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Long-term Care Insurance

Updated: Jun 26, 2021

Long-term Care Insurance

Long-term care insurance (LTC or LTCI) is an insurance product, sold in the US, UK and Canada, that helps pay for the costs associated with LTC. LTCI covers care generally not covered by health insurance, Medicare, or Medicaid.

Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform two of the six activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking. Age is not a determining factor in needing long-term care. However, once a change of health occurs, long-term care insurance may not be available.

Long-term care insurance can cover home care, assisted living, adult daycare, respite care, hospice care, nursing home, Alzheimer's facilities, and home modification to accommodate disabilities. If home care coverage is purchased, LTCI can pay for home care. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day up to the policy benefit maximum. Experts suggest shopping between the ages of 45 and 55 as part of an overall retirement plan to protect assets from the high costs of extended health care.

Other benefits of long-term care insurance:

  • Many individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family.

  • Premiums paid on a long-term care insurance product may be eligible for an income tax deduction. The amount of the deduction depends on the age of the covered person.

In the United States, Medicaid will provide long-term care services for the poor or those who spend-down assets because of care and exhaust their assets. In most states you must spend down to $2000.

Medicaid does provide medically necessary services for people with limited resources who "need nursing home care but can stay at home with special community care services." However, Medicaid generally does not cover LTC provided in a home setting or for assisted living. People who need LTC often prefer care in the home or in a private room in an assisted living facility.

As they relate to U.S. policies, two types of long-term care policies offered are:

  • Traditional policy premiums, like automobile insurance premiums, are paid on a continual basis. If unused, no premiums are returned. However, if the policy has a "return of premium" rider, a death benefit will be paid to a beneficiary if the insured dies at a time when benefits received under the policy are less than the premiums paid to the insurer. The amount of the benefit is equal to the excess of premiums paid over benefits received.

  • Combination or hybrid policies are a combination of life insurance or an annuity with a rider to cover long-term care.

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