Types of Policies
Traditional or Standalone Long-Term Care Insurance
These plans have traditionally been the most popular and affordable options for planning for the financial costs and burdens of longevity.
Traditional policies can be partnership-qualified plans. In most 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 monthly or daily).
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. Think of this as a benefit account. It is the initial amount of money available to pay for care.
Generally, both the monthly or daily benefit and the pool of money will grow with inflation. Several inflation options usually increase your benefits but not your premium. Partnership policies generally require some 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. Premiums are based on your age, health, family history, and the total amount of benefits within your policy.
Today's Long-Term Care Insurance is intended to be rate stable. Policies are priced based on updated underwriting standards and 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 7702(b)).
Hybrid or Asset-Based Long-Term Care Policies
Hybrid plans have received much media attention in the last several years for providing a way to leverage an existing asset (money you already have) to plan for future long-term care expenses.
These policies typically have a cash value or a death benefit if 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 the death benefit first to pay for your care.
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. Cash benefits go straight to the policyholder. With traditional plans, 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 increases your long-term care benefits to meet the higher future care costs. 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 specified period of time. Premiums can NEVER increase.
Long-term care benefits come to you tax-free as it meets the federal guidelines for tax-qualified Long-Term Care Insurance (Section 7702(b)).
If you have an existing life insurance policy with cash value OR an annuity, you can use a 1035 tax-free exchange to fund a hybrid policy with 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 policies regulated under Section 101(g).
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.
These policies can have different benefits triggers attached to them, including requiring the policyholder to have no potential for recovery or be deemed terminal. Qualified Long-Term Care Insurance does NOT have these requirements.
There are several other problems with policies that fall into this category. Remember, 101(g) policies do not meet guidelines, including the consumer protections, regulated benefits triggers, and tax incentives that real Long-Term Care Insurance policies must meet.
Generally, a Section 101(g) policy is not a good option for planning long-term health care.
Limited Duration/Short-Term Care Cash Indemnity or Critical Care Policies
One of these plans may be a viable option for those who may be older or have several chronic health problems. Some people opt for this type of plan to add to an existing Long-Term Care Insurance policy to add additional benefits at a reasonable cost.
These plans usually have a one or two-year benefit period for care. These plans will pay a cash indemnity to you directly when you qualify for benefits. The most significant benefit is the relaxed underwriting standards, including considering older potential applicants, even someone in their 80s.
These applicants cannot be receiving care at the time they apply and be able to answer "no" to several "knock-out" questions to meet eligibility guidelines. There are also "uninsurable" medications, so if an applicant takes any medication on that list, they would not be eligible for coverage.
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.
McCann Insurance Services, Inc. represents the major insurance companies that offer these products. Matt McCann will match you with the right option based on your needs, age, health, and other factors.