Traditional or Standalone Long-Term Care Insurance
These plans have been traditionally the most popular and most affordable options for planning for the financial costs and burdens that come with longevity.
Traditional policies can be partnership qualified plans. In 45 states, Partnership Long-Term Care Insurance provides dollar-for-dollar asset protection. Learn more about the partnership program by clicking here
Traditional Long-Term Care Insurance provides either a monthly or daily benefit (this is the total amount the insurance company will pay toward your care on a monthly or daily basis).
You could have an unlimited benefit as it is still available, although most insurance companies no longer offer this benefit. Otherwise, you have a pool of money. The pool is the initial amount of money available to pay for care in your benefit account.
Generally, both the monthly or daily benefit and the pool of money will grow with inflation. There are usually several inflation options that increase your benefits but not your premium. Partnership policies generally require some type of automatic inflation benefit.
Some policies offer opportunities to buy more insurance, sometimes without evidence of insurability, as long as you are not receiving benefits (on claim) at the time.
Traditional Long-Term Care Insurance plans offer many optional features, including shared spousal/partner benefits, several inflation or benefit increase options, case management, return of premium options, waiver of premium at the time of claim, and cash options to name a few.
The premiums are intended to remain level based on your age at the time of application, along with your health, family history, and other factors, including the total amount of benefits you wish to have in place.
Today’s Long-Term Care Insurance is intended to be rate stable. Policies are priced based on updated underwriting standards as well as other actuarial data. Plus, many states have rate stability laws in place. Find your state by clicking here.
Premiums can be tax-deductible for some people. For those who own a business, premiums can be a tax-deductible business expense. Click here for more information on tax benefits.
Proceeds come to you tax-free with all tax-qualified Long-Term Care Insurance as they meet IRS regulations (Section 7702B).
Hybrid or Asset-Based Long-Term Care Policies
Hybrid plans have received an abundant amount of media attention in the last several years for providing a way to leverage an existing asset (money you already have) to plan for long-term care expenses.
These policies will typically have a cash value or a death benefit in the event long-term care is never required. Usually, these are single premium life insurance policies (although some offer annual or multi-year premium options) or annuities with riders for long-term care.
Long-Term Care Hybrid policies offer an Accelerated Death Benefit. Once you qualify for the federally regulated benefit triggers for long-term care, you receive money from the death benefit first.
Once you exhaust the death benefit, you start receiving benefits from a continuation of benefits portion of the policy. This extends your long-term care benefits beyond the death benefit. This extension could be as much as an unlimited amount of money. If you do not have an unlimited benefit, the policyholder will have a pool of money to pay for care depending on the policy design.
Some plans provide a cash benefit or a more typical reimbursement of actual expenses. Most insurance companies, if you wish, will assign the benefits to the provider, so the provider bills the insurance company, and the insurance company pays the provider.
Inflation options are also available. This grows your long-term care benefits to meet the higher future costs of care. Some policies offer a residue death benefit. Your heirs would receive a smaller death benefit even if you exhausted the primary death benefit in an extended long-term care situation.
These hybrid policies offer a single premium - or a fixed premium, which can be paid annually or in a fixed period of time.
Long-Term Care benefits come to you tax-free as it meets the federal guidelines for tax-qualified Long-Term Care Insurance (Section 7702B).
You can also make use of a 1035 tax-free exchange if you have an existing life insurance policy with cash value OR an annuity to fund one of the plans that include long-term care benefits.
A life insurance policy with a chronic illness rider can also provide a limited benefit to pay for extended care but can't legally be described as a long-term care policy as it does not meet the guidelines as they fall into Section 101g.
If you get diagnosed with a qualifying chronic illness and meet benefit triggers, the insurance company will give you access to your death benefit before death. Once the death benefit is exhausted, you have no remaining benefit for care, nor do you have any residual death benefit.
Benefit triggers for care usually require the policyholder to have no potential for recovery or be deemed terminal. Qualified Long-Term Care Insurance does NOT have these requirements.
Generally, a Section 101g policy is not a good option to plan for long-term care.
Limited Duration or Short-Term Care or Critical Care Policies
These plans are ideal for older individuals (74+) or those who may have some health challenges which limit the availability of other products.
Some people will also purchase this type of plan in addition to an existing Long-Term Care policy to easily add additional benefit for a very reasonable cost.
Short-Term Care policies usually have a one- or two-year benefit period for care. They have a variety of underwriting criteria and often will consider those who are over age 74 as long as they can answer several health questions that will not "knock-out" their eligibility.
Otherwise, they work very similarly to Long-Term Care policies and have comparable triggers for benefits.
Critical Care policies trigger benefits based on the diagnosis of specific health conditions (cancer, Alzheimer's, heart attack, stroke, etc.).
Some of these plans will pay additional benefits if that health condition causes a need for an assisted living facility or nursing home.