Long-term Care Insurance FAQ

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Long-Term Care (LTC) insurance only pays for long-term care. Long-term care is primarily supervision or assistance with everyday tasks like bathing and dressing and does not require a licensed health care professional to provide those services. This kind of care is often needed because of an illness, an injury, or as a result of aging and the inability to take care of one’s self. This product used to be sold almost exclusively to seniors, but today LTC insurance is sold to people as young as 30-years-old. The federal government allows taxpayers to deduct some, or all, of the premium for a tax-qualified (TQ) policy as a medical expense based on the age of the purchaser and the amount of premium paid. California allows a similar deduction on state income tax returns. TQ policies meet certain minimum federal requirements in addition to those required by state law. This fact sheet answers some frequent questions about LTC insurance.  


Who sells LTC insurance?

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Individuals can purchase LTC insurance from many companies through insurance agents or a variety of groups or employers. Some private employers sponsor this type of insurance, and public employers like the California Public Employees Retirement System (CALPERS) or the Federal Employees Long Term Care Program (FLTCP), sponsor their long-term care programs. Some associations, like the American Association of Retired Persons (AARP), and fraternal and faith-based organizations also sponsor LTC insurance programs. Employers and other groups rarely pay any part of the premium. They simply make the insurance available to their employees or members, and sometimes to other family members as well. Health screening or medical underwriting is still required, although active employees may be exempt from this requirement or be subject to only minimal screening for employer-sponsored coverage.  

 

Should I buy LTC insurance?   

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This answer depends on your individual needs and circumstances. Buying LTC insurance is part of a planning process for life and retirement. You need to have enough income to pay the premiums for the rest of your life, regardless of premium increases or life changes, such as the death of your spouse. You need to consider how long the benefits should last about the premium you will pay. Most people with modest resources may be better able to pay for a policy with one, two, or four years of coverage rather than one with benefits that last if they need care. Also, if you have few, if any assets, it may not make sense for you to buy this type of insurance. Other options for paying for long-term care include investments, savings, home equity conversion or a reverse mortgage, and Medicaid.  

 

What is the best LTC insurance policy?   

What is best for one person may not be good for another. The benefits and amount of coverage an individual or couple needs depend on their unique circumstances. A single or widowed woman may need very different benefits than a married man, particularly if their economic circumstances are different. Women are more likely to live longer than men and more likely to live alone at the end of their life. Without family members willing to provide some home care and support services, women are more likely to get their long-term care in a nursing home or an assisted living facility.  

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What is the best company to buy from? 

Many companies sell LTC insurance, although recently some companies have stopped selling this type of insurance. Some companies that remain in the market have decades of experience, while others are relatively new to this product. Some are large companies with many other products and subsidiaries; others are smaller and specialize in LTC insurance. Rating services like AM Best or Standard and Poor’s provide information to help you evaluate the financial strength of these companies. Speak with your agent for the best pricing.    

 

What is a “Tax Qualified” (TQ) policy?    
 

These policies meet minimum standards set by the federal government OR are ones that were approved for sale in your state as an LTC insurance policy before the 1996 change in federal law. Some, or all, of the premiums, may be tax-deductible as a medical expense, depending on the amount of premium you pay and your current age. The premiums for a non-tax-qualified policy (NTQ) are not tax-deductible. The benefits paid by a TQ policy are NOT taxable as income. No public decision has yet been made by the Internal Revenue Service (IRS) about the tax treatment of NTQ policies. In general, a TQ policy is more restrictive than an NTQ policy. The soonest a TQ policy can pay benefits is when someone is unable to perform two Activities of Daily Living (ADLs) out of a list of six ADLs, or when a person is cognitively impaired. The six ADLs are bathing, dressing, eating, transferring (e.g. from bed to chair), toileting, and continence. NTQ policies can pay benefits using a more generous threshold for paying benefits or include additional ways to trigger benefits. NTQ policies have a seventh ADL—walking—to make it easier to qualify for benefits. Until recently, when the law expired in California, companies were required to offer you an NTQ policy along with a TQ policy. Some companies still sell these, but if you want one, you may have to ask for it.  

 

If I buy a policy before my next birthday, will I pay a lower premium?  
 

Not necessarily. Companies do base their premiums on age, and the older you are the more you will pay. However, the difference in premium for one year of age may not be significant. If the only reason you are buying a policy is to lock in a lower premium, you may not know enough about the policy to justify that decision. Also, a well-trained, professional agent won’t pressure you to decide before you fully understand the product you are buying just to save a few dollars. They understand that this is a product you will be keeping for the rest of your life and it’s important that you understand how it works and is comfortable with the decision you are making. It is always a clever idea to have a friend, relative, or another advisor with you when having an agent visit for selling you a long-term care insurance policy.    

 

I am planning to buy a policy from a company and agent, but the cost of inflation protection adds hundreds of dollars to the premium. Do I need it?  
 

In general, yes. Inflation protection should be included in every LTC insurance policy because these policies pay a fixed dollar amount for each day of care. Most people are buying these policies years before they will need care. A fixed daily benefit loses buying power each year. In fourteen years, it will only pay for half the care that it pays for today while the cost of care continues to inflate each year. The difference between the LTC insurance benefit and the cost of care will have to come out of your pocket. Inflation protection will help your benefits keep up with inflation. As greater numbers of people begin to need care, the competition for caregivers and places of care will fuel increases in the cost of care. Also, inflation protection is important even at age 80 because some people live longer, maybe another 20 years or more.  

 

Will I be able to stay out of a nursing home if I buy an LTC insurance policy?
 

Not necessarily. Having an LTC insurance policy may not keep you out of a nursing home if that is the only place that can provide appropriate care. Around the clock care at home is generally more expensive than nursing home care and may require more than one caregiver for each 8-hour shift. Since the reason, you may need care, and the amount of care you may need is so unpredictable, an LTC insurance policy should provide you with protection in any of the settings where you are likely to need care, including care at home, in assisted living facilities and nursing homes. While most people want to be cared for at home, and many can be for at least short periods, others may have no choice if their condition becomes so severe that getting care at home is not feasible.    

 

If I buy a two-year LTC insurance policy, will the company only let me keep it for two years?   
 

No. It means that when you begin collecting benefits, your benefits may only last for two years if you use them up at the maximum amount each day. Newer policies provide a pool of money that can last for the stated number of days or much longer if your daily expenses are less than the maximum daily benefit in your policy. Remember that you will have to pay premiums for as long as you want the protection you bought unless your policy has a paid-up provision.  

 

My insurance agent says his policy is different and has a pool of money I can use to pay for long-term care. What does that mean?      
 

Some state law requires all LTC insurance policies to define the maximum benefit the policy will pay by a single dollar amount, not years. This is commonly called a pool of money or a total dollar amount that is available to pay for your care in all the places covered by the policy. For example: If you bought a policy that pays a maximum daily benefit of $100 a day in a nursing home for two years, but pays only $50 a day for home care, your maximum policy benefits may last longer than two years. You would have $73,000 in total benefits ($100 x 730 days) available to you. After you used home care benefits every day for one year ($50 x 365), you would still have $54,750 in benefits left; equal to one and a half years of nursing home care, or three years of home care, or any combination that equals $54,750. If you bought inflation protection, the amount of your maximum daily benefit and maximum policy benefit would be greater than $100 or $50 a day, depending on how many years you had the policy before you began using it.  

 

What is the right age to buy LTC insurance?    
 

This is a very individualized decision, based on many factors. Most people think about this type of insurance when they are close to retirement. Others buy it through an employer much earlier. Premiums are much lower for people in their 40’s or 50’s than at 65 years of age. Also, as people age, they are more likely to develop a health condition that would make them uninsurable. After 60 years of age, premiums for this type of insurance begin to rise steeply and you may be unable to afford the same amounts of coverage you could when you were younger. However, long-term care services and places where people get care are changing and may not be the same services or places described in an LTC insurance policy purchased forty years earlier.

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Several people in my husband’s family have Alzheimer’s disease and I think my husband may be showing signs of it. How can I get a policy for him?

All LTC insurance policies require some health screening, called medical underwriting. Insurance companies won’t insure people who are likely to need long-term care. Some companies review the medical records of each applicant, others will do so only when someone is over a certain age at the time they apply, and some will do a phone interview or face-to-face interview for everyone over 70 years old to assess their functional and cognitive abilities. Still, others will rely on your answers to health questions on the application when you apply for coverage. Some companies use strict medical underwriting; others are less strict and will sell a policy to people who have certain acceptable health conditions but may charge a higher premium. However, it is unlikely a company would issue an LTC insurance policy to someone who already shows signs of cognitive deterioration. An application must be completed accurately and truthfully. Otherwise, it could result in the company canceling the coverage later.

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I have an LTC insurance policy that I bought in 1986 for $600 a year. It only pays $50 a day for nursing home care after a 100-day waiting period. It doesn’t have inflation protection and I want home care benefits. What should I do?

You have several choices if you are still insurable and can afford to pay an additional premium. You could keep the policy you already have and add the benefits missing from your existing policy by buying a second policy from the same or different company. (The policy you have is probably already a TQ policy if it was sold under state law before December 31, 1996. Federal law granted those previously sold policies the same tax status as the new TQ policies.) Or, your current company might issue you one of their newer policies and give you a premium credit for your old policy towards a premium for a new policy if you can pass their health screening. Your agent can help you add benefits to your existing policy, or replace it. If you decide to replace the policy your agent must give you a written comparison of the difference between the two policies and identify how the replacement will benefit you. If you are NOT still insurable, your policy will still pay the benefits you bought, but it will not provide the newer benefits you want. You will need to weigh the continuing cost of your older policy against the benefits it provides to determine if it is in your best interest to keep the policy. Generally, older policies are less expensive than newer policies and it may be worthwhile to keep it for the benefits you originally bought. If you decide not to keep it, the company will retain the premiums you have paid without incurring any future risk of a claim.  

 

Should I cancel my LTC insurance policy if I can’t afford to pay the premium?    
 

Consider another option first. Any consumer can request a reduction in their policy’s benefits so they can continue to afford their premiums. You don’t have to wait for a premium increase to exercise this right. You can reduce the daily benefit amount, the number of years the policy will pay, or make other changes that will reduce the premium to an amount you can afford. When you have paid for this type of insurance for years, you probably will not want to cancel your policy and waste those premium payments. Instead, you can reduce your benefits and keep some of the coverage for which you have been paying.  

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Why did my premium go up by 40 percent and my neighbor’s policy only went up 15 percent?    
 

Premium increases are based in part on the benefits that were purchased. Someone who has a comprehensive policy that will pay benefits for five years will usually have a greater premium increase than someone with a policy that pays benefits for just one year.  

 

Premiums for LTC insurance cannot be increased, right?      
 

Indeed, companies cannot single you out for a rate increase based on your age or your health. However, every company reserves the right to increase premiums, usually for a group of people in the same state who all bought similar policies issued during a particular period, often referred to as a “class.” That right is stated on the first page of your policy. In some cases, companies underestimated what these policies would cost over time because they thought more people would drop their policies before using the benefits. Some companies underestimated the cost of the claims that would be made against these policies. Insurance companies also invest in the stock market and their investment income may have been less than they estimated when they designed the premiums for a certain group of policies. A change in any one of these factors can affect the premium a company needs to charge to have enough money in the reserve to pay claims over the life of the policies they sold. Some companies were better than others at predicting these factors and haven’t needed to increase premiums. Others had worse experiences and needed significant increases.  
 

Can a company sell my policy to another company?       
 

Yes, companies can sell all their long-term care business or only selected groups of policies. It is also not unusual for an entire insurance company to be bought by another company. However, your policy and the benefits it provides will not change, although your premium might if the new company uses different assumptions for pricing than your previous company did.