Here’s What You Need to Know About a Long-Term Care Insurance Policy | CA Benefit Advisors

So you’ve made the deci­sion to learn more about long-term care insur­ance. That’s smart, as nei­ther health insur­ance nor Medicare would pay for extend­ed long-term care ser­vices in the event that you need­ed them in the future. Plus, there’s about a 70% chance you’ll need some type of long-term care after age 65, accord­ing to gov­ern­ment stats. And giv­en that the cost of long-term care can quick­ly deplete your life’s sav­ings, it just makes sense to add it your finan­cial plan.

When you pre­pare for any upcom­ing invest­ment or pur­chase, you prob­a­bly run into some unfa­mil­iar lan­guage or ter­mi­nol­o­gy in your research, which can be frus­trat­ing and down­right confusing.

Search­ing for a long-term care insur­ance pol­i­cy is no dif­fer­ent. A long-term care insur­ance pol­i­cy describes cov­er­age under the pol­i­cy, exclu­sions and limitations—and can be laden with indus­try jar­gon. Here’s a break­down of the fundamentals:

There are four pri­ma­ry com­po­nents that deter­mine your long-term care ben­e­fits and influ­ence your month­ly cost.

1. How much. This is the total max­i­mum ben­e­fit avail­able under any pol­i­cy. There are many max­i­mums to choose from, rang­ing from $100,000 to $250,000, $500,000 or more. Ben­e­fits are avail­able until you have received your max­i­mum ben­e­fit in total.

2. How fast. This is the month­ly lim­it you can access from your total max­i­mum ben­e­fit. Insur­ance com­pa­nies do not pay out your “how much” in a sin­gle lump sum. Rather, you access your ben­e­fits in small­er amounts on a month­ly basis up to a pre­de­ter­mined month­ly maximum.

Depend­ing on the car­ri­er you choose, your month­ly max­i­mum could range from $1,500 to $10,000 a month. The “how much” and “how fast” com­po­nents work togeth­er to deter­mine how long your cov­er­age will last. If your month­ly max­i­mum (“how fast”) is $5,000 and your total pol­i­cy max­i­mum (“how much”) is $250,000, it would take 50 months (four years, two months) before your exhaust your pol­i­cy ben­e­fits. If you need­ed $2,000 a month to pay for home care, as an exam­ple, it could take more than 10 years to exhaust a $250,000 pol­i­cy. The greater your “how much” and “how fast,” are the high­er your pre­mi­um will be.

3. Growth rate. This deter­mines how your ben­e­fit grows over time. The most com­mon growth rate today is 3%. If your pol­i­cy start­ed with $176,000 in your “how much” and $4,500 in your “how fast,” a 3% annu­al growth rate would dou­ble your ben­e­fits in 24 years to $352,000 total max­i­mum ben­e­fit and $9,000 month­ly max­i­mum respectively.
You also have the option of choos­ing a growth rate oth­er than 3% or to increase your max­i­mums upfront and for­go a growth rate all togeth­er. A spe­cial­ist can help you iden­ti­fy the growth rate that best suits your goals and budget.

4. Deductible. Long-term care insur­ance has an elim­i­na­tion peri­od that, like a deductible, deter­mines how much you may have to pay out of your pock­et before ben­e­fits are paid. One dis­tinc­tion to note is that an elim­i­na­tion peri­od is stat­ed in days, not dol­lars. The most com­mon­ly select­ed elim­i­na­tion peri­od is 90 days. This typ­i­cal­ly means that you must receive 90 days of care that you pay for out of your pock­et before ben­e­fits are available.

Not that dif­fi­cult when put sim­ply, right? I hope you feel bet­ter pre­pared in your search for the right pol­i­cy and that I have also remove some of the con­fu­sion. Long-term care insur­ance is here to help you live the lifestyle you want 10, 20, even 30 years down the road.