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Understand the Key Areas of Long-term Care Insurance

Long-term care insurance: Long-term care insurance covers the costs of nursing-home facilities and the costs of long-term home health-care. This type of insurance provides a daily dollar benefit--for example, $100 per day for the cost of long-term care. It may help families with a history of long-term disease or disability to plan for the future. Two disadvantages of this type of insurance are that it is expensive and that it has many exceptions and conditions for coverage.

There are four basic ways of paying for long-term care: self-insure, Medicaid, Medicare, and long-term care insurance. Self-insuring means having enough money set aside through saving and investing to pay for future care. Medicaid will provide coverage for long-term care if your income and assets are low and you have exhausted your own assets. Medicare is the federal medical insurance program for those sixty-five or older or disabled. It will pay the costs of certain benefits, but generally will not cover personal or custodial care. Finally, long-term care insurance covers the costs of nursing-home facilities and the costs of long-term home health-care.

Key provisions that control your qualification for benefits include the type of care covered, the benefit period, waiting period, inflation adjustment provision, waiver of premium provision, and noncancel ability provision.

There are five key areas of long-term care insurance:

  1. Comprehensive or facilities-only plans
  2. Daily benefit amount
  3. Benefit period
  4. Elimination period
  5. Inflation adjustments

1. Comprehensive or facilities-only plans

Comprehensive plans help pay for care received at home as well as in LTC facilities. Facilities-only plans require care at LTC facilities, which include nursing homes, assisted living or residential care facilities, and hospice and respite care facilities. Facilities-only plans are generally cheaper.

2. Daily benefit amount

This amount is either the maximum amount or the actual amount the insurance will pay per day for covered services. Some plans offer benefits on a monthly or weekly basis. Understand the rules for any policy you may be considering.

3. Benefit period

This is the amount of time that you wish to receive the daily benefit amount. The period can range from two to ten years or for an unlimited amount of time. Your total lifetime benefit is your daily benefit multiplied by your benefit period. For example, if your benefit amount is $110 per day * 1,825 days (5 years), your lifetime benefit is $200,750.

4. Elimination or waiting period

Your elimination period is a period of time during which you are ineligible for benefits (this is the time before the insurance company begins paying your claims). Policies with short or no elimination period are more expensive than those with longer elimination periods.

5. Inflation protection

There are a number of options to help you protect yourself against the increased costs of care in the future. You can add options for automatic compound inflation, simple inflation, periodic inflation, or future purchases.


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