What are the Different Options for Long-Term Care Insurance?

Today’s question is: What are the types of long-term care insurance policies?

When we’re looking at long-term care insurance policies, there are typically two main types that exist.

Traditional Long-Term Care Insurance

The first one is a sort of traditional long-term care insurance. This is most akin to the type of insurance most people are used to buying nowadays. It is “use it or lose it.”

Think of term and life insurance, where you use it for a period of time and if that policy expires, it’s gone. Or think of your car insurance; you pay a premium and hopefully, you don’t get in a car accident and when you’re done paying the premium, you no longer have coverage. That’s how traditional long-term care insurance is looked at. You’re paying a premium and at some point in the future, if you no longer pay for it or you pass away with that coverage and never used it, the premiums you paid are gone.

Now, there is a downside element of it in the sense that your premiums vanish if you never use them. But isn’t that what insurance really is – insuring against what is unlikely or less likely than living everyday life? Those premiums go away but the reality is, they are far cheaper than other forms of insurance.

Hybrid Plan: Life Insurance, Long-Term Care Insurance

On the flipside, the second type is a life insurance, long-term care insurance hybrid plan. Let me tell you a little bit about them. You’re buying a life insurance policy where you’re able to access the death benefit prematurely to pay for things like long-term care. The primary vehicle is a life insurance policy, and the secondary feature is a long-term care policy to pay for nursing home situations.

When I say, “to pay for nursing home situations,” one of the things that you need to watch out for when you’re looking at policies like this are the stipulations. What are the stipulations of how these things pay out? Do they pay for long-term care? Do they pay for home health care? Home health care has a very different cost structure. Even though most people prefer it, not all policies cover it.

Would they reimburse me for the care that a family member provides instead of me hiring somebody? Do they pay that company directly or do they reimburse me for those costs? What type of qualifying events need to be triggered for the policy to payout? If I go into some sort of facility, does it have a cost-of-living adjustment built in to combat inflation or rising costs of health care? How much is my daily, monthly, and annual limit? What is my lifetime limit?

Talk Through Options with a Financial Advisor

As you can tell, there are a ton of levers and switches to flip in these types of policies. Making sure you have a plan that is appropriate for your situation needs to be a fine-tuned process that you talk with a financial professional about before you buy a policy flippantly.

So, the reality is two types of policies; a traditional “use it or lose it” policy and a life insurance, long-term care hybrid policy. Which one’s right for you? Make sure you talk to somebody who’s building an overall financial plan to make sure that you have the right information.