How does Long Term Care insurance work?


I recently received a question – How does Long Term Care insurance work?

OK if one person has this question many others also do. Thus, this post is to share a couple points on the coverage:

First – What does this special kind of insurance do? It provides funds to cover the cost of a person’s long term services & support when they need substantial assistance to perform day to day life functions. Things such as – eating, dressing, bathing, going to the toilet, or transferring.

Professionals in the industry call this assistance with life functions – help with activities of daily living (ADLs).

How does a person qualify to have this important assistance paid? –  A health care professional, such as a physical therapist, develops a care plan, which indicates the person currently needs help with 2 or more ADLs and it is anticipated the assistance will be be needed for at least 90 days.

When the Long Term Care insurance company receives the care plan they can begin to reimburse eligible services such as:

Professionals coming to support you in your home

 Adult Day Services. Assistance during the day at a facility in their area so the person’s family or other care giver can go to work

 For a person living in an Assisted Living Facility

 For a person who needs complex help 24/7 and is in a Long term care facility.


Second – How does the coverage work? There are three main provisions to discuss when reviewing this important kind of insurance and developing a plan.

 Benefit amount – the amount of funds a person can receive, who is eligible for professional assistance. This is sometimes expressed as a daily benefit. A monthly benefit is also an option to give a person more flexibility. How? The kind and amount of help a person needs often varies from one day to another. Thus, selecting a monthly vs a daily benefit means funds will be available to pay the extra services received during one day.

 Waiting period – the number of days a person selects before their reimbursement for professional help will begin. Many people select 90 days, which will be for assistance in a facility and select an option to have no waiting when assistance is received at home. BTW research tells us most long term services are provided at home.

 Benefit period – the length of time, expressed in years, a person would be eligible receive their benefits. Multiplying their Benefit Amount by the Benefit Period results in the plan’s total pool of funds. Funds not used during the Benefit period will continue to be available.

 Inflation protection is another provision to review. It’s optional but very important. Why? When a person buys a plan they might not need help for 20 or more years. Thus, since professional long term services will certainly be more expensive over time this provision increases the plan’s Benefit Amount and the pool of funds each year. It’s common to use a 5% compounded increase.


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