Understanding some of the basics of how long-term care insurance works will help you determine the best way to structure your long-term care insurance policy.
Long-term care insurance companies will sell you a policy only if you meet their established health guidelines. So, it makes sense to apply for coverage when you’re young and healthy. Answer all health questions truthfully and thoroughly. Failing to do this may result in the insurance company canceling your policy or refusing to pay your claims.
Different policies may have different “benefit triggers”—conditions that must exist in order for an insurance company to pay benefits. For example, a tax-qualified policy will only pay benefits when you are unable to perform at least two of six activities of daily living without substantial assistance for at least 90 days, or have a cognitive impairment, such as Alzheimer’s. You must also have a plan of care prescribed by a licensed health-care practitioner. Non-tax-qualified policies may have benefit triggers that are less restrictive.
There is generally a waiting period before a long-term care policy begins paying for your care. This is known as the “elimination period,” and it begins when your benefits have been triggered. You may have to pay for any long-term care services you receive during that time. The most common options are for benefits to start at 20, 30, 60, 90, or 100 days after you begin to receive covered services.
When you buy a long-term care policy, insurance companies let you choose a daily benefit amount for care in a nursing home, usually between $50 and $350 per day. If a policy covers home care, the benefit is usually a portion of the nursing home benefit, such as 50% or 75%. It is important to know the costs of long-term care services in your area before you choose the benefit amounts for your policy.
It’s most common for benefits to be paid for one, two, three, or five years, or for your lifetime. Generally speaking, the longer the benefit period, the higher the premiums. The lifetime maximum amount for the policy is usually calculated based on the daily benefit and the number of years you have chosen for your benefit period.
In Texas, long-term care policies are “guaranteed renewable.” This means the company must renew your policy each year unless you misrepresented your health status in your application, failed to pay your premiums, or exhausted your benefits.
You can cancel your policy at any time by providing notice to the insurance company. When canceling, check your policy for how it treats “unearned” premiums—premiums you have paid in advance for coverage that has not yet been provided.
Premiums on long-term care policies may increase over time. Companies can raise the premiums on policies that don’t have fixed rates, but only if they increase the premiums for everyone in your “rate class.” A company cannot single you out for a rate increase, regardless of any change in your health or the number of claims you’ve made.