for an agent who:
- Has up-to-date LTC insurance training
- Works for an established local business
- Will take the time to answer all your questions
Ask your agent to review each of the provisions of the policy and be sure you understand each one. You have a 30-day period to examine your new policy from the date you receive it and get back any premium you paid. You should take advantage of this time to get any help you need to understand how the policy works. If you decide not to keep the policy within this period, your premium must be refunded to you.
Agents are required to give you certain information about LTC policies, such as:
- A buyer’s guide titled Taking Care of Tomorrow
- A completed Personal Worksheet (see below)
- Specific contact information about how to reach your local HICAP office
- A replacement notice if you are replacing an existing LTC insurance policy
- An Outline of Coverage that summarizes the benefits and conditions of the policy
The Personal Worksheet is a document that includes the company’s past rate increases and inquires about your LTC planning. Some of the questions concern income and asset information, so the company can be certain you are in an appropriate position to purchase LTC insurance. If you are not comfortable providing that type of information to an agent, you can refuse to fill out that part of the worksheet. The company will contact you later to make sure it was your choice to refuse this information. Once you complete the worksheet, your agent should give you one copy, send one copy to the company and retain one copy in his/her office files as proof that you were given the state-required documents.
More information can be found in Taking Care of Tomorrow, from the California Department of Aging. You can also visit the California Department of Insurance (CDI) website to get its guide to LTC insurance, or call the Consumer Hotline (1-800-927-4357) for a copy.