How Does Long-Term Care Insurance Work?
You pay premiums now. If you later need help with everyday activities because of illness, injury, or cognitive decline, the policy pays a monthly benefit toward that care, at home or in a facility, up to the limits of the coverage you choose.
When do benefits start?
To qualify for benefits, a U.S.-licensed health care practitioner must certify that you either can’t perform at least two of six activities of daily living (bathing, eating, dressing, toileting, continence, and transferring) for at least 90 days, or that you need substantial supervision because of severe cognitive impairment. (NAIC Shopper’s Guide)
Policies typically also have an elimination period: a waiting period before benefits begin. With the coverage we offer, it’s 90 days, and once it’s met, benefits for those first 90 days are paid retroactively.
How are benefits paid?
Policies generally pay benefits one of three ways: reimbursement (the NAIC calls it the expense-incurred method), indemnity, or disability. Most policies purchased today use reimbursement. The two you’re most likely to compare:
Reimbursement: you submit bills and receipts, and the insurer pays for qualifying services, up to your limit.
Cash indemnity: once your claim is approved, you receive your monthly benefit as cash and decide how to use it, without submitting monthly bills.
The coverage we offer uses the cash indemnity model, so the benefit can go toward professional caregivers, family members (subject to your plan of care), or other kinds of help. See Can Long-Term Care Insurance Pay a Family Member?.
What choices do you make when you buy?
Monthly benefit amount: how much the policy pays each month
Benefit period: how long benefits last; with the coverage we offer, from 2 to 7 years
Inflation protection: none, 3% simple, 3% compound, or 5% compound, so your benefit can grow over time
Premium schedule: one payment, 5 or 10 years of payments, or payments to age 65 or 100
Individual or joint coverage, see Long-Term Care Insurance for Couples
Each of these choices affects your premium.
What types of long-term care insurance are there?
Long-term care coverage comes in a few forms. They all help pay for care, but they differ in what happens if you never need care and in how premiums can change. The main types for individuals are traditional, hybrid life insurance, and hybrid annuity policies.
| Type | What it is | If you never need care | Cost to know about |
|---|---|---|---|
| Traditional (stand-alone) | Long-term care coverage only | Premiums generally aren’t returned; optional refund features cost extra | Can cost less than a hybrid; premiums can increase for a whole class of policies |
| Hybrid life insurance | Life insurance with long-term care benefits | A death benefit goes to your beneficiaries | Generally higher than traditional; with the coverage we offer, guaranteed not to increase if paid as scheduled |
| Hybrid annuity | An annuity with long-term care benefits, often funded with a lump sum | You keep the annuity’s value, subject to the contract’s terms | Usually paid up front; terms and surrender charges vary by contract |
Traditional (stand-alone) long-term care insurance
A traditional policy covers long-term care only. You pay premiums, and the policy pays benefits if you qualify. If you never need care, the premiums you paid generally aren’t returned, though some policies offer optional features, like a nonforfeiture benefit or a premium refund at death, that return some value at extra cost. (NAIC Shopper’s Guide)
Traditional policies are guaranteed renewable: the insurer can’t cancel your coverage as long as you pay on time. That doesn’t mean the premium is fixed. Insurers can raise premiums for a whole class of policies, with state approval. For similar benefits, a traditional policy can cost much less than a hybrid, all else being equal. (NAIC Shopper’s Guide)
Hybrid (linked-benefit) life insurance with long-term care
A hybrid policy combines life insurance with long-term care coverage. You may also see these called linked-benefit, life/long-term care, or combo policies. They let you use some or all of the life insurance death benefit to pay for qualifying care while you’re alive. If you never need care, a death benefit is paid to your beneficiaries instead. (NAIC Shopper’s Guide)
If you use long-term care benefits, the death benefit is reduced by what’s paid out. Some policies leave a smaller guaranteed minimum. (NAIC Shopper’s Guide)
Benefits are triggered the same way as with other policies, usually by needing help with a set number of daily activities or having a cognitive impairment. (NAIC Shopper’s Guide)
Hybrids may reimburse your expenses or pay a set monthly amount. (NAIC Shopper’s Guide)
Premiums are generally higher than a traditional policy with similar long-term care benefits. (NAIC Shopper’s Guide)
Many hybrid riders can be tax-qualified. See What Is a Tax-Qualified Long-Term Care Policy?.
The coverage Staying Power offers is this type. It’s a linked-benefit policy that pays a monthly cash benefit, with premiums guaranteed not to increase and long-term care benefits guaranteed not to decrease, as long as premiums are paid as scheduled and no loans or withdrawals are taken. Guarantees are backed by the claims-paying ability of the issuing insurer. For what happens if you never need care, see What Happens If I Never Need Long-Term Care?.
Hybrid annuity with long-term care
Some annuity contracts include long-term care benefits. Many are funded with a single lump-sum payment, and the contract can provide an enhanced long-term care value that’s greater than its cash value when used for qualifying care. If you never need care, you keep the annuity’s value, subject to the contract’s terms; most annuities charge a surrender charge if you withdraw some of the value early. (NAIC Shopper’s Guide)
Some annuity-based products use simpler health underwriting than other types. Availability varies by product and state, so ask a licensed agent which types are available to you.
Group and other sources
You may also be able to get coverage through an employer group plan, an association, or a government program such as the Federal Long-Term Care Insurance Program for eligible federal employees and their families. Group plans may use more relaxed medical underwriting. (NAIC Shopper’s Guide)
Which type is right for you?
No type is best for everyone. Traditional policies can cost less for similar benefits. Hybrid policies add a death benefit or cash value and, with some products, premiums that can’t increase. The right choice depends on your budget, your health, how much you value a benefit if you never need care, and how comfortable you are with the chance of premium increases. The NAIC suggests comparing several policies side by side before you buy. (NAIC Shopper’s Guide)
Staying Power is a licensed insurance agency that helps people compare these types of coverage side by side.
Want to see how the numbers work for you? Answer a few questions. See also Is Long-Term Care Insurance Worth It? and How Much Long-Term Care Insurance Do I Need?.
Frequently asked questions
Can my premiums go up?
On many traditional policies, yes. With the coverage we offer, premiums are guaranteed never to increase.
Where can I receive care?
At home, in adult day care, in assisted living, or in a nursing home. With a cash benefit, you decide how to use it.
Are long-term care benefits taxable?
Benefits are generally received tax-free up to federal limits, but they can be taxable in some circumstances. Talk with a tax advisor about your situation.
What is a hybrid long-term care policy?
A hybrid policy combines long-term care coverage with life insurance or an annuity, and is also called a linked-benefit or combo policy. If you never need care, it typically pays a death benefit or keeps the contract’s value, instead of nothing.
Which type of long-term care insurance is best?
No type is best for everyone. Traditional policies can cost less for similar benefits, while hybrid policies add a death benefit or cash value. A licensed agent can compare options for your budget, health, and goals.
Is a hybrid policy more expensive than traditional long-term care insurance?
Often, for similar long-term care benefits. The NAIC notes that a traditional stand-alone policy can cost much less than a hybrid, all else being equal.
