Types of long-term care insurance

As people age, their physical and cognitive capabilities decline, leaving many unable to perform daily care tasks. AARP data shows that 56% of people turning 65 between 2021 and 2025 will require long term services and support at some time in the remainder of their lifetime.¹ A report from the CDC says seniors age 85+ are six times as likely to need daily living assistance as those aged 65 to 74.²  

Daily living assistance can range from a nursing aid coming to your house a few times a week to transitioning into an assisted living facility or nursing home. Regardless of the level of service needed, care gets expensive quickly. This is complicated by the fact that typically neither health insurance nor Medicare covers this type of assistance. 

Fortunately, long-term care (LTC) insurance is available to help alleviate the financial burden of long-term care. But what is long-term care insurance, how does it work and what does it cover? Read on to learn more about this type of coverage, how and when to access it, and how it can help you plan for long-term care should you need it as you age.

What is long-term care insurance?

What are the three types of long-term care insurance?

There are several types of long-term care insurance including:

• Traditional long-term care insurance
• Life insurance with long-term care (LTC) rider
• Employer/association group long-term care plans

Traditional long-term care insurance

Traditional long-term care insurance is a standalone policy that helps cover the cost of assisted living, in-home care and other care expenses when you can no longer perform daily activities independently. Traditional long-term care insurance policies function the same way as other insurance policies. The insured pays the premiums and coverage continues for the duration stated on the policy as long as premiums are paid. In case long-term care is needed, the policy provides a daily or weekly benefit that can go toward a range of assisted care costs, from rent at an assisted living facility to in-home nursing care or even transportation expenses.  

Pros of this type of policy include:

• As a plan designed exclusively to cover long-term care needs, this option often provides the most extensive benefits to cover long-term care expenses.
• Benefits may help pay for a wider variety of care options, including things like physical therapy, transportation and other related care expenses.

Cons of this type of policy include:

• This is a use-it-or-lose-it policy, so benefits are paid if and only if long-term care is required.
• Applying for this type of policy requires a complete medical and cognitive exam.
• Premiums can be extremely high for this type of policy, especially if you apply as you reach the age of 60 or above.

Life insurance with LTC rider

It may be possible to add a long-term care rider to a life insurance policy, which allows you to access some portion of the death benefit to pay for LTC expenses. With this option, the death benefit is reduced by the amount used for long-term care. However, the policy simultaneously provides financial protection in case of long-term care needs, while also protecting your beneficiaries in case of your death.

Pros of this type of policy include:

• Policy delivers a benefit upon your death, reducing use-it-or-lose-it risk associated with traditional LTC policies.
• In most cases, this rider can be added to a life insurance policy, allowing you the flexibility to enhance an existing policy.

Cons of this type of policy include:

• Adding this rider will increase the premium on your life insurance policy.
• The death benefit received by your beneficiaries is reduced based on the amount paid out for long-term care.
• The LTC rider may not be available with all types of life insurance policies.

Employer/association group long-term care plans

• Group policies can offer lower premiums due to the fact that policy is underwritten for a group rather than an individual.
• Enrollment is typically simple with group policies and foregoes extensive medical exams.

• Benefits are often limited with group policies.
• Group policies may offer less flexibility than individual policies.
• If you are young and healthy, premiums may actually be higher for you, depending on the profile of the group.

What does long-term care insurance cover?

Long-term care can involve a variety of different support solutions, ranging from part-time, in-home care to assisted living or adult daycare. Long-term care can provide financial coverage for in-home health aids or monthly assisted living or nursing home expenses. It may also help cover rehabilitation expenses such as physical or occupational therapy. The provisions of each policy will differ, so check the contract for details. 

It's also important to remember that long-term care insurance is not necessarily designed to cover the full amount of long-term care expenses. Typically, policies pay a pre-defined daily or weekly benefit that can be applied toward, for example, the cost of an assisted living facility. There is typically a maximum benefit, which can apply to anything from skilled nursing care to transportation assistance. The remaining expense must be paid out-of-pocket. Medical expenses are not covered by long-term care policies. 

Example of long-term care insurance

Consider an example to understand the benefits of long-term care insurance. After Ethan’s mother passed away, his 87-year-old father began exhibiting signs of confusion and difficulty performing daily tasks. Fortunately, Ethan’s dad had purchased a life insurance policy with an LTC rider. After checking the provisions of the policy with his dad, Ethan determined that he had $150/day available to pay for long-term care expenses, including an in-home nursing care. Ethan identified an in-home aide company for $20.00/hour who came and assisted his dad from 8am to 5pm each day for a cost of $180 per day. The long-term care policy covered $150 of the $180 per day, leaving Ethan to pay the $30/day out of pocket.  

When to purchase a long-term care insurance policy

It’s easier to qualify for a long-term care insurance policy when you are relatively young and healthy. Investing in a policy in your 50s or early 60s may allow you to secure lower premiums. It may be possible to get coverage in your 60s and 70s, but the medical review process may be more rigorous and premiums may be significantly higher. 

What disqualifies you from long-term care insurance?

The insurance company will assess your current and past medical history to determine if you qualify. Here are some factors that could disqualify you from long-term care insurance.

• Pre-existing conditions and chronic illnesses such as cancer, Alzheimer’s and Parkinson’s, for example
• Inability to perform basic daily functions at the time of application
• History of substance abuse, alcoholism or obesity can disqualify you or significantly increase premiums
• Failure to complete a cognitive assessment during the application process

Long-term care insurance types compared

Key takeaways

If you are concerned about the financial burden on yourself or your loved ones if you were to become partially disabled and require assistance with daily tasks, long-term care insurance may be a good option for you. 

• There are a few different options for securing long-term care insurance, from a traditional policy covering exclusively long-term care, to a long-term care insurance rider on a life insurance policy or a group policy through your employer or an association. Each type of coverage differs with regard to flexibility, benefit structure and cost. Take some time to evaluate the options carefully before choosing the type of long-term care coverage that works best for you.
• If you’re considering long-term care insurance, you may want to apply when you’re in your 50s or early 60s while you are still healthy. Some insurance companies have age limits and, as your health declines, it may be more difficult and expensive to secure a long-term care policy.
• Group plans provide easy enrollment and a less rigorous medical examination process, potentially making it a good option if you have health issues. 
• When planning for long-term care, take some time to think about the amount of financial coverage you expect to need. Coverage for in-home assistance vs covering monthly costs associated with assisted living or a move to a nursing home. Typically, a higher benefit is provided by a traditional long-term care policy. Consider this as you compare options.

Sources:

1. AARP, “Most Americans Will Need Long-Term Services and Supports in Their Lifetimes; Many Will Face Economic Hardship as a Result,” May 28,2024.
2. McKnight’s Senior Living, “CDC: Those 85+ are six times as likely to need ADL help as those aged 65 to 74,” May 25, 2017.

WEB.7007312.10.25