Long-term care insurance, also called LTC insurance or LTCi, is insurance that provides daily or monthly assistance with the costs of a broad range of long-term care services. Long-term care insurance policies can be traditional or hybrid, though traditional policies are becoming increasingly rare. Either policy type can be a good choice, though it may be easier to obtain a hybrid policy due to their wider availability.
A hybrid policy potentially serves two different purposes, but a traditional policy serves just one. Traditional policies cover some or all of your costs if you need long-term care. Hybrid policies serve that same purpose, but they also have a built-in death benefit (life insurance benefit) for your heirs. With hybrid policies, using the long-term care coverage will either reduce or eliminate the death benefit, but if you never use the LTC benefits and never take out any loans on the policy, then the death benefit will be paid in full upon your death. In other words, a hybrid is designed to provide some form of benefit no matter what, whereas a traditional policy only benefits you if you become ill enough to require long-term care.
Seniors should keep in mind that hybrid policies are sold with “fixed” or level premiums, but traditional policies have premiums that may increase over time. Insurance companies have to petition government agencies for permission to increase premium rates, but in the past, they have gained approval to more than double premiums in some cases.
Hybrid and traditional long-term care insurance policies can both be sold as indemnity or as reimbursement policies. Indemnity policies provide a cash benefit that you can spend as you see fit, while reimbursement policies require you to submit receipts for your care and then reimburse the exact amounts that you spent on approved long-term care services.
Typical long-term care insurance policies put a cap called the daily or monthly maximum on how much you can be paid for a day or a month of long-term care. Polices also specify either the benefit period (the number of years you can receive this daily or monthly maximum) and/or the benefit pool/lifetime maximum (the maximum amount of money you can be paid in benefits for the entire time you own the policy). The daily/monthly benefit is paid out until the benefit pool is exhausted and/or until the end of the benefit period is reached.
Many policies will impose an elimination period before it will begin paying for your long-term care. You’ll pay for your own long-term care during the elimination period, and the insurance company will step in after that. In many ways, the elimination period mirrors the way deductibles work in health care plans. Elimination period lengths can vary, but 90 days is the most common length.