I carried my first long-term care insurance policy through my employer at a cost of $22 per month. I was an environmental investigator, and found myself onsite at facilities in the chemical, metals, and recycling industries about once a month. It didn’t take long for me to figure out (especially after each safety briefing provided at the front gate—think moving machinery, a number of toxic chemicals coursing through the pipes we walked along, flares, etc.) that getting disabled while onsite was a much higher probability than my other office jobs I had held. Thankfully, in the four and a half years that I worked there, I never had to submit a claim.

Before my last job, I had never given any consideration for long-term care insurance. I was in my 20s, and figured that if anything ever freakishly happened to me to cause a disability, then there would be disability provided to me through the social security administration.

What Will Long-Term Care Insurance Policies Cover?

Long-term care (LTC) insurance is a type of personal care service in the event that you can no longer care for yourself because of a prolonged physical illness, disability, or cognitive impairment. When you need LTC, you need hands-on or stand-by assistance with normal daily activities in order to help you maintain your current lifestyle. LTC is not about improving or correcting your medical condition, but more about maintaining your life despite your condition.

There is skilled care services, which means someone skilled such as a registered nurse or a professional therapist will give you care for your medical conditions, or there are personal/custodial care, where someone will help you to perform the daily activities of living. Services offered may include: nursing home cared, assisted living care, home health care, adult day care, hospice care, respite care (care to allow family members who are caregivers to have time off), care after a hospital stay, help with household chores, or caregiver training for family members.

Options Available within the Plan

When shopping around for a LTC insurance plan, you may wish to ask about the following options:

  • Inflation Protection: Since it may be years before you actually need LTC services, the cost of receiving services could skyrocket. You can sometimes pay extra on the premium to guard against future price increases, which is a good idea particularly if you are purchasing a plan at a young age. Note that the policy should have some built-in inflation protection, so be sure to ask for an analysis of what is already offered versus what buying extra protection will yield you.
  • Nonforfeiture Benefit: This benefit is a guarantee that you will receive some of the benefits you paid for even if you later cancel or lose coverage. In theory, the longer you pay premiums on the plan, the larger your nonforfeiture benefit should be.
  • Waiver of Premium: Many policies already include a waiver of premium provision, which allows you to stop paying premiums when you are in a nursing home and benefits have begun being paid. The waiver typically occurs 60-90 days after benefit payment begins.
  • Refund of Premium: If you should cancel the policy, the company should refund you some of your premiums. Usually you will have had to pay into the policy for a set number of years for this benefit to become effective.
  • Restoration of Benefits: Check to see if your policy restores benefits to the original maximum amount if you don’t need LTC services for a specified period (after having used them for a period of time).
  • Bed Reservation: If you are in a nursing home and must go to the hospital, some policies will pay to reserve your bed for a number of days or until you return. This could be quite beneficial if you have gotten a bed in a specific nursing home that is popular.

How Benefits are Paid Out

LTC insurance companies generally pay out benefits in one of three ways: the expense-incurred method, the indemnity method, or the disability method.

  • Expense-Incurred Method: Using this method, your policy will only pay you when you receive eligible services. Benefits will be paid to either you or directly to the provider.
  • Indemnity Method: This is a less used method, and means that the benefit is a set dollar amount. Once the company determines that you are eligible and you are receiving eligible LTC services, then they will pay the set amount (despite your actual expenses incurred) directly to you up to the limit of the policy.
  • Disability Method: With this method, you are only required to meet the benefit eligibility criteria to receive your full daily benefit (even if you do not receive any LTC services).

Now that I am self-employed in a non-dangerous profession, I do not carry long-term care insurance. However, I turned 30 last year and know that my policy premiums will only increase the longer that I wait to get a policy. So let me ask you this:

Do you carry long-term care insurance? If so, at what age did you purchase it?

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Comments to What is Long-Term Care Insurance?

  1. I don’t. I would look into it more seriously but have heard many do not limit premiums against annual increases. So in theory (and probably in practice) they can collect your money while you’re healthy then throw you off by raising premiums beyond your ability to pay. I would love to see an article comparing state laws that cap increases in long term care insurance, or policies with riders that limit increases.

    Gary S

  2. I specialize in long term care planning and am a CPA and certified in long term care.

    Inflation is a very important rider to add to policies for younger applicants. Older applicants may benefit from starting at a higher benefit (daily or monthly) from the onset.

    Non-forfeiture – I never recommend this rider. The cost is high and clients are not planning on dropping coverage.

    Waiver of premium – if policy includes a waiver for home health care elimination, (1st day home health care), then the premium is waived from the onset if care is at home.

    Refund of premium -this I have never recommended, except for policies paid for by a c-corporation. Instead, consider a term life insurance policy or a linked benefit (life insurance policy with a LTC rider or annuity with a LTC rider). Typically, it takes less than 180 days for clients to be on claim and recover all their premium paid over 25+ years.

    Restoration of benefits – this is seldom recommended. Few clients go on claim and then get better. Since the tax-qualified plans were offered, a requirement to go on claim requires insured to need help with at least 2 of 6 activities of daily living and expect to need care for 90 days or more OR cognitive impairment.

    Bed Reservation is built into current policies.

    Most current policies are reimbursement/cost incurred. Some carriers have cash plans, but much more expensive for most ages. Indemnity plans are no longer sold, however there are policies in force that are indemnity

    Melissa Barnickel


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