Glossary
Long-term care insurance, defined
A policy that pays for help with everyday personal needs, at home or in a facility, when illness, injury or ageing leaves someone unable to manage them alone. Health plans and Medicare pay for skilled medical treatment and only briefly for custodial help, which is the gap this coverage fills.
In practice
A claim usually begins when a doctor certifies that the insured cannot perform a set number of activities of daily living, or has a cognitive impairment, and after a waiting period runs. The policy then pays a daily or monthly benefit up to a total pool of money, often with an inflation rider that grows the benefit over time. Premiums are based on age and health at purchase, so buying in the fifties is cheaper than in the sixties and may be impossible after a diagnosis; carriers have also raised premiums on older policies. Traditional standalone policies compete with hybrid life or annuity products that return something if care is never needed. Tax-qualified policies allow some premium deduction and pay benefits tax-free within limits.
A worked example
Suppose a couple in their late fifties each buy a policy with a $200 daily benefit, a ninety-day waiting period and a three-year pool, roughly $219,000 each. Fifteen years later one spouse needs a memory care facility costing $250 a day; the policy pays $200 a day after the waiting period and the family covers the $50 difference. Hypothetical figures.
Applies to: Life Insurance