How it Works: A Standalone Long-Term Care Policy

A standalone long-term care policy is made up of the following key components:

• Benefit Amount: This is the maximum amount the policy will pay per day or per month for long-term care services. Many policies offer inflation protection to ensure benefits keep pace with increasing costs over time. 

• Benefit Period: This is the duration for which benefits will be paid, such as two years, five years, or even a lifetime. Be aware that longer benefit periods generally result in higher premiums. 

• Elimination (Waiting) Period: This is the period (e.g., 0, 30, 60, or 90 days) you must wait before benefits begin. During this time, you are responsible for covering the full cost of your care. 

With this type of long-term care insurance policy, you have the flexibility to choose the amount of coverage, the benefit period, and the elimination period to fit your specific needs and budget. Benefits are typically triggered when you can no longer perform a certain number of Activities of Daily Living (ADLs) without assistance (e.g., two out of six), or you develop a cognitive impairment such as Alzheimer’s disease.

What to consider when choosing a standalone long-term care insurance policy:

• Cost-Effectiveness: Standalone long-term care insurance is generally the less expensive option since it exclusively covers long-term care. 

• “Use It or Lose It” Aspect: A standalone policy is often considered a “use it or lose it” option. You could pay years’ worth of ongoing premiums to maintain the policy. If you do not ultimately need long-term care, the policy lapses, and you receive no return on the money you invested. 

• Premium and Benefit Changes: Be aware that the premiums and benefits for this type of long-term care insurance can be changed by the insurer over time.

Key Aspects of Long-Term Care Insurance

• Coverage: Long-term care insurance can cover a variety of services, including help with activities of daily living (ADLs) (like bathing, dressing, and eating), home health care, adult day care, and care in assisted living facilities or nursing homes. 

• Benefits: Most policies reimburse you for care costs, but some may offer a cash benefit regardless of your actual expenses. 

• Cost: The cost varies based on factors like your age, health, and chosen coverage level. Premiums can be substantial and may increase over time. 

• Eligibility: You’ll typically need to meet certain health requirements to qualify, often undergoing a medical underwriting process. 

• Alternatives: Medicaid may offer long-term care coverage for low-income individuals. You might also explore hybrid long-term care insurance policies that combine life insurance or annuities with long-term care benefits. 

• When to Consider: Many experts recommend considering long-term care insurance in your 40s or 50s as part of a comprehensive retirement plan. Premiums tend to be lower when purchased at a younger age.

Important Considerations

• Cost of Care: Long-term care costs, especially in nursing homes, can be very expensive. 

• Premiums: Be aware that premiums can increase over time. It’s important to factor in potential future cost increases when budgeting.

• Tax Deductibility: Premiums for tax-qualified long-term care insurance policies may be tax-deductible if you itemize deductions. 

• Financial Security: Long-term care insurance can help protect your assets and ensure you have access to the care you need, while also providing flexibility in choosing where and how you receive care.