Understanding the Long-Term Care Insurance Policy

Long-term care insurance policies can be complicated, and the purchase of one often represents a significant investment. It is important to understand what is and what is not included in the policy and how it works, as well as how rates are determined.

These typs of policies are designed to pay for nursing care that may be required in a nursing home. Nursing-home care is often required for people who cannot care for themselves later in life due to illness or normal aging. Sometimes long-term care is required for younger people due to an injury or illness.

Long-term care policies identify six or seven activities of daily living (ADLs) that a person must be able to perform in order to be considered self-sufficient. If a person cannot perform two or more of these activities, they are considered to be eligible for long-term care. The activities of daily living are bathing, toileting, continence, dressing, eating, transferring (moving from the bed to the chair) and, in some cases, walking. People who suffer from Alzheimer’s disease or dementia and require significant supervision are also eligible.

The policy will pay for the care of someone who meets the criteria, up to certain limits.

The limits are usually expressed as a daily benefit amount, which is the amount (in dollars) that the policy will pay toward care. For example, a policy may have a $250 daily benefit. If the policy owner enters a nursing home that costs $225 per day, the policy will pay the full amount of $225 per day. If the policy owner enters a nursing home that charges $300 per day, the policy will pay $250 per day and the policy owner will be responsible for paying the additional $50 per day.

Some policies also cover home care and assisted living, often at a lower daily rate. Again, the daily benefit represents the maximum amount the insurance company will pay for the policy owner’s care. If the cost of the care is less than the daily benefit, the policy will pay only the cost of the care.

Some policies offer additional features, called riders, which are optional and have an additional cost. Some riders include inflation protection, which increases the daily benefit as inflation increases the cost of nursing care; and shared care riders, which allow a couple who are both insured under the same policy to divide the benefit as needed rather than evenly between them.

Many policies that cover long-term care cannot be altered once they are issued. For this reason, it is particularly important to understand what the options are and which ones you are likely to need.