Long-Term Care Insurance Basics

Long-Term Care Insurance Basics

Long-term care insurance pays for services to help individuals who are unable to 

perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease.

Features of Long-Term Care Policies

The best policies pay for care in a nursing home, assisted living facility, or at 

home. Benefits are typically expressed in daily amounts, with a lifetime maximum. Some policies pay half as much per day for at-home care as for nursing 

home care. Others pay the same amount, or have a “pool of benefits” that can 

be used as needed.

Criteria for the Beginning of Payments

The policy should state the various conditions that must be met. They can 

include:

1. The Inability to Perform Two or Three Specific “Activities of Daily Living” 

Without Help

These include bathing, dressing, eating, toileting and “transferring” or being 

able to move from place to place or between a bed and a chair.

2. Cognitive Impairment

Most policies cover stroke and Alzheimer’s and Parkinson’s disease, but other 

forms of mental incapacity may be excluded.

3. Medical Necessity or Certification by a Doctor that Long-Term Care is 

Necessary

Most policies have a “waiting period” or “elimination” period. This is a period 

that begins when an individual first needs long-term care and lasts as long as 

the policy provides. During the waiting period, the policy will not pay benefits. 

The policy pays only for expenses that occur after the waiting period is over, 

if the policyholder continues to need care. In general, the longer the waiting 

period, the lower the premium for the long-term care policy.

Benefit periods for long-term care may range from two years to a lifetime. 

Premiums can be kept down by electing coverage for three to four years—longer 

than the average nursing home stay—instead of a lifetime.

Most long-term care policies pay on a reimbursement (or expense-incurred) 

basis, up to the policy limits. In other words, if the policy has a $150 per day 

benefit, but the policyholder spends only $130 per day for a home long-term 

care provider, the policy will pay only $130. The “extra” $20 each day will, in 

Insurance Basics

Long-Term Care Insurance I.I.I. Insurance Handbook www.iii.org/insurancehandbook 23

some policies, go into a “pool” of unused funds that can be used to extend the 

length of time for which the policy will pay benefits. Other policies pay on an 

indemnity basis. Using the same example as above, an indemnity policy would 

pay $150 per day as long as the insured needs and receives long-term care services, regardless of the actual outlay.

Inflation protection is an important feature, especially for people under the 

age of 65, who are buying benefits that they may not use for 20 years or more. 

A good inflation provision compounds benefits at 5 percent a year. Without 

inflation protection, even 3 percent annual inflation will, over 24 years, reduce 

the purchasing power of a $150 daily benefit to the equivalent of $75.

Six Other Important Policy Provisions

1. Elimination Period

Under some policies, if the insured has qualifying long-term care expenses 

on one day during a seven-day period, he or she will be credited with having 

satisfied seven days toward the elimination period: i.e., the time between an 

injury and the receipt of payments. This type of provision reflects the way 

home care is often delivered—some days by professionals and some days by 

family members.

2. Guaranteed Renewable Policies

These must be renewed by the insurance company, although premiums can go 

up if they are increased for an entire class of policyholders.

3. Waiver of Premium

This provision ensures that no further premiums are due once the policyholder 

starts to receive benefits.

4. Third-Party Notification

This provision stipulates that a relative, friend or professional adviser will be 

notified if the policyholder forgets to pay a premium.

5. Nonforfeiture Benefits

These benefits keep a lesser amount of insurance in force if the policyholder lets 

the coverage lapse. This provision is required by some states.

6. Restoration of Benefits

This provision ensures that maximum benefits are put back in place if the 

policyholder receives benefits for a time, then recovers and goes for a specified 

period (typically six months) without receiving benefits.