Long Term Care Insurance ~ Do you need it? 

The Benefits of Long Term Care Insurance

Long-term care insurance, also called nursing home insurance, has become an increasingly popular topic over the last decade. Long Term Care (LTC) actually refers to a wide range of medical and personal services for individuals (often seniors) who need help with daily activities for an extended period of time, usually more than 90 days.

Long-term care insurance provides a number of benefits. Here is the nitty gritty on the top five:

1. Benefit without Risk of Loss

Did you know that companies guarantee that you will receive some of the benefits for which you paid, in case you lose your coverage or decide to cancel the policy. This guarantee is known as the benefit without risk of loss. The benefit increases the longer premiums are paid on your policy.

Generally, the benefit without risk of loss will pay the amount that is greater than the final amount of the total insurance premiums that was paid or a multiplier of 30x, i.e., your daily benefit for a nursing home on the date the policy ended multiplied by 30.

2. Protection of Benefits especially against Inflation

It may be years before you need long-term care services. During that time, the cost of long-term care may increase. Protection against inflation increases the level of your benefits to help you with increasing the cost of services.

Long term care insurance policies include an inflation adjustment clause to ensure that benefits are maintained in line with rising care costs. Additional protection includes a ‘guaranteed renewable’ clause which states that the policy cannot be canceled when you age or suffer physical or mental impairment, and a non-confiscation benefit, which guarantees that a portion of your benefits will still be available if you can your policy.

3. Implications on taxes

Most long-term care policies qualify for federal taxes. This means that the premiums paid as well as the extra expenses paid by you out of your pocket towards long-term care can be applicable on deductions of 7.5% of medical expenses contained in the federal tax code.

In addition, the benefits of long-term care received are not taxed up to certain limits. Check with a tax advisor to learn more about the implications of long-term care insurance on taxes.

4. Restoration of Benefits

Some policies restore benefits to the original maximum amounts if you do not need long-term care services for a specified period, usually six months. For example, suppose your policy has a maximum benefit period of three years and you were in a nursing home for one year. If you did not need additional long-term care services in a minimum of six months after leaving the nursing home, your original three-year benefit period will be automatically restored.

5. Insurance Premium Payment Exemption

Many policies include an additional insurance premium exemption clause. This clause allows you to stop paying insurance premiums when you receive the benefits of the policy. Companies may not apply the insurance premium as soon as they make the first payment of benefits, but after a specific time which can be 2 to 3 months after the first payment. It is possible that this additional clause applies only to certain benefits (for example, home health services or nursing home).

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