Long term care insurance is a type of insurance designed specifically to cover the costs of long term care services, most of which are not covered by traditional health insurance or Medicare. Such services may include help with activities of daily living, home health care, respite care, adult day care, care in a nursing home or in an assisted living facility.
People buy long term care insurance for a variety of reasons. These reasons include avoiding spending assets for long term care, making sure there are choices regarding the type of care received, protecting family members from having to pay for care, or decreasing the chances of going on Medicaid. A person can select a range of care options and benefits that allow them to get the services needed in the settings that best suit them. However, long term care insurance can be expensive and may not be appropriate for everyone.
The cost of a long term care insurance policy is based on a person’s age when purchasing the policy, health status, the type and amount of services to be covered, and any optional benefits selected. If a person is in poor health or already receiving long term care services, they may not qualify for long term care insurance, or may only be able to buy a more limited amount of coverage, or buy coverage at a higher "non-standard" premium rate.
With long term care insurance, premium rates are not guaranteed. If a person purchases a long term care insurance policy, they may have to pay annual premiums for ten to thirty years, depending on how long they live. Their premium may increase substantially over time, making it more difficult to afford. A person should not buy a policy if they cannot easily afford the premium now or in the future.
Types of Long Term Care Insurance Policies
In Wisconsin, there are three types of insurance policies to cover long term care expenses. The Wisconsin Office of the Commissioner of Insurance has set minimum standards for each of the three types of policies. These policy types are:
1. Long Term Care Insurance Policies
These policies cover both institutional care (nursing home or other facility) and care in the community (home health care or other community-based services). Only those policies that provide coverage for both institutional and community-based care may be advertised or sold as long term care insurance policies in Wisconsin.
2. Nursing Home Insurance Policies
These policies cover only institutional care, such as in a nursing home. These policies may or may not cover care in an assisted living facility.
3. Home Health Care Insurance Policies
These policies cover only community care, such as home health care. These policies may or may not cover community-based services, such as adult day care.
Policy Features and Benefit Options
There are various coverage options available when purchasing a long term care insurance policy. It is important to understand that each benefit choice a person makes related to their policy may affect the cost of that policy. The following are some examples of policy and benefit choices:
- Daily Benefit Amount – the maximum daily amount of expenses for care the policy will pay. Some policies specify benefits in terms of a monthly amount.
- Duration of Benefits – the maximum period of time benefits are paid (e.g. 1 year, 3 years, 5 years).
- Policy Limits – some policies may limit benefits to specific types of services provided by specific types of facilities or agencies.
- Benefit Triggers – the criteria and ways an insurer decides when a policy pays benefits such as being unable to do two or more “activities of daily living” (i.e. bathing, dressing, eating, etc.).
- Elimination Period – the number of days a person must wait after receiving long term care services before policy benefits will pay. (Maximum in WI is 365 days.)
- Alternative Plan of Care – a provision that allows a person to receive a type or place of care not specifically listed in the policy (upon agreement of insurer, beneficiary, and physician).
- Inflation protection – a policy option that increases benefit levels to cover expected increases in long term care services’ costs.
- Nonforfeiture Benefit – allows some coverage available to a policyholder (to prevent complete loss of coverage) if the policy ends because the premiums were not paid.
- Waiver of Premium – a policy feature that allows an insured who is currently receiving benefits, after a specified period of time, to no longer have to pay premiums.
This program is a joint effort between the federal Medicaid Program, long term care insurers, and the state of Wisconsin. The purpose of this Partnership Program is to encourage people to make plans for how they will meet their future long term care needs, whether through services provided in their own home or another community-based setting or in a nursing facility.
Long term care insurance policies that qualify for Partnership Program status are intended to allow a person to protect some or all of their assets and still qualify for Medicaid if their long term care needs extend beyond the period covered by their qualified long term care partnership insurance policy. Some insurance companies with long term care policies that qualify for Partnership Program status may offer existing long term care policyholders the option of exchanging their current long term care policy for a qualified long term care partnership policy. A person is not required to accept the exchange option offer, nor are long term care insurers required to offer an exchange option.
Long term care partnership policies must include inflation protection coverage that meets specific minimum standards based on a person’s age at the time they apply for a qualified long term care partnership policy. All long term care partnership policies are intended to be federally tax-qualified long term care insurance policies as defined by the federal Internal Revenue Code. Purchasing a qualified long term care partnership policy does not guarantee a person’s benefits, coverage eligibility, or asset protection under the Wisconsin Medicaid program.
Annuity/Life Insurance – Long Term Care Riders
Some life insurance and deferred annuity policies have a built-in benefit (or attached rider) to pay for long term care expenses such as home health care, assisted living, or nursing home care.
With a life insurance policy that has this provision, the company pays for the actual charges for the long term care the person receives but no more than a certain percent of the policy’s death benefit. Policies may pay part or all of the death benefit for qualified long term care expenses. An annuity contract with a long term care rider allows a person to use the funds accumulated in their annuity to pay for long term care expenses without paying a surrender charge.
Remember, using money from a life insurance policy or annuity to pay for long term care will have other effects. For example, using a deferred annuity to cover long term care expenses will result in less money in the annuity. If using money from a life insurance policy to pay for long term care, the policy beneficiary will get a smaller death benefit.
For more in-depth information on Long Term Care Insurance and options, please see:
