How Does Long-Term Care Insurance Work?

Long-term care insurance works by reimbursing the policy owner for costs associated with long-term care. It’s an optional insurance product consumers purchase before they need it with the knowledge that many older adults eventually need long-term care. Paying for long-term care is expensive and isn’t covered by health insurance or Medicare, which is why many people choose long-term care insurance to offset the costs. A long-term care policy is a way to protect savings since it covers part or all of the long-term care expenses, so policyholders don’t have to pay for it out of pocket.

Cost of Long-Term Care Insurance

The ideal time to buy a long-term care insurance policy is before a chronic health condition or disability happens because the cost of a long-term care policy is based on age and health conditions. Someone with existing chronic health conditions will pay more for the premium than someone without health issues. Some people are denied policies because of pre-existing health conditions. 

The premium also depends on the coverage amount. Every policy has a per-day amount it pays when the policyholder receives long-term care services. It also has a maximum number of days it pays over the life of the policy. Options for cost-of-living adjustments, higher per-day payments, few restrictions and other increased benefits increase the premium even more. 

Disbursement of Long-Term Care Insurance 

Long-term care insurance is like many other insurance products. The consumer pays the premium whether or not they use it. However, if a covered person needs long-term care, they can file a claim with the insurance company. The insurer evaluates medical records and might ask for more information or an evaluation to determine if the person qualifies for reimbursement for long-term care. 

Long-term care insurance typically has an elimination period lasting 30 to 90 days at the beginning of the care period. The covered person pays for the long-term care expenses out of pocket during that period. After the elimination period, the insurance company starts covering the long-term care expenses. It typically reimburses the covered person for the costs up to the maximum payment amount. 

The reimbursement covers qualifying costs, which typically include long-term care received at home or in a care facility, such as a nursing home, an assisted living facility or an adult day care facility. Covered care received at home includes nursing care, companions, caregivers, therapy and housekeeping. Specific coverage can vary by policy, so it’s important to review the included expenses. Long-term care insurance doesn’t cover regular medical costs.