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What is Long-Term Care Insurance?

Published: May 2015

The high cost of long-term care may not be something you want to think about, but you probably should. According to the U.S. Department of Health and Human Services (HHS), nearly 70 percent of people turning age 65 can expect to use some form of long-term care in their lives.

With such care averaging $229 a day for a private room in a nursing home, according to the HHS, it can quickly deplete your savings if you're not prepared.

That's where long-term care insurance can help. Let's break it down so you can decide if it's the type of policy that's right for you, or for a member of your family.

Home health aide consulting with mature female patient.

What Type of Care Does Insurance Cover?

Long-term care insurance is designed to help pay for services that offer you two kinds of assistance:

  • Custodial care: Support with personal everyday tasks, like bathing, eating or going to the bathroom
  • Skilled care: Support from a medical professional, like a nurse or therapist

Most people picture these types of services taking place in a nursing home, but such care can also happen in an adult day care, an assisted living facility, or even at home, says the Insurance Information Institute (III).

Why Aren't Medicare, Private Insurance Enough?

If you haven't considered long-term care insurance because you think you'll be able to fall back on your employer's health plan, or on Medicare, you may find yourself coming up short when it comes time to cover the expense of an extended period of care.

That's because Medicare and most forms of private health insurance will only cover skilled care on a short-term basis, and typically only under very specific conditions, according to the HHS. And they typically don't provide any coverage at all for custodial care.

How Does Long-Term Care Insurance Work?

So, how can long-term care insurance step in to help fill the gap?

Daily, lifetime limits. Policies are typically designed to reimburse you for qualifying expenses, with daily and lifetime maximums, says the III.

Triggers. Policies typically have certain "triggers" that need to take place before they'll start providing coverage, says the III. One common trigger is experiencing cognitive impairment due to Alzheimer's or Parkinson's disease. Another might be inability to perform two or three everyday personal care tasks because of an illness.

Waiting period. There's also typically a waiting period before an insurance company will begin paying benefits, the III says. If you recover from your illness before the waiting period ends, the policy likely won't pay for expenses you may have accumulated during the waiting period.

Duration of coverage. The length of time that you can receive coverage depends on the specifics in your policy. You may have insurance that provides protection for two years of care, or even up to a lifetime. The cost of a policy is usually lower for shorter-term coverage, the III says.

The ultimate cost of your policy will depend on these and other factors, like your age at the time of purchase. But it's important to know that if you're already in poor health or currently receiving long-term care, you may not be able to qualify for a long-term care policy, according to the HHS.

That is yet another good reason to consider long-term care insurance (or otherwise address the financial risks of extended care expenses) long before you'll ever need it.

Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE 68506. (877) 525-5727 Check the background of this firm on FINRA's BrokerCheck website.

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