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How to Understand Long-Term Care Insurance

Understanding Long-Term Care Insurance
By Cindy Diccianni, RN CSA

Americans today are living longer than ever before, with a substantial portion of their lives spent in retirement. The reality is that a large part of our population will have to deal with poor health during these "Golden Years". Since 1900, Americans 65 and over have more than tripled from 4.1% in 1900 to 12.7% in 1997, and the number has increased 11 times from 3.1 million to 34.1 million. And yes, these numbers are expected to grow.

The changing roles of the American family plays an integral part in the dynamics of caring for someone long-term including women in the workforce, lower birth rates, divorce and increased mobility of family members. The challenge of preparing for the expense of long-term care is to find the right type of insurance policy for your needs at an affordable price.

What Is Long-Term Care?

You'll often see nursing home care referred to as "long-term care," however, long-term care (LTC) generally refers to a broad range of medical, personal and environmental services provided to chronically ill, aged or disabled persons in an institution or in their place of residence. The need for long-term care arises when physical or cognitive conditions impair a person's ability to perform the basic activities of daily living or ADLs. Long-term care can be provided by informal caregivers (immediate family members or friends) or formal or professional providers (physicians, nurses and therapists). There are three basic levels of long-term care:

Skilled care: Continuous around-the-clock care provided by licensed health care professionals under the direct supervision of a physician, designed to rehabilitate or restore the care recipient. Intermediate care: Three to four hours a day provided by a registered nurse, licensed practical nurse and/or nurse's aide under the supervision of a physician, designed to rehabilitate or restore the care recipient.

Custodial care: Assistance in performing activities of daily living provided by licensed and/or unlicensed caregivers.

How Can Long-Term Care (LTC) Insurance Help Me?

The value of LTC insurance is not realized until an unfortunate medical event happens. When the need for either in or out-of-home care occurs, there are six sources of funds that can be used to meet long-term care expenses:

  • Personal assets and savings
  • Veterans' Administration benefits
  • Medicare
  • Medi-gap insurance
  • Medicaid
  • Long-term care insurance

LTC insurance can create a financial safety net, which will prevent the spending and selling off of personal assets and savings. It can also work in conjunction with Medicare, Medi-gap and Veteran's benefits.

Policy Features And Benefit Design Options

As with any other type of insurance, LTC coverage can be customized for your individual needs. There are two types of plans, tax-qualified and non-tax qualified. A tax-qualified LTC policy is any insurance contract that provides coverage for only qualified LTC services and meets the following additional requirements:

  • The contract must be guaranteed renewable.
  • The contract must not provide for a cash surrender value or other money that can be paid, assigned, borrowed or pledged.
  • Refunds under the contract (other than refunds paid upon the death of the insured or complete surrender or cancellation of the contract) and dividends may only be used to reduce future premiums or to increase future benefits.
  • The contract must coordinate benefits with Medicare (unless Medicare is a secondary payor) or the contract is an indemnity or per diem contract.
  • The contract must meet certain consumer protection standards.
  • The policy provides for necessary medical and diagnostic tests and treatments.
  • The patient is unable to do two or more ADLs.

[Plans that do not meet these criteria are nonqualified plans.]

Standard policy features will include a free "look period" for 30 days, guaranteed renew-ability, level premiums, waiver of premium and preexisting conditions limitation.

Standard benefit options can include a range of elimination periods and a defined per diem amount. Some plans offer an automatic increase rider, a pay-as-you-go option and a benefit maximum based on a specific period of time or on a specific dollar amount.

As you can see there are many factors in determining what type of LTC policy you need. There are also many different LTC insurers all with individual company criteria and specifics. The best way to determine which policy is right for you is to discuss your needs with a financial advisor who has a good understanding of those needs and the policies that would best fit your individual situation.

Cindy Diccianni is a nurse, a certified senior advisor (CSA), a registered investment advisor and a registered representative with Leigh Baldwin & Company member NASD and SPIC. She is affiliated with Ortner, O'Brien & Ortner Advisory Group, Inc. Contact Cindy at
Copyright 2002 by Cindy Diccianni.




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